Chicago Private Equity Fund Targets Hedge Funds,VC,Portfolio Managers,Pensions, & Affluent Families As Alternative To Wealth Advisers & Swiss Banking

Many Hedge Funds, including New York’s Elliott Associates, are seeing premium returns from investing in film and media. While historically, film financing has been met with skepticism from portfolio managers, private equity groups, high net worth investors, family offices, and pension funds, the returns that Elliott Associates is generating as well as Honeywell Pensions, which reportedly parked more than $600 million to finance a slate of Warner Brothers’ films is opening the door to a Chicago company’s structure for being the next in a wave of attracting both institutional and retail capital.

"As a non correlated asset class, films and film finance has outperformed every non correlated asset class in the world", states Yuri Rutman, head of media finance and consulting firm Noci Pictures ( www.noci.com ). "If you look at the more than $6 billion dollars poured into motion picture finance deals in the last 3 years, the IRR across the spectrum for both studios and independents are resilient to global economic declines in other industries."

The Company is in discussions with both U.S. and international private equity partners in closing a $300 million dollar structured media & entertainment fund that would not only finance 20-30 films, but have the infrastructure in place for U.S. Theatrical Distribution either with one of a few major film studios the company is in talks with, or, as a stand alone distributor similar to Lions Gate or Summit Entertainment.

“The reason Wall Street, Silicon Valley, the Middle East, Asia, or European investors are all secretly wanting to be in the film business is that there is an exponential growth in terms of distribution channels. With digital cinemas on the rise, digital print costs minimal, the evolution of same day theatrical and video on demand releases, as well as leveraging global social media and marketing for lower cost advertising and word of mouth branding, filmed entertainment will always have revenue streams. Even tech investors are starting to look at movies as technology in terms of their delivery methods as well as productions that utilize 3D or heavy CGI”, Rutman states.

Rutman is more optimistic about film as a superior growth oriented long term investment because its not based on regional factors and has a global base. "When educated about properly structuring leveraged film finance which may also include U.S. and international tax incentives to minimize the risk", states Rutman, "many private bankers, sovereign wealth funds, high net worth investors, family offices, and pension plans understand that they are not gambling on one film hoping to win a film festival. When a company is looking to finance 10, 20, 40,50, 75 films there is more than just upside on revenues from each one but a final exit strategy after 5-7 years that can bring 300-400% returns on capital invested".

"Film, Entertainment, Media, And Hollywood in general seems to be thriving and immune from economic woes", states Rutman. "If you look at the theatrical box office receipts and DVD growth of recent films, including 'Slumdog Millionaire' or "Twilight" which had zero movie stars, the ROI on these and numerous other films exceed the ROI and revenues of auto manufacturers, real estate, stocks, mutual funds, etc. Primarily because a well made film is not a local commodity that is just bough and sold once but a global one that has revenue potential from more than 50 countries and medias including theatrical, cable, tv, satellite, airline, DVD, and the huge explosion of Video on Demand".


While some private equity outfits may balk at the notion that Hollywood is safe, Rutman adds "this country was built based on blue chip industries and for the retail investors, Wall Street and Real Estate was the path to go. Well, when retail investors as well as institutional investors are transitioning from brick and mortar investments to the film business, the underlying factor is 'why'?"

Rutman's Noci Pictures Entertainment is currently advising on several structured film slates including their own.

"From prospective clients inquiring if IRS Section 181 benefits can be transferred to foreign investors to family offices and wealth managers wondering how an investment in film slate deals can offer their clients an absolute return based on monetizing state and international tax incentives as part of revenue streams, I am amazed by the stratification in investment needs from $100,000 to $20 million", Rutman adds.

"Some U.S. investors and C corporations are looking for a strict 100% deduction of their investment under IRS Section 181. Overseas investors simply want a high yield non-correlated asset class that has long term appreciation such as our hybrid film slate and 100% control over U.S. theatrical distribution".

Rutman's model is attracting not only large scale private equity groups, but smaller retail investors as an alternative to oil & gas, real estate, stocks, commodities, etc. "The minimum participation used to be $10,000,000 to get into deals, but we are scaling our strategies to accommodate the $100,000-$500,000 investors as well", Rutman adds.

Rutman's model offers in some cases a 40-70% ROI on equity prior to revenues. "I don't know any business that you can start today where you know exactly what your ROI will be exclusive of proformas and risk analysis. Its like owning a piece of 50 fast food franchises where the total return from each and the final sale of all will net you a nice premium".

Non-correlated investment strategies can be used by investors to neutralize, or counterbalance, the risk that one, or more, of the investments in a traditional portfolio of stocks and bonds falls in value. In order to do this, investors typically place between 5% and 20% of their total investment portfolio into alternative investments to protect the remainder 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 offering more diversification to investors' portfolios. The benefits of such diversification have been demonstrated by Harry Max Markowitz ( 1990, Nobel Prize in Economics ) in the Modern Portfolio Theory. He proved mathematically that an investor can reduce portfolios' risks simply by holding instruments which are not perfectly correlated -- a correlation coefficient not equal to one. By holding a diversified portfolio, investors should be able to reduce their exposure to individual asset risk.

If investors are attracted by alternative investments in their quest of alpha, it is because allocating to alternative investments offers advantages compared with traditional asset classes and diversification to a portfolio though involving a certain level of risk.

As investors have become more concerned about their risk-adjusted returns, especially in bearish market environments, interest in alternative investment strategies gained momentum.

”By investing in alternative investments such as a film fund, a portfolio manager or a given investor aims at obtaining performance from the relationships between securities. A non-correlated asset class behaves independently from other securities composing a portfolio. Such investment vehicles allow investors to hedge the risk that an asset falls in value and avoid any snowball effects. One of the main benefits of alternative investment strategies lies in the fact they minimize downside risk”, adds Rutman