With a general mistrust and investor nervousness surrounding investment assets such as real estate and securities, innovative funds investing in alternative asset classes are on the rise. Jersey funds set up to invest in media finance, fine art, fine wine, sports rights and even more unusual areas such as designer watch production and distribution and horse-racing bloodstock are performing well. Jersey's further-refined collective investment fund structures provide multiple opportunities for promoters to raise fund for their projects through a tax-efficient offshore structure.
Music, film, television and other forms of media finance are growing areas for investment internationally. The development of the internet as a tool for the distribution of film, music and television has led artists and production companies away from the usual forms of promotion and sales. The profits of media are also moving; as result of the changing markets, innovative new structures are being created, putting control back in the hands of the artists.
2008 saw some the biggest and boldest moves in media finance and production, evidence of the financial success the sector is enjoying. For example, the band Radiohead took a big risk in publishing its latest album, "In Rainbows", on the internet and allowing fans to pay whatever they chose for it. Other bands and artists, including David Bowie, are soon to follow, routing the production costs and profits through their own investment fund.
Specialist investment funds have been set up to invest in the promotion of bands and holding marketing/intellectual property rights, taking the place of record labels. Power Amp Music, the venture capital, investment advisory and marketing firm, recently launched the Power Amp Music Fund, a tax-efficient investment vehicle offering the opportunity to invest in a diversified portfolio of UK music talent, capitalising on the rapidly changing face of the music industry.
In addition, UK investment funds recently established have sought to purchase and retain music copyrights for back catalogues of old chart hits. Music copyright assets and film production rights are attractive for investors because they generate global income streams in the form of predictable and recurring cash flows.
Film finance, which historically has been a profitable and consistent source of business for the UK and for Jersey, has been through major transitions over the past two years. Changes to the tax treatment of UK-funded films may have cut Jersey's appeal for UK tax purposes, but US and European film production companies are still looking for offshore vehicles through which to route financing for their films.
Investment funds investing in film and music finance generally offer longer-term, low-volatility investment products. Institutional investors will be attracted to this type of long-term, cash generative asset, particularly in with the sub-prime crisis still rumbling along like a disgruntled amplifier.
The financial crisis and the current funds market
Although not confined to these areas, the worldwide financial crisis has affected the financial markets heavily, not only by direct devaluation of stocks and assets, but also by a pervading feeling of mistrust and aversion of risk.
The International Monetary Fund (IMF) has warned that potential losses from the credit crunch will could reach a staggering US $4 trillion. Many banks, mortgage lenders, real estate investment trusts and hedge funds suffered significant losses or closures as a result of mortgage payment defaults or mortgage asset devaluation.
Although it is clear that there were a multitude of factors as a cause of the financial crisis, one aspect in which banks and financial institutions have been criticised is risk. There have been allegations of excessive risk-taking and weak underwriting. Financial institutions were too complacent about liquidity risks and often didn't understand the products in which they were investing.
The upshot is that one significant effect that the financial crisis has had on the UK real estate market and equities markets internationally is to slow investment in property and equities and, as a consequence, the use of investment fund structures for financing the same. There is great potential for investment areas with more stability in current market conditions, such as media and film.
With record growth in Jersey's investment fund industry, new investment products, such as unregulated funds, and welcome revisions to our Companies Law, the potential for further successes lies at Jersey's feet.
New financing models in music finance, with a shift in the driving force of music production and promotion, together the gap in the film finance market for tax-efficient structures, offer a multitude of opportunities for Jersey. From its past experience over the past decade, particularly in film finance work, Jersey and its professionals have an understanding of the media finance market. They can help find the correct investment fund structure to meet the requirements of the production companies, promoters and investors.
The potential for development is massive and firms such as Crill Canavan are at the forefront of the media finance and alternative asset fund growth in Jersey. New initiatives are afoot to increase the appeal of Jersey for such structures and in particular, to retain the film finance work that has been so well serviced by Jersey for many years. Investors are more open to new products – even where the assets are unusual – provided that they give the requisite returns and more importantly, stability, they are looking for.
Crill Canavan's Investment Funds Team
Crill Canavan's Investment Funds Team advises promoters, fund managers, administrators, banks and investors on the establishment, authorisation and regulation of all types of investment structure, including media finance and alternative asset funds, and fund-related matters.
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