Investing in Film As a Non Correlated Asset Class Opportunity For Affluent Investors & Hedge Funds

The term non-correlated asset classes covers a whole range of potential investments, including venture capital, real estate, private equity, and commodities, but also alternative investment strategies.

But in today’s economy of crashing public equity markets, defaulting hedge funds, and non-existent real estate plays, one company believes investing in film slates, including theatrical distribution, offers a high yield alternative investment that can be leveraged with tax benefits and multiple sources of revenues including theatrical, DVD, video on demand, cable, and the foreign markets.

As a non correlated asset class, films and film finance has outperformed every non correlated asset class in the world 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.

When defense contractor Honeywell, New York Hedge Fund Elliot Associates, and Dune Capital invested more than a combined total of more than a billion dollars towards several different film funds, many pension funds, private banks, hedge fund managers, private equity groups, and high net worth investors and family offices started to follow suit enter the movie business.

Investors from Wall Street to Silicon Valley to the Middle East to Russia have been parking 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, Sidney Kimmel Of Jones Apparel Group, Minnesota Twins owner Bill Pohlad; Real Estate Developers Tom Rosenberg and Bob Yari, and, financiers Sheikh Waleed Al Ibrahim, Michel Litvak, and Philip Anschutz are all behind the finance of a lot of films that range from box office hits to Academy Award winners.

Institutional investors and hedge funds investing in films include Elliot Associate, Stark, Columbus Nova, Bain, Honeywell, and others.

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 Ć¢EUR” 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, 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.

When educated about properly structuring leveraged film finance which may also include U.S. and international tax incentives to minimize the risk 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. 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 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’?”

Some U.S. investors and C corporations are looking for either a strict 100% deduction of their investment under IRS Section 181 or simply being in a portfolio of non correlates investment opportunities. 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.

And for smaller retail investors, not including affluent families or ultra high net worth investors, the bridge between film finance, film production, distribution, and technology are converging so that investors see their investment bring an immediate return from the monetization of state tax credits as part of the equity stream, an upside in a number of films vs. investing in a single picture, possible Section 181 benefits, as well as being involved with creating jobs and stimulating the economy since every film production creates 50-100 jobs.

Yuri Rutman is involved with structuring tax advantaged private equity alternative investments in film for affluent families, wealth managers, swiss private banking, wealth advisers, private client services, hedge funds, portfolio managers, pension funds, ultra high net worth investors, family offices, corporations, tax attorneys, CPA’s, private equity funds, tax planners.

He also consults for filmmakers and producers wishing to raise money using Section 181 benefits, international film finance, co-productions, etc.

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The Top 5 Forgotten N64 Games

The N64 was not the finest hour for Nintendo. The decision to stick with cartridges not only made games for the system more expensive, but also forced some publishers to take their games to PlayStation knowing that the CD format was cheaper to use and allowed them more storage. One of the most famous games to abandon Nintendo due to the hardware limitations of cartridges was, of course, Final Fantasy VII. The seventh instalment in the JRPG franchise went on to be a massive hit and was almost single-handedly responsible for selling the first PlayStation to Japanese gamers. The rest, as they say, is history.

But the N64 is remembered for more than dodgy hardware decisions and a somewhat ridiculous controller. The system is remembered for some stellar games, too. GoldenEye was hugely important for consoles as one of the first console FPS games fully embraced by the mainstream. Ocarina of Time took the familiar Zelda formula and applied it expertly to three dimensions, with the game often featuring alongside the aforementioned Final Fantasy VII when having conversations about the greatest games of all time. And of course there was Mario 64, which effectively showed the world just how good 3D platform games could be.

As any comedian will tell you, they can’t all be zingers, though. For one reason or another, not every game makes the splash that it really ought to. Some are destined to be underrated. Some cult classics. And others to be nothing more than a name that you struggle to get off the tip of your tongue when talking with your friends.

With that in mind, here’s the top 5 forgotten N64 games.

WinBack

Gamers that owned the original PlayStation will likely wax lyrical about a little game called Metal Gear Solid. It was one of the first console stealth-action games to really make an impact on the mainstream market, and after the success of the first Solid game the series became an important flagship for the PlayStation console. What few gamers remember though, is that the N64 had a stealth-action game of its own though in WinBack. Featuring ahead-of-its-time cover based shooting and some not-quite-MGS stealth mechanics, WinBack was a great game that was sadly in the wrong place at the wrong time. Metal Gear Solid went on to be one of the biggest series’ in gaming, and WinBack went on to be number 5 in our forgotten N64 games list.

Tetrisphere

Tetris is a hugely important game. One of the best selling titles of all time, and one that was a massive money-spinner for Nintendo on Game Boy, the ultra-popular puzzle game so successfully transcended the gaming medium that it’s up there with Pac-Man and Pong in the list of games that even your Grandpa has heard of. One thing Gramps almost certainly won’t have heard of though, is Tetrisphere. Just like you might have figured out from the name, Tetrisphere was essentially Tetris played, well, on a sphere. Eschewing all notions of the idea that “if it ain’t broke don’t fix it”, Tetrisphere was one of the few games that managed to put a new spin on an old classic and not leave everyone involved red faced.

Blast Corps

Blast Corps was a game of little finesse. There’s no elaborate story to follow. There’s no emotional connection to characters. There are no delusions of grandeur. This is a game in which you drive trucks through cities and suburbs and smash them up real good. And that’s about it. The trucks never handled particularly well, and the forced repetition of levels could certainly grate, but there was something incredibly satisfying about reducing a city to rubble using just one little truck.

Beetle Adventure Racing

On the surface, Beetle Adventure Racing might sound like little more than a cash-in or an advertisement dressed up as a game, but to the surprise of anyone who played it, the game was a rare treat. Access to some parts of the game was cut off in the beginning with the player charged with unlocking them via exploration and standard racing throughout a massively enjoyable single player experience. The focus on exploration as well as more traditional racing didn’t quite make it an open world racer like we see today, but it was certainly ahead of its time. And the local multiplayer? It was up there with GoldenEye for the most fun you could have on the system.

Ogre Battle 64: Person of Lordly Caliber

Okay, let’s get it out of the way. Ogre Battle 64: Person of Lordly Caliber has an absolutely ridiculous name. And that might well have contributed to the cartridge not landing on many Christmas lists all those years ago, bagging Ogre Battle the dubious honour of being number one on our list of forgotten N64 games. The overlooked role playing game featured a huge branching story, some decision making, and a surprising amount of replay value thanks to the way the world would change based on your actions. While you’ll likely get nothing but bewildered looks if you try talking about the game with many gamers today, Ogre Battle was a wonderful RPG and one that any self-respecting fan of retro gaming should endeavour to try out.

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