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Hedge Funds Target Film Productions
Hedge funds have gone Hollywood. Chasing high returns, money managers are plunking down hundreds of millions of dollars to finance films such as 'Superman Returns' and 'Nanny McPhee.' At the same time, the influx of money from hedge funds and private-equity firms is reshaping film-financing deals, leading entertainment lawyers toward lucrative transactions and new clients who might want a little glamour-by-association. [Editor's Note: Hedge funds are typically private partnerships in which general partners manage limited partners' investments and seek large profits from higher-risk investments.]
'All of a sudden, we've become the focus of East Coast money looking for high returns,' says Michael Mayerson, L.A.-based co-chairman of Loeb & Loeb's entertainment group. 'Almost every weekend, there's a movie in the box office backed with hedge-fund money.'
Among the recent, large-scale private-equity-funded deals:
- Legendary Pictures, a vehicle for a number of hedge funds, has put up $500 million for 25 Warner Brothers' films, including 'Superman Returns' and 'Lady in the Water.'
- 'hrough its Gun Hill subsidiary, Re-lativity Media has invested $600 million to co-finance 18 films at Sony and Universal, including 'RV' and 'Nanny McPhee.' In May, Relativity announced that its Gun Hill Road II fund would invest $385 million in 11 Sony films, and $315 million in nine from Universal.
- Dune Entertainment, an affiliate of Dune Capital Management, has invested $325 million, betting on 28 films at 20th Century Fox. Among Dune Entertainment's credits thus far: 'X-Men: The Last Stand' and 'The Hills Have Eyes.'
While some predict the hedge funds could see double-digit returns, picking winners is a notoriously tricky business, even for experienced studio heads. Already there's been at least one notable failure. The hedge-fund-backed company Virtual Studios reportedly lost $50 million on its $125 million investment in the box-office bomb 'Poseidon.' Investing in a portfolio of films can help. 'The risk of one film tanking will be minimized over the time the slate will perform,' says Robert Darwell, a partner in Sheppard, Mullin, Richter & Hampton's Century City (L.A.) office who represented one of the hedge funds investing in the Legendary deal.
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