Industry Report: Financing
How to make a killing in movies
- Investing in film is not as risky as it is perceived. Maria Merricks takes a look at the exciting opportunities this market provides. by Maria Merricks
With so much volatility in today’s markets, investors are searching further a field for diversification within their portfolios. One option causing quite a stir is investing in film.
Traditionally, investors have been put off because the concept has always been deemed too risky. However, providers in the space are keen to abolish this perception by offering a range of risk-minimising strategies.
According to Tim Cockerill, head of collective research at Ashcourt Rowan, film investments offer an exciting opportunity, unique to any others on the market.
A number of recent success stories have added to the noise. Take for example British blockbuster The King’s Speech, which picked up a host of awards this year including best film and best director at the Oscars.
What many may not know is the independent film, which grossed $371m worldwide in cinemas alone, cost a meagre $15m to make.
Just under two thirds of that budget was funded by investors of the £25m Aegis Film fund. James Swarbrick, commercial director at sister group Prescience Film Finance, says the expertise of the group meant the film’s potential success was realised very early on.
Swarbrick says such an accomplishment – and the substantial returns to follow – is a very rare occurrence.
Admittedly, following its success, investors will see above average returns over the next two years. However, the fund’s average aim is 12%-16%.
Swarbrick says: “Although not spectacular, it is very steady and, in current times, that is what has sold it to investors: it is not correlated to the markets and is fairly low volatility, something not expected with film funds.”
The fund’s low volatility is attributed to the fact it is very much focused on the low risk aspects of the industry. For example, they lend money to the production so it funds the film but they recover their money from contracted receivables, ie, UK tax credit, which is a payment from the UK government to British qualifying films once production has been completed. In addition, it will lend against distributor contracts, again, a quantifiable risk. The EIS route
For those investors chasing higher returns, the Enterprise Investment Scheme (EIS) route is an option although these schemes are perceived as higher risk. As Leon Clarance, investment director at Octopus Investments highlights: “The rationale for the incentive is to encourage investment into small and growing businesses which may not otherwise be able to attract it.”
Recent events have made this option much more appealing, particularly for high net worth investors.
In March’s Budget, the Chancellor confirmed EIS tax relief will be increased from 20% to 30%.
Osborne also announced the government is set to double the amount anyone can invest into an EIS vehicle to £1m, and stated the size of a company to qualify as an EIS will increase to 250 employees and £15m of assets. Currently only firms with less than £7m of assets and 50 employees are eligible.
The changes make what was already an appealing prospect “pretty much unparalleled in today’s market”, according to Robert Graham, managing director of accountants Graham Associates.
Meanwhile, Peter Buxtorf, managing director of discretionary fund manager Lacomp, says EIS investing is fast becoming the tax efficient way of choice.
“This is not just because of the increases announced in the Budget,” he says.
“After two years in an EIS, the investment is taken out of the scope of inheritance tax and, if left another year, capital gains tax referral is a big plus.”