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A union of of hedge funds and Hollywood
is crossing the Atlantic, with two upstarts forming a new investment
fund for high net worth individuals to back British films.
Writer-Director Gregory Mackenzie and former Morgan Stanley analyst
Brett Walsh, have set up the Lexington Film Fund. To date the
fund, which has raised more than £500,000 ($870,000) and seeks to
gather up to £3m by April It aims to provide funding for films at the
crucial points in early development.
Lexington’s London push marks the latest entry of alternative
investments into the business of financing films, a niche that has
exploded in the US over the past few years. For example Capote, which
won a best actor Oscar for Philip Seymour Hoffman, was backed by a
private equity fund.
While the moneyed classes have been
drawn to movie investing since the days of Howard Hughes, hedge funds
and private equity firms are a new breed. They are less interested in
the patina of glamour that comes with movies and are more focused on
wringing out profits from the inefficient markets for film financing.
Like many US ventures, Lexington is
structured to provide tax benefits, with up to a 40 per cent tax relief
from income and gains. But Lexington’s founders say they are in the
business of getting movies on screen. “This isn’t about simply having a
tax benefit by investing in films that will never see the light of day
– we want to make movies,” said Mr Mackenzie.
Their fund is structured to profit from
getting promising films out of development hell and into production. In
exchange for crucial seed money to help with casting, location scouting
and other early-stage matters, Lexington plans to get its investment
returned in full plus a 50 per cent profit on its investment on the
first day of filming, as well as a percentage of the profits if and
when the film makes it to cinemas. The funding for development costs,
which run far less than actual production costs, should help Lexington
keeps its investments lean and efficient.
“The fund’s focus is on profiting from
the inefficiencies of the system, such as when promising projects
languish for lack of money early on,” Mr Walsh said. “We have found the
London film community is very receptive to our model because they
recognise that there’s nobody out there doing what we do.”
The initial fund aims to help provide
financing for seven or eight films in the early stage of development in
its three-year life. Lexington benefits from some friends in high
places. The fund’s advisory board includes Edward Pressman, a producer
of more than 50 films including the classics Badlands, Das Boot and Wall Street,
and the well-known casting director John Hubbard. Mr Walsh noted that
having industry heavyweights behind them will enable Lexington to help
speed the development of films it is backing, such as enlisting Mr
Hubbard to help lock in top-shelf casting talent.
"there’s nobody out there doing what we do.”
Messrs Walsh and Mackenzie, meanwhile, have demonstrated success with Golconda Films,
their independent production company. Golconda has two films under way.
Both, appropriately enough, feature both British and American actors in
leading roles: Camille, starring Sienna Miller and Harvey Keitel, is shooting; Little Green Men,
based on the richly comic novel by Christopher Buckley and with a
script by Mr Mackenzie, is set to star John Malkovich and Michael
Gambon.
Investing in films has always been a hit
or miss affair, but massive changes that are under way in the industry
have led more sophisticated investors to believe they now have a better
shot at making a profit. George Lucas, the creator of Star Wars
who helped form the blockbuster template, recently speculated that the
blockbuster movie is dying and that low-budget films with novel
financing will become the norm. Further, lower-cost digital film is
increasingly gaining acceptance. These are the classic market
inefficiencies that good hedge funds exploit.
Hedge funds and private equity firms have been active in Hollywood for
several years – ranging from early investment funds to the recent news
that the hedge fund legend George Soros is buying Dreamworks’ film
library. However, London, which enjoys a robust hedge fund community
that is smaller and younger than its US counterpart, has not seen the
same level of frenetic activity.
Independent British filmmakers have
relied heavily on the government-backed Film Council, but Mr Walsh
suggests that Lexington may help kick-start a growth in alternative
sources of capital for UK filmmakers.
While the duo behind Lexington are
clearly interested in turning a profit for investors, Mr Mackenzie adds
they are also interested in quality. “Part of the reason we started
this was to find a way to profit from ensuring more good movies get
made.”
See Also: Film Angels Fly a New UK Investment Slate
http://www.netribution.co.uk/2/index.php?option=com_content&task=view&id=138
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