George Clooney Attacks Hedge Funds – And (Ironically) Misses the “Big Picture”

If you care about corporate governance issues, this thoughtful commentary (link below) is a crucial reminder of how tempting it is to attack things one doesn’t understand – that is, as opposed to actually spending the time and energy to consider what are almost always more complex realities.

George Clooney, explained herein, has essentially been arguing that hedge fund financing of the film industry is to blame for a number of major box office “flops” because hedge fund managers supposedly don’t “get” the film business and aren’t a real part of the traditional creative establishment.

Personally, I love the fact that someone picked up on this story for many reasons but I do also want to emphasize that I have NOTHING against Mr. Clooney. He’s actually a very intelligent and talented guy. The real issue here is that one can easily find the same style of identically flawed thinking anywhere from state pension funds to Silicon Valley.

What’s too often missing (both here and in similar discussions concerning alternative investments) is the critical INDEPENDENT research role performed by hedge funds – perhaps more successfully than virtually anywhere else in finance (e.g, uncovering the subprime mortgage crisis before the national press; being the first to speak out against everything from BP’s lack of a safety record to corrupt for-profit colleges, etc…) The whole point is that there is tremendous value in having investor scrutiny come from OUTSIDE a particular industry – and, where appropriate, that scrutiny should absolutely include insiders knowing that if they’re making bad choices, there are short-sellers waiting in the wings . . .

Yes – when it comes to movies, we want great writers, directors, producers and actors playing the preeminent role. But for film industry investors, the value of highly sophisticated financial oversight (stemming from a profit motive as opposed to burdensome government regulation) is far more likely to produce returns (and quality) than some reicarnation of the 1930s “studio system” – or, for that matter, even more recent, yet equally flawed, economic models (crowd-sourcing may someday work – but I don’t see it generating the next “Godfather” anytime soon).

Hollywood needs to realize that hedge funds aren’t the problem. BAD MOVIES (as well as the folks who continually create AND finance them) most certainly are . . .

[George Clooney on Corporate Governance: The Oscar-winning actor sets back the cause 30 years.” The Wall Street Journal, 8/9/2013]

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