Super Specialized Wine and Film Private Equity Funds October 31, 2008Posted by jgarciaalvarez in Access to Capital, Colombia, Institutional Investor, Latin America, Private Equity, USA.
Nowadays, many people will pull out their red flag if told that some sophisticated financiers are creating specialized private equity funds. With trust in the financial system at one of its lowest points, I will imagine potential limited partners are raising all the hard questions around the objective and investment process of these vehicles.
Despite this fact, these financial vehicles are raising money and making investments. Some people argue these super-specialized and “super-risky” strategy funds are being formed in the worst-possible time. Other people think these innovative mechanisms will fuel the next wave of equity capital investments into non-traditional growing industries, such as the production and marketing of independent movie-makers and American wineries production.
Let’s take a quick look at some of these funds.
- Based in the United Kingdom, Aramid Capital Entertainment Fund provides short and medium term liquidity to producers and distributors of film, television and other media and entertainment content by way of loans. In 2007, the invested in three movies: 5 dollars a Day, Edge of Love, and Incendiary.
- Based in Colombia, Dynamo Capital invests in film projects with commercial opportunities in Latin America, Spain, and U.S. Hispanic market. So far, in 2008, they have invested in two movie productions, Noche Buena (Christmas Night) and Rabia (Anger).
- Based in the United States, Bacchus Capital Management specializes in mezzanine and private equity wine industry investments, principally in California’s premium wineries. Most recently, Bacchus completed their first investment in Cameron Hughes Wine.
As I read about these funds, two things caught my attention.
First, the mix of interdisciplinary experts in the media, finance, entertainment, and wine distribution industry that compose the operating and sourcing teams behind these funds. Perhaps this is another example of why private equity funds cannot rely any longer on financial engineering to create value.
Second, the ability of these funds investment approach to leverage public policies that encourage private investment. For instance, Dynamo Capital built its business model based on tributary incentives the Colombian Film law provides. The latter offers investors a return on investment of $42.5 pesos in income tax benefits, for every $100 pesos of invested capital in the film business. Similarly, Aramid Capital Entertainment Fund closely looks for discounting tax credits in every project.
I am interested to see how these super specialized funds evolve and perform. In the meantime, I agree with Dan Primack, editor-at-large at PE Week Wire and Thomson Financial, when he suggests that they key to “making super specialization worthwhile, is diversification within your specialty”.