The term uncorrelated asset classes covers a wide range of potential investments, including venture capital, real estate, private equity, and commodities, but also alternative investment strategies.
But in today’s economy of collapsing public stock markets, defaulting hedge funds, and nonexistent real estate developments, one company believes that investing in movie listings, including theatrical distribution, offers a high-yield alternative investment that can be leveraged. with tax benefits and multiple sources. of revenue, including film, DVD, video on demand, cable and foreign markets.
As an uncorrelated asset class, movies and movie finance have outperformed all uncorrelated asset classes in the world if you look at the over $6 billion invested in movie finance deals in the last 3 years, the IRR across the spectrum for both studios and independents are resilient to global economic downturns in other industries.
When defense contractor Honeywell, New York Hedge Fund Elliot Associates and Dune Capital invested more than a combined total of more than $1 billion in several different film funds, many pension funds, private banks, hedge fund managers, groups Private equity and high net worth investors and family offices started doing the same to get into the movie business.
Investors from Wall Street to Silicon Valley to the Middle East to Russia have been pouring their money into Hollywood.
Anil Ambani, Larry Ellison of Oracle, Paul Allen of Microsoft, Steven Rales, Fred Smith of Federal Express, Norman Waitt, the co-founder of Gateway Computers, Jeff Skoll of Ebay, Marc Turtletaub of The Money Store, Roger Marino of EMC Corp, Sydney Jones Apparel Group’s Kimmel, Minnesota Twins owner Bill Pohlad; Property developers Tom Rosenberg and Bob Yari, and financiers Sheikh Waleed Al Ibrahim, Michel Litvak and Philip Anschutz are behind the financing of many films ranging from blockbusters to Academy Award winners.
Institutional investors and hedge funds that invest in movies include Elliot Associate, Stark, Columbus Nova, Bain, Honeywell, and others.
Investors may use uncorrelated investment strategies to neutralize or offset the risk that one or more of the investments in a traditional portfolio of stocks and bonds will lose value. To do this, investors typically place between 5% and 20% of their total investment portfolio in alternative investments to protect the rest of the portfolio from downside risk.
Among the spectrum of asset classes targeted by high net worth individuals, institutional investors, pension funds or private banks, alternative investments are becoming popular and offer greater diversification of investors’ portfolios. The benefits of such diversification have been demonstrated by Harry Max Markowitz (1990, Nobel Prize in Economics) in Modern Portfolio Theory. He demonstrated mathematically that an investor can reduce portfolio risk simply by holding instruments that are not perfectly correlated, a correlation coefficient that is not equal to one. By having a diversified portfolio, investors should be able to reduce their exposure to individual asset risk.
If investors are drawn to alternative investments in their search for alpha, it is because allocation to alternative investments offers advantages compared to traditional asset classes and diversifying into a € portfolio even though it carries a certain level of risk.
As investors become more concerned about their risk-adjusted returns, especially in bear market environments, interest in alternative investment strategies has gained momentum.
When investing in alternative investments, a determined investor or portfolio manager aims to obtain returns from the relationships between securities. An uncorrelated asset class behaves independently of other securities that make up a portfolio. Such investment vehicles allow investors to hedge the risk of an asset losing value and avoid any snowball effects. One of the main benefits of alternative investment strategies lies in the fact that they minimize downside risk.
When taught how to properly structure leveraged film financing, which can also include US and international tax incentives to minimize risk, many private bankers, sovereign wealth funds, high net worth investors, family offices and pension plans understand that they are not gambling. for a film in hopes of winning a film festival. When a company is looking to finance 10, 20, 40, 50, 75 movies, there is more than a revenue advantage from each, but a final exit strategy after 5-7 years that can yield a 300-400% return. on the invested capital.
Film, entertainment, media and Hollywood in general seem to be thriving and immune to economic woes. If you look at the theatrical box office revenue and DVD growth of recent movies, including ‘Slumdog Millionaire’ or ‘Twilight’, which had no movie stars, the ROI of these and many other movies exceeds the ROI and revenue of car manufacturers, real estate, stocks, mutual funds, etc. Mainly because a well-made movie is not a one-time buy and sell local product, but a global product that has earning potential from over 50 countries and media including film, cable, TV, satellite, airline, DVD and the big bang Video on demand.
While some private equity teams may balk at the idea that Hollywood is safe, this country was built on blue-chip industries and for retail investors, Wall Street and Real Estate were the way to go. Well, when retail investors and institutional investors are moving from physical investments to the movie business, the underlying factor is “why?”.
Some US investors and C corporations seek a strict 100% deduction of their investment under IRS Section 181 or simply be in a portfolio of uncorrelated investment opportunities. Foreign investors simply want a high-yield, uncorrelated asset class that has long-term appreciation, such as our hybrid film slate and 100% control over US theatrical distribution.
And for smaller retail investors, not including wealthy families or very high net worth investors, the bridge between film financing, film production and distribution, and technology is converging so investors can see their investment generates an immediate return from monetizing state tax credits as part of the equity stream, an advantage in a movie series vs. investing in a single film, potential Section 181 benefits, as well as participating in job creation and stimulating the economy, as each film production creates 50-100 jobs.