BERLIN Germany’s much beloved film production funds, which in recent years have bankrolled roughly 20% of Hollywood’s entire production budget, have been marked for extermination.
But for Teutonic producer and fund veteran Roland Pellegrino, the imminent extinction of one tax-sheltering vehicle is giving way to another, possibly more secure, form of financing for international productions.
According to Pellegrino, there’s still plenty of German money burning holes in the pockets of well-to-do investors, and private placement schemes are set to replace film funds as the next great German hope for Tinseltown.
Pellegrino earlier this month ankled the top post at Ludwigsburg-based fund CP Medien, financer of Martin Campbell’s “Beyond Borders” and Robert Altman’s “The Company,” in order to set up a new shingle, CP Vertrieb. Company is 100% owned by Pellegrino but will continue to work closely with CP Medien, in which Pellegrino remains a shareholder.
The new firm will continue to finance film projects using other people’s money, but circumvent the hurdles that have riddled the private fund market since August, when the federal finance ministry introduced new legislation that will ostensibly cripple, if not kill, tax-sheltering film funds.
Grappling with a recession and looking to pass extensive economic and social reforms, Berlin politicos are eager to quash what they see as unprofitable tax shelters.
To this effect, they have made the management of traditional film funds nearly impossible by demanding that investors take a more active management role in the funds.
Investors are now expected to form advisory committees in order to review managerial decisions, but only after a fund has raised 50% of its targeted volume. The measures will raise overhead costs, increase red tape and severely limit the ability of companies to jump onboard film projects on short notice.
Pellegrino’s solution to the government-imposed obstacles is simple: cut out the middle man, or in this case, the fund, and go after even wealthier individual investors who remain more immune to the bothersome new tax laws.
Instead of working with funds which raised cash through minimum investments of $25,000 to $30,000 from several hundred investors,
Pellegrino is now targeting fat cats who are willing to splurge between $500,000 and $2 million a pop. Losses incurred by these private placements are also tax deductible, an incentive that even millionaire investors still take to heart.
“No matter how much the government would like to stamp out tax shelters, in the end there’s nothing it can do to stop people from writing off losses stemming from investments in film productions — that’s a basic legal tenet,” observes one local fund expert.
For Pellegrino, whose list of credits include Jean-Jacques Annaud’s “Enemy at the Gates,” and Costa-Gavras’ “Amen” as well as French hit “Asterix and Obelix Meet Cleopatra,” it means there’s no lack of German dough: “I believe in film, I believe we can continue to produce here.”
Pellegrino intends to continue working closely with CP Medien’s international partners, including Lions Gate, Mandalay and Pathe. He is also set to team up with local producers to develop projects, and hopes to produce four to five pics a year with budgets of roughly £10 million ($11.8 million).
While CP Medien will no longer launch producer funds, it does plan to re-invest revenue from past films in new productions and has a first-look agreement with Pellegrino.
Company will also continue to handle licensing business from its titles and may even start looking into a whole different kind of investment opportunity that also skirts current regulations — so-called P&A funds.