Another private debt fund with a “perfect record” has bit the dust. Productivity Media Inc. (“PMI”), which managed $200m in film-related loans, was pushed into receivership earlier this month. The advertised performance, through a feeder fund, looked like this:
PMI was founded in 2012 by William Santor, who owned 50% of the company, John Hills and Andrew Chang-Sang. It was a backer of independent films, including the upcoming 'Day of the Fight.'
According to an old bio, in 2006, William Santor co-founded Prosapia Wealth Management and “it was through his work at Prosapia Wealth Management that he discovered the untapped opportunities in new media finance, predominantly film and television.”
The company was promoted as follows:
Productivity Media Inc. thrives by connecting high net worth individuals, hedge funds and finance companies with filmmakers, producers and directors to achieve lower volatility returns while enabling producers to focus on what they do best — making quality films. At the core of their investment strategy is asset-based lending, a highly-secure form of financing based on the value of the production’s assets, in the form of government or highly rated corporate guarantees, rather than on the overall strength of its potential for box office earnings.
Santor claimed that his investments were “fairly simple because it’s all about what’s the available collateral” and defined himself as a “collateralized debt lender.” Overall, PMI’s strategy is just a twist on Ninepoint’s senior secured lending strategy, which was also practiced by Bridging Finance.
Victims include Kensington Capital Partners, which had a $2.5 million exposure on its Kensington Hedge Fund, per Productivity Media’s insolvency filings. Kensington most notably manages a VC fund of funds for the Canadian government. Kensington is now majority-controlled by AGF Management.
Mandeville Private Client, which is part of Michael Lee Chin’s Portland Holdings, also bought into Productivity Media on behalf of clients.
Many small pension funds were also investors, such as the Electrical Industry of Ottawa Pension Trust Fund, Prairie Arctic Regional Council Pension Trust Fund and Manitoba Municipal Employees Disability Income Fund.
However, the largest victim was Qwest Investment Management Corp, led by one Maurice Levesque. In 2016, the company launched a feeder fund for PMI, which offered “no correlation to the publicly traded securities markets”. As of December 31, 2023, the Qwest Productivity Media fund had $92.1 million in NAV. The fund’s performance was displayed in the straight-line graph that can be seen at the beginning of this piece, never posting a negative month. As of two days ago, the graph is no longer available on the fund’s website.
The first signs of trouble appeared in mid-August 2024, when Westfield Partners, an exempt market dealer, advised PMI that “it had been made aware of certain allegations from an anonymous source and a known source that Mr. Santor had caused the Limited Partnership to advance funds to third parties (ostensibly as ordinary course Media Projects loans) based on false pretenses, and had pressured at least one Media Project sales agent to sign a false audit confirmation.”
The company hired PwC to conduct an investigation into the allegations raised by Westfield Partners. The fund paused redemption requests. Santor was suspended as CEO.
The PwC investigation is ongoing, but management confirmed that “serious concerns have been identified” in a preliminary internal review conducted by the other two cofounders and the company’s general counsel.
In this case, the receivership was triggered after the company defaulted on a 90-day loan and the lender aggressively enforced its rights.
Once again, investors who placed their trust in a private debt lender touting a "highly secure form of financing" and a flawless track record will be the ones bearing the consequences of irresponsible lending practices and misaligned incentives.