A new example of how financial intermediaries can now easily bring new assets to the market using structured products.
Film production Barry Films and Swiss securitisation specialist Gentwo have joined efforts to structure a new actively managed certificate (AMC) which aims at capitalising opportunities around the demand for quality content due to the proliferation of ‘streamers’ such as Netflix, Amazon, HBO Max and Disney +.
The new Value IP Portfolio investment strategy has been designed to “play right into the content production phase,” and intends to create potential value by focusing on the development of an idea and bringing together high-quality intellectual property that can be produced in the form of films or television series.
The 495 series streamed in the United States in 2018 almost more than double those broadcasted a decade before, while the 871 films released in theatres also dwarfed the 478 during the previous 10 years.
“The film industry has the same issues as other alternative investments - they have to go through a very long and cumbersome set-up process via limited partnerships and special purpose vehicles for each project,” says Philippe Naegli, chief executive at GenTwo Financial. “We can offer a very neat approach where through the issuance of securities we can make them not only more accessible for investors, but we can also shorten the time frame around the setup and how the products get issued. We can provide a very tailored approach that can be applied on a project to project basis.”
The idea to develop Value IP Portfolio came last year after several meetings with people in the film industry who had budget to finance films and TV series but needed scripts, according to Barry Film’s managing director Benito Mueller (pictured).
“The demand for content is enormous,” he says. “There is competition around good writers - there is a lot of movement out there, but also a lack of good projects, good scripts, good packages. That’s why we had the idea to fund this development portfolio, and we started talking about structuring it as an investment product.”
The AMCs are linked to different projects Barry Film has access to; and are open-ended with a 1% management fee, and a 10% performance fee for the production company.
It also has a good cash component, because you have a slate of staggered projects,” says Mueller. “Through these project cycles you regain liquidity. It’s therefore a product that offers liquidity throughout the certificate on a market basis. That said, from a long-term point of view it acts more like a private equity portfolio.”
The difference with this approach is that Barry Films only carries the risk of the projects that are being done.
“We have successfully ended a project once we find someone to produce that specific content - and thus the development investment is recouped with a premium,” says Mueller. “This is different from classic content financing which is dependent on the audience success of a specific production for its recoupment.”
This product is also an opportunity to invest in a different way in industries that are going through a complete shift. “You have a service market that has never been there before with new studios and new online content providers emerging - Amazon, Netflix and so on,” says Nägeli (pictured right). “This has become a very interesting market.”
In the traditional set up,the production company takes a lot of risk from starting off the project, from timing the project, as well as securing the capital from investors, and creating the whole cycle of production up to the finished product.
“Today it is more about getting your hands on the right project and then building it up to a level that the studio is ready to engage and wants to produce it,” he says.
Gentwo FP is seeking to disrupt the conventional issuance of structured products by offering individual off-balance sheet issuance vehicles to empower everyone to be able to structure and issue them individually in a flexible way and at the lowest cost.
With this approach, there is no exposure to balance sheets, or issuer risk, and there are no high overheads that increase the cost of the product. Any financial intermediary can engage in structuring and issuing tailor made products without counterparty risk or needles costs.
“AMCs are cost-efficient, you can put them together quickly and they allow you to react to market demand very fast and are very easy to understand,” says Nägeli. “So, if someone wants to be first in the market to invest in an alternative investment field, like the streaming content industry, the fastest way is to go via an AMC. These are just normal open-end trackers.”
In this case, the underlying of the Barry Films AMC will be comprised of different projects the production company have in the pipeline.
Nägeli notes that the new investment product can help fund new projects and provide new opportunities to asset managers with clients seeking to invest in a project like ‘Game of Thrones’ or ‘Breaking Bad’.
“There is no way of doing this with a first-generation structured product,” he says. “Traditional set-ups do not always stand in relation to the size of these projects, and they don’t fit in with the compliance and regulatory framework for the traditional structured product.”
For Barry Films, the AMC is an investment tool that translates the world of film into the world of investors, so that a classic investor can understand it.
“The AMC structure enables us to engage with investors that come from a totally different world and explain what we’re are trying to achieve. In that sense what GenTwo is offering is a way to structure the demand of the market in a way that the market understands,” he says. “An investment bank would have asked us 10 times the money for the product we wanted. The unique proposition of GenTwo is to be able to structure these products in a very slim fashion.”