Hedge Funds at the Oscars

Date: Saturday, February 24, 2007
Author: The New York Times

On Sunday, many movie fans will sit through the broadcast of the Academy Awards in hopes of winning a few dollars in their office Oscar pools. There are likely to be a few hedge fund managers tuned in as well, banking on a much richer payoff.

Several Oscar nominees this year, including hits such as “The Pursuit of Happyness”, “Blood Diamond” and “Borat,” were partially financed by hedge funds, loosely regulated pools of capital that are restricted to institutional investors and wealthy individuals.

Wall Street’s fascination with film financing has grown in recent years, with several private investment firms making agreements with major studios to co-finance slates of movies over a period of years.

With names like Relativity Media and Virtual Studios, these firms do not have the cachet or name recognition of the big studios. They certainly will not be sauntering up to the podium and thanking their agent should their films get an award. Even so, a win at the Oscars could be rewarding.

Relativity Media helped finance “Happyness,” whose lead actor, Will Smith, is up for Best Actor. An affiliate of Dune Capital Management, a hedge-fund firm once controlled by financier George Soros, kicked in money for “Borat,” the guerilla comedy starring Sacha Baron Cohen that is a nominee for Best Adapted Screenplay. And Virtual Studios, which is backed by the hedge fund Stark Investments, has invested in “Blood Diamond,” which is up for five awards, as well as the disaster-film flop “Poseidon,” which garnered a nomination for best visual effects.

This list reflects the growing ties between Hollywood and hedge funds and private equity firms, which have invested $4.5 billion in movies since 2005, Bloomberg News reported last month. Two investors in MGM, the movie studio, are the buyout firms Providence Equity Partners and Texas Pacific Group.

It can be a risky business. Legendary Pictures, another hedge fund vehicle, has caught flack for its investments in box-office bombs “Lady in the Water” and “The Ant Bully.”

Yet some of these companies seem to have found gold in the Hollywood Hills. “Borat” cost an estimated $18 million to produce. As of Feb. 4, the tale of a fictional Kazakh reporter’s adventures in the United States has earned about $128 million in domestic box office.

Edited by Andrew Ross Sorskin, The New York Times