Securitize a portfolio of artists.

People in the creative professions face cash flow problems, particularly early on. Artists need to finance daily living while developing a style and gaining visibility. Film makers need to finance a first film. Musicians need to finance a record or a tour. It is not only a problem for young artists either: mid-career creatives with an established following can have the same difficulty when revenue depends on publishing a work or releasing a record.

The existing answers are limited. A patron who finances the work for altruistic reasons is the ideal arrangement and is hard to find. Crowdfunding platforms can work if enough donors appear, but they are rarely a reliable source of funds.

Financing an artist against future revenues is not a new idea. David Bowie securitized the royalties from his back catalogue in 1997 and sold them to investors as Bowie Bonds. James Brown and the Isley Brothers followed, and today musicians, artists and athletes, along with creative conglomerates such as Disney, have used securitization to finance work or monetize future cash flows.

The approach has only worked for established names with a strong earnings history who can carry the time and expense involved. For most independent creatives those barriers are insurmountable. Bringing the cost and complexity of securitization down changes who it can reach.

In practice the structure is most useful to asset managers rather than to individual artists, since it still calls for financial expertise. A manager can securitize a portfolio of up-and-coming or mid-range artists and offer it to clients, structuring each deal to fit the projects and prospects involved.

• Uncorrelated returns. A source of diversification with little relationship to traditional asset classes.
• Asymmetric upside. These investments carry real risk, and outsize returns if the artists succeed.
• Passion investing. An avenue for investors who want to be a patron of the arts and still earn a return.