Steven Mnuchin’s Brush with Relativity

As Donald Trump’s pick for Treasury gets ready for his Senate close-up, Institutional Investor examines Mnuchin’s relationship with one of Hollywood’s most controversial characters.

Key Speakers At The 2014 Milken Conference

Ryan Kavanaugh Founder/CEO Relativity Media speaks during an interview at the annual Milken Institute Global Conference in Beverly Hills, California, U.S., on Monday, April 28, 2014. The conference brings together hundreds of chief executive officers, senior government officials and leading figures in the global capital markets for discussions on social, political and economic challenges. Photographer: Patrick T. Fallon/Bloomberg *** Local Caption *** Ryan Kavanaugh

Patrick T. Fallon/Bloomberg

It is fair to say 2016 worked out very differently for Steve Munchin and Ryan Kavanaugh. For one, it ended in a blaze of triumph; for the other, he was left fighting for control of the company he founded. Yet up until recently, the business dealings of Mnuchin — president-elect Donald Trump’s top fundraiser and his nomination for Treasury secretary — and Kavanaugh, founder of the struggling film production company Relativity Media, were intertwined.

When he faces Senate Democrats during his confirmation hearing, Mnuchin is expected to come in for a grilling over his 17-year career on Goldman Sachs and his time as CEO of controversial mortgage lender OneWest Bank. (Mnuchin’s confirmation hearing has not been scheduled.) Mnuchin’s dealings at OneWest have come under fire as the bank has faced scrutiny for its reputation as an aggressive forecloser on properties that were in default. But his career as a financier of Hollywood films may also come under the microscope.

In October 2014 Relativity announced that Munchin’s company, alternative-investment firm Dune Capital Management, would make a significant investment in Relativity. The commitment would be made via one of Dune’s funds, Dune Capital Partners IV, and Munchin would join the board and act as an adviser to the Beverly Hills, California–based company as it planned for a 2016 IPO. Whereas the size of the deal was not disclosed, the transaction would buy out a former Relativity investor, the hedge fund firm Elliott Management Corp.

“Steven has been a trusted adviser for years, and I personally recruited him to join our board,” Kavanaugh said in a press release announcing the deal . “He brings an unrivaled perspective on the ever-increasing value of content in Hollywood and Wall Street, and his experience will prove invaluable as we continue moving toward an IPO.”

The love was apparently mutual. “I’ve known Ryan for several years and have closely followed Relativity’s success,” said Mnuchin, who began investing in films via Dune Entertainment in 2005, in the statement.

Pasadena, California–based OneWest Bank — which was acquired by CIT Group in 2015 — was already a lender to Relativity. The firm, which Kavanaugh co-founded in 2004, has backed such movies as Earth to Echo, Little Fockers, and several films in the Fast and the Furious franchise.


Still, the timing of the Dune investment was curious: by October 2014 it was known to many in Hollywood investor circles that Relativity — in no small part because of Kavanaugh’s leadership, detractors say — was struggling. By late July 2015, less than 12 months after the Dune investment, Relativity had filed for Chapter 11 bankruptcy protection. There would be no IPO, and Kavanaugh was left fighting to retain control of his company.

By the time of the Chapter 11 filing, Munchin was no longer on Relativity’s board. He had resigned owing to the potential for conflicts of interest between Dune and OneWest’s interests in Relativity. Bankruptcy documents show that it was when OneWest began sweeping money out of Relativity that the firm ran out of cash, causing it to fall into receivership. Equity investors were mostly wiped out by the restructuring — with Dune reportedly losing as much as $80 million. (Mnuchin, who was an investor in Dune Capital Partners IV, revealed in his financial disclosure that he had received a small amount of interest income — between $15,001 and $50,000 — from Relativity receivables via Dune Capital Partners IV and estimated the value of those receivables to be between zero and $1,001.00.) OneWest was reportedly made whole.

For some institutional investors, Mnuchin’s investment in Relativity may have helped them dodge a bullet. With $27 billion in assets, Elliott Management, the New York hedge fund headed by well-known Republican donor Paul Singer, has a large institutional asset base.

Film finance is notoriously hard to do profitably; the list of both institutional and individual investors who have failed at it is long. But Mnuchin enjoyed a solid reputation as a film investor. In its film finance dealings, Dune is best known for its so-called slate deals with Twentieth Century Fox. Starting in 2005 Dune Entertainment struck a deal with Fox whereby it would finance all of company’s upcoming films. A key problem in film finance — in which investors typically back a group of movies know as a slate — used to be that the studio or other parties would cherry-pick the best films for themselves, leaving investors with the dregs. Film bankers regard the Fox/Dune partnership as a more successful model for investors. Among the films Dune invested in was Avatar, the most profitable movie of all time by worldwide box office sales.

To the surprise of many, Kavanaugh was able to retain control of Relativity when it came out of bankruptcy this past April. Boasting a new business partner, Dana Brunetti, Kavanaugh told the Hollywood Reporter in late September that he was busy planning for his comeback. In recent months, however, Kavanaugh and Brunetti have reportedly stepped down from day-to-day operations of the company. This week Adam Fields — a producer of ’80s film classics Sixteen Candles and The Breakfast Club, among others, who had been named co-president of Relativity in 2015 — filed suit against Kavanaugh. Fields claims that the entrepreneur fraudulently induced him to take the job at Relativity and claimed the firm “operated closer to the cantina scene in Star Wars than a normal production company.”