Conventional wisdom says that the so-called “sin stocks” are counter-cyclical: When times get tough, people turn to vices like smoking, booze and porn. I’m skeptical of that theory, but plenty believe it wholeheartedly.
There are PE firms that invest in alcohol, gaming, casino companies–there’s even a wine-focused mezzanine fund–but rarely do you see a firm mention pornography as one of its industry verticals. And why shouldn’t they? Based on a conversation with a media expert, the margins are phenomenal (I believe I heard 40% to 50%).
There is one firm called Adultvest, which is but a hedge fund-type operation that connects adult business owners and talent to investors. But dealing with talent and productions isn’t very private equity-like, nor is Adultvest a buyout firm. But more importantly, it’s not where the money is, according to my media source. The opportunities lie, he said, in the ancillary businesses like distribution and technology, and most of all, payment processors.
So why wouldn’t media and financial services-focused private equity firms make and reveal adult investments, if the space is such a gold mine? Well, there’s the stigma of being a porn peddler. It doesn’t exactly scream “Park Avenue,” which is why most adult investors like the Vice Fund are stuck investing there exclusively, as if it’s an Adult Ghetto. After a bit of searching, all I could find was a buyout firm whose stated strategy is specifically NOT to invest in real estate, military equipment, gambling, and adult entertainment. It’s a the Czech Republic firm called Genesis Capital
More on Adultvest: This firm clearly was not a part of the recent porn industry PR stunt, in which Joe Francis asked the government for a bailout. In fact, Adultvest won “Hedge Fund Launch of the Year” last year from Alternative Investment News. Amazing they even gave an award with the year hedge funds had, maybe even making Adultvest’s win more impressive. Link somewhat not safe for work. (You know what else is not safe for work? Doing an image search for a photo to accompany this post. Sheesh.)
And for those looking to do more (cough) diligence in the industry, check out CNBC’s list of best selling adult DVDs of all time.
Correction: A prior version of this story was inaccurate. It said Genesis Capital does invest in the real estate, military, gambling and adult entertainment industries, whereas the firm specifically does not.