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Bollywood calling?

A new fund seeks to invest in films, and will benchmark returns against equities.

Nitya Varadarajan | Print Edition: April 6, 2008

Finally, investors may soon get a new sector to invest in: films. Recently, Vistaar Religare Capital Advisors filed for a film venture fund with the regulator, the Securities and Exchange Board of India (SEBI), to fund new films. As there are no comparable funds, it will measure its performance against the stock market and try to beat the major indices. “We currently have no benchmarks to measure the fund’s performance. We will equate the fund with the best of equity funds,” says Sheetal Talwar, Chairman and Managing Director of this asset management company.

SEBI to fund new films
SEBI to fund new films
The fund will target high net worth individuals and institutions and aim for a corpus of Rs 200 crore. Talwar is looking at investors who have an inkling of the risks of funding films. The fund will aim for a high degree of transparency and will monitor the earnings from films as the final realisations could take time to trickle in as it depends on a film’s success. “Quite often, producers are in a hurry to sell all the rights before the release because they have financiers breathing down their necks—and sometimes they lose money, as a result. Our fund will ensure a better price discovery mechanism and revenues will be made transparent,” he says.

The fund will invest in special purpose vehicles created separately for each film it selects. The involvement will start at the development and preproduction stage. All revenues will accrue to this SPV, which will also hold the rights to the film.

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What the new funds will do and how they will work.

  • The funds are close-ended-at the end of five years investors get their returns benchmarked against the riskiest asset class: equities

  • They provide transparency of revenues through the formation of an SPV, which is jointly owned by the investors of the fund and the producer

  • The funds will look for new talent, new scrips, instead of following the ¡®Star-studded¡¯ formula and get involved at the development or pre-production stage
Producers will get sweat equity in the venture while its profits will be distributed among investor shareholders. While the outlay for the films will be immediate, realisations could take up to 18 months by which time most films run out of steam. “Usually, a film gets most of its revenues within a year of release. We will not amortise the costs over years as some companies do. We’ll start with a clean slate each year,” he says.

Pyramid Saimira, a company that produces, distributes and exhibits films, is also planning to launch two funds, each with a corpus of Rs 100 crore. The first will be a low-risk fund, and the second, a high-risk one. The first fund will finance a producer, who, in return, will sell the film back to Pyramid Saimira for distribution and exhibition.

In effect, Pyramid Saimira will pay the producer a fee for the production and pay the fund back the capital invested with a slight profit. But the risks associated with a movie and its success will not go into the fund. On the other hand, its high-risk fund will not only finance the film, but also share in its distribution profits or losses.

The returns will take about sixto-nine months to materialise, unlike the low risk fund where the financial rewards are negotiated before release. As always, the risks associated with film funds are unpredictable— much like the box office.

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