| The term non-correlated asset classes covers a | | | | classes and diversification to a portfolio |
| whole range of potential investments, including | | | | âEUR" though involving a certain level of risk. |
| venture capital, real estate, private equity, and | | | | As investors have become more concerned |
| commodities, but also alternative investment | | | | about their risk-adjusted returns, especially in |
| strategies. | | | | bearish market environments, interest in |
| But in today's economy of crashing public equity | | | | alternative investment strategies gained |
| markets, defaulting hedge funds, and non-existent | | | | momentum. |
| real estate plays, one company believes investing | | | | By investing in alternative investments, a portfolio |
| in film slates, including theatrical distribution, offers | | | | manager or a given investor aims at obtaining |
| a high yield alternative investment that can be | | | | performance from the relationships between |
| leveraged with tax benefits and multiple sources | | | | securities. A non-correlated asset class behaves |
| of revenues including theatrical, DVD, video on | | | | independently from other securities composing a |
| demand, cable, and the foreign markets. | | | | portfolio. Such investment vehicles allow investors |
| As a non correlated asset class, films and film | | | | to hedge the risk that an asset falls in value and |
| finance has outperformed every non correlated | | | | avoid any snowball effects. One of the main |
| asset class in the world if you look at the more | | | | benefits of alternative investment strategies lies in |
| than $6 billion dollars poured into motion picture | | | | the fact they minimize downside risk. |
| finance deals in the last 3 years, the IRR across | | | | When educated about properly structuring |
| the spectrum for both studios and independents | | | | leveraged film finance which may also include U.S. |
| are resilient to global economic declines in other | | | | and international tax incentives to minimize the |
| industries. | | | | risk many private bankers, sovereign wealth |
| When defense contractor Honeywell, New York | | | | funds, high net worth investors, family offices, |
| Hedge Fund Elliot Associates, and Dune Capital | | | | and pension plans understand that they are not |
| invested more than a combined total of more | | | | gambling on one film hoping to win a film festival. |
| than a billion dollars towards several different film | | | | When a company is looking to finance 10, 20, |
| funds, many pension funds, private banks, hedge | | | | 40,50, 75 films there is more than just upside on |
| fund managers, private equity groups, and high | | | | revenues from each one but a final exit strategy |
| net worth investors and family offices started to | | | | after 5-7 years that can bring 300-400% returns |
| follow suit enter the movie business. | | | | on capital invested. |
| Investors from Wall Street to Silicon Valley to the | | | | Film, Entertainment, Media, And Hollywood in |
| Middle East to Russia have been parking their | | | | general seems to be thriving and immune from |
| money into Hollywood. | | | | economic woes. If you look at the theatrical box |
| Anil Ambani, Larry Ellison Of Oracle, Paul Allen Of | | | | office receipts and DVD growth of recent films, |
| Microsoft, Steven Rales, Fred Smith of Federal | | | | including 'Slumdog Millionaire' or "Twilight" which had |
| Express, Norman Waitt, the Co-Founder of | | | | zero movie stars, the ROI on these and |
| Gateway Computers, Jeff Skoll Of Ebay, Marc | | | | numerous other films exceed the ROI and |
| Turtletaub of The Money Store, Roger Marino Of | | | | revenues of auto manufacturers, real estate, |
| EMC Corp, Sidney Kimmel Of Jones Apparel | | | | stocks, mutual funds, etc. Primarily because a well |
| Group, Minnesota Twins owner Bill Pohlad; Real | | | | made film is not a local commodity that is just |
| Estate Developers Tom Rosenberg and Bob Yari, | | | | bough and sold once but a global one that has |
| and, financiers Sheikh Waleed Al Ibrahim, Michel | | | | revenue potential from more than 50 countries |
| Litvak, and Philip Anschutz are all behind the | | | | and medias including theatrical, cable, tv, satellite, |
| finance of a lot of films that range from box | | | | airline, DVD, and the huge explosion of Video on |
| office hits to Academy Award winners. | | | | Demand. |
| Institutional investors and hedge funds investing in | | | | While some private equity outfits may balk at the |
| films include Elliot Associate, Stark, Columbus | | | | notion that Hollywood is safe this country was |
| Nova, Bain, Honeywell, and others. | | | | built based on blue chip industries and for the retail |
| Non-correlated investment strategies can be used | | | | investors, Wall Street and Real Estate was the |
| by investors to neutralize, or counterbalance, the | | | | path to go. Well, when retail investors as well as |
| risk that one, or more, of the investments in a | | | | institutional investors are transitioning from brick |
| traditional portfolio of stocks and bonds falls in | | | | and mortar investments to the film business, the |
| value. In order to do this, investors typically place | | | | underlying factor is 'why'?" |
| between 5% and 20% of their total investment | | | | Some U.S. investors and C corporations are |
| portfolio into alternative investments to protect | | | | looking for either a strict 100% deduction of their |
| the remainder of the portfolio from downside risk. | | | | investment under IRS Section 181 or simply being |
| Among the spectrum of asset classes targeted | | | | in a portfolio of non correlates investment |
| by high net-worth individuals, institutional investors, | | | | opportunities. Overseas investors simply want a |
| pension funds or private banks, alternative | | | | high yield non-correlated asset class that has long |
| investments are becoming popular offering more | | | | term appreciation such as our hybrid film slate and |
| diversification to investors' portfolios. The benefits | | | | 100% control over U.S. theatrical distribution. |
| of such diversification have been demonstrated | | | | And for smaller retail investors, not including |
| by Harry Max Markowitz ( 1990, Nobel Prize in | | | | affluent families or ultra high net worth investors, |
| Economics ) in the Modern Portfolio Theory. He | | | | the bridge between film finance, film production, |
| proved mathematically that an investor can | | | | distribution, and technology are converging so that |
| reduce portfolios' risks simply by holding | | | | investors see their investment bring an immediate |
| instruments which are not perfectly correlated - a | | | | return from the monetization of state tax credits |
| correlation coefficient not equal to one. By holding | | | | as part of the equity stream, an upside in a |
| a diversified portfolio, investors should be able to | | | | number of films vs. investing in a single picture, |
| reduce their exposure to individual asset risk. | | | | possible Section 181 benefits, as well as being |
| If investors are attracted by alternative | | | | involved with creating jobs and stimulating the |
| investments in their quest of alpha, it is because | | | | economy since every film production creates |
| allocating to alternative investments offers | | | | 50-100 jobs. |
| advantages compared with traditional asset | | | | |