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In this financial crisis it's surprising to hear anyone's earning a 10 percent plus return, and it's not too often you hear that investing in independent films yields consistent results. Well, surprise.
Despite the credit crunch, a unique hedge-fund backed boutique bank of sorts is busy as ever, investing in movies and earning consistent double digit returns.
Hedge funds have played a huge role in Hollywood, pouring some $15 billion into the movie industry over the past three years. Hedge funds have and continue to back film slates at the likes of Sony [SNE
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]Pictures, Viacom's [VIA
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]Paramount, and Time Warner's [TWX
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]Warner Bros., among others. But now with many hedge funds retrenching, these major slate investments are getting more scarce. (The existing deals are solid, but you aren't seeing many new ones).
But boutique lenders like Grosvenor Park and Aramid's Screen Capital International continue to raise equity, lending to films that usually cost $40 million or less. They use tax credits and foreign presales to guarantee they get their money back before a movie even hits theaters. Grosvenor Park, reportedly backed exclusively by New York Hedge fund Fortress, specializes in negotiating tax credits and rebates, and has financed movies including "Sisterhood of the Traveling Pants 2," P.S. I Love you," "Righteous Kill," and others. Grosvenor pioneered this business of parlaying tax credits and rebates in various U.S. states and countries abroad to collateralize their investment.
Aramid is backed by International institutions and individuals who aren't interested in Hollywood per se, but more so looking for an asset class unaffected by the economy. David Molner, a partner of Aramid and plans to invest about $300 million in film financing over the next year, most recently funding two thirds of the budget of Oliver Stone's "W". Molner says his company had a return in the low 20 percent range, net fees, last year, and expects that to drop to the low to mid teens this year. Yet Molner says his company's investments will benefit from fewer films being made.
With credit from Wall Street much tighter, these boutique banks are in higher demand, giving them a better selection of films to pick from, and allowing them to charge higher lending rates. And investors aren't pulling out—not only is their track record solid, but the movie industry is traditionally recession resistant, giving them more reason to have faith that this lending business isn't risky.
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