Glentham Capital

Idea

Introduction

Glentham Capital is a start up fund management company. It is looking to raise a listed fund in Guernsey in the final quarter of this year. The fund would provide finance for Hollywood films. The company's Chairman is Nicola Horlick, who has been a fund manager in the City for 30 years. The company's CEO is Pandora Edmiston, who worked in the film industry and then moved to Citibank for a number of years.

Post the credit crunch, there is a shortage of finance for films in Hollywood. Nicola Horlick has successfully invested in a number of film projects over the past five years and sees an opportunity to make a significant amount of money from financing films. Glentham Capital, as a fund management company, would charge the new fund a management fee of 2% per annum. As it plans to raise $100m, this would give it an annual revenue of $2m.

In addition, the company would have a performance fee of 20%, which would be calculated bi-annually.

Intended impact

There is a serious shortage of capital for independent films in Hollywood. The studios have pulled back from making smaller films and it is now the case that 80% of films are made by independents, with the studios concentrating on the 'tent pole' productions like SUPERMAN and SPIDERMAN. Independent films are primarily financed through government subsidies, which vary from country to country (the UK government has a tax credit which allows producers to recoup 20% of what is spent here for example), and pre-sales to foreign distributors.

However, there is also a need for some equity to be invested in the film and some form of debt, which can be senior debt secured on the unsold territories, mezzanine debt or gap finance. There is also a need for bridge finance to get films into production. The new fund will provide all of these types of finance. There is a significant amount of money being invested in film from Russia, the Middle East and the Far East. This is where Glentham Capital will look to raise money for the new fund. It should be emphasised that Glentham Capital itself will not be investing in films. It would be managing the fund that does this and receive an annual management fee together with a performance fee, which would be calculated bi-annually. It would have a low cost base as Nicola Horlick would accommodate the business in premises used by her other businesses.

During the first year, Pandora Edmiston, the CEO, would be the only employee. The money raised would be used to pay her first year's salary, the set-up costs of the fund and some travel costs. Thereafter the management fees would cover all costs. Given Nicola Horlick's long career in fund management, it is anticipated that Glentham Capital would be able to raise the capital sought for the new fund and that the projected income in the second year is achievable. This is the basis for the valuation placed on this investment opportunity.

Substantial accomplishments to date

Nicola Horlick has successfully run several fund management companies. She was the youngest director ever of Warburgs at the age of 28.

She was employed by Morgan Grenfell to turn around their UK fund management business. When she joined the bank, funds under management had fallen from £10 billion to £4 billion over the previous 3 years.

Over the following 5 years, funds under management rose from £4 billion to £22.5 billion.

She was then engaged by a French bank and set up SG Asset Management, with a target of raising £5 billion in 5 years and the target was reached after only 2 years.

In 2004, Nicola set up Bramdean Asset Management with Sir Derek Higgs. After the untimely death of Sir Derek in 2008, Nicola sold the business to Aberdeen Asset Management in 2009.

Rockpool Investments (www.rockpool.uk.com) was launched in March 2012. Over the last 16 months, it has raised £20 million for companies and has over 250 individual investors.

Monetisation strategy

Glentham Capital would receive a management fee of 2% per annum. If $100 million is raised, the annual revenue of the company would therefore be $2 million. In addition to the annual management charge, Glentham Capital would also be entitled to a performance fee. This would be calculated bi-annually and based on the net asset value of the fund. The company would be entitled to 20% of any gains made between calculation dates.

Glentham Capital would have relatively low costs and does not expect to have more than one employee in year 1, potentially increasing to three in year 2. The company would benefit from the use of free office space in year 1 before taking some space of its own in year 2 once the fund has been raised. Glentham Capital would use the regulatory approvals held by Bramdean Asset Management. Although the bulk of that business was sold to Aberdeen Asset Management in 2009, the actual partnership was retained and the FCA approvals are still in tact.

Thus, Glentham Capital would be able to get its business going for £150,000, which is a relatively small sum for a fund management company looking to raise a £100 million fund, with expected revenues of $2 million during its second year or operation.

Use of proceeds

During the first year, the company would use the proceeds of the fundraising for the legal costs relating to setting up the new fund in Guernsey, the CEO's salary and travel costs associated with raising the fund. The company would benefit from free premises during its first year of operation and help from employees in other businesses run by Nicola Horlick during that period.