Private Capital Markets

traditional risk-reward spectrum.

Producers pay high interest for these government-backed loans, not because they’re risky, but because there’s a high opportunity cost – the show must go on. As a bonus, private-movie debt is isolated from exogenous events.

Whether the economy is rising or falling, movies are always produced.

Money is always in demand.

Further, federal, state, and sometimes city governments give a tax credit or cash rebate as a percentage of the money spent in that jurisdiction. In Canada, we often get 25% to 30% cash rebates upon project completion. The movie producer obtains insurance that guarantees project completion. Most risk is removed. Your clients’ returns don’t depend on the film’s success, as they end up with a two-year government receivable from an insured, investment grade issuer. Money managers have few places to get such safety with great yields.

That’s an Oscar-winning investment, but it gets even better.

Mad Hatter vs. Capt. Jack Sparrow

Private-movie debt is a non-correlated asset with nearly every other asset class.

It’s the key to proper diversification.

However, I’m usually met with resistance when talking about diversification.

Money managers often believe by
diversifying they’ll average a winner for
every loser, and end up with no returns.

I hear them call it di-worse-ification.

Big mistake.

One golden risk management rule is to avoid extreme outcomes. Don’t put your clients in an investment that can double their money – at the risk of losing it all. That’s Mad Hatter investing.

Instead, work toward a middle ground by giving up some rewards in exchange for reducing losses. Diversification moves you to middle ground. Sound like a pirate’s tale? Let’s see.

Captain Jack Sparrow has $100,000

worth of gold overseas, and must bring it back by ship. Unfortunately, there’s a

50% chance any ship will get plundered, and he’ll lose it all. As a risk-savvy pirate, his goal is to avoid these extreme outcomes. In financial lingo, his loot is valued at $50,000 since there’s a

50% chance he can collect it. His goal is to increase his chances to receive

$50,000 – and reduce the chances for total loss.

By using one ship, however, he has no chance of collecting $50,000! It’s either

$100,000 or nothing – extreme outcomes, for sure. Can diversification help?

If he splits the loot between two ships, he has a 50% chance of collecting

$50,000. More importantly, the risk of
total loss falls from 50% to 25%. There’s
a missed opportunity cost, however, as
he also reduces his chance for collect-
ing $100,000 from 50% to 25%. But
remember to keep your eyes on the
prize – increase the probability for
collecting $50,000 and reduce the risk
of total loss. Move to middle ground.

If he launches eight ships, he has a

64% chance to collect at least $50,000, and the risk of total failure falls to less than one percent. Cannons and swords wouldn’t work as well as diversification: The key to diversification is to use non-correlated assets. If you build a portfolio of highly-correlated assets, you may be putting eggs in different treasure chests – but you’re loading them onto the same ship. As a money manager, your clients are walking the plank. Diversification is the key to reaching their goals safely, and there’s no better way than through private-movie debt. If you know where your clients want to go, Productivity Media can navigate the pirate waters to get you there – safely.

If you don’t know, your decision doesn’t matter anyway.

William Santor CEO, Productivity Media Inc.

william.santor@productivitymedia.com

Diversification moves you to middle ground. Sound like a pirate’s tale? Let’s see. Captain Jack Sparrow has $100,000 worth of

gold overseas, and must bring it back by ship. Unfortunately, there’s a 50% chance any ship will get plundered, and he’ll lose it all. As a risk-savvy pirate, his goal is to avoid these extreme outcomes. In financial lingo, his loot is valued at $50,000 since there’s a 50%

chance he can collect it. His goal is to increase his chances to receive $50,000 – and reduce the chances for total loss. By using one ship, however, he has no chance of collecting $50,000! It’s either $100,000 or nothing – extreme outcomes, for sure.