Hedge funds are often found at the cutting edge of financial innovation. It is often these first movers that are able generate outsized profits before followers on dilute the profit opportunities.

It may be a stretch to call film financing particularly cutting edge. However one can find hedge funds among those providing capital to Hollywood. It has been reported that the new MGM studio is largely financed with hedge fund and private equity capital. With that investment also comes a higher profile. We have discussed how publicity can negatively affect a hedge fund’s ability to perform. Now every Monday morning some hedge funds will be graded on the weekend’s box office take.

We are by no means the first to note this trend. Going Private has long noted (skeptically) how hedge fund money has infiltrated Hollywood. Only time will tell how this movie ends, but the data points are going to keep coming at an accelerating rate.

DealBook notes the (record) strong performance of the CGI-enhanced film, “300” was due in part to hedge fund-type capital. They are more sanguine about the trend of hedge fund film financing.

Initially derided as the naive “new money” in town with a poor track record — Legendary had a hand in a series of flops, including “The Lady in the Water,” “The Ant Bully” and the disaster-movie disaster “Poseidon” — hedge funds may have found increasing success.

Have hedge funds cracked the code on film finance success, where a long line of other capital providers to Hollywood have failed? We shall soon see, but as with most sequels the ending is usually quite predictable.

For those who want to further explore the nexus of Wall Street and Hollywood should check out a recent edition of The Business at KCRW.com. One can download a podcast of the show “Hedge Funds Come to Hollywood.”

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Update – Apparently hedge funds are not the only ones who realize that there are opportunities in the film business.  One big bank (J.P. Morgan Chase) is going to create an “entertainment-advisory business” to complement its already existing film financing business.  This according to the Wall Street Journal)