By BENJAMIN MARK COLE

Contributing Reporter

Hollywood players often lead notoriously extravagant lives, so you might expect them to be equally as flamboyant with their personal investments.

Wrong, say the bankers who serve the industry’s elite. In fact, when it comes to their own money, Hollywood’s top dogs tend to be downright mundane.

Rather than gambling on the stock market, many entertainers prefer tax-free, high-quality municipal bonds and short-term U.S. Treasuries risk-averse investments that can provide a solid, after-tax yield.

“In general, entertainers and athletes are focused on preservation of principal, with a competitive, reasonable return,” said Vernon Kozlen, executive vice president in the investment division of Beverly Hills-based City National Bank. “They generally are not interested in getting the highest return possible” if that means incurring too much risk.

As Kozlen’s experience demonstrates, banking in Hollywood means more than just financing films. Indeed, managing the industry’s money has become something of a cottage industry in Los Angeles.

A 45-year veteran of the Tinseltown trenches, City National is credited with pioneering this small but profitable niche. But other institutions including Mercantile Bank, Comerica Bank-California and a host of private banks and money management firms have followed suit, looking to tap into the growing number of performers, writers and producers in L.A. who need someone to manage their riches.

Kozlen estimates that City National has “hundreds” of high net-worth clients in show business. The emphasis on safe, interest-bearing instruments may stem from the precarious nature of the entertainment industry itself, he said, in which a fat year could well be followed by a period of relative famine.

“They have varying degrees of income,” said Kozlen, “and can go from a very large paycheck to nothing for awhile.” The interest earned on their investments during those gaps in earnings can pay the bills.

Another banker agreed that, in general, the Hollywood types demand safety but also noted that because entertainers today have larger after-tax incomes than in years past, some are growing more adventurous with their investing.

“As entertainers move towards more professional management of their assets, they are availing themselves of some of the opportunities globally,” said David Bunce, managing director of Citibank Private Bank, which has targeted the entertainment industry as a source of new clients. Some are even venturing into foreign equities, despite the turmoil in Asia.

Still, both Kozlen and Bunce agreed that the days of cowboy investing are over. “The sums have gotten so large, professional managers have come in… we see fewer of the wild partnership deals and wacky transactions that you used to read about,” said Kozlen.

However they invest, relationships play a heightened role in dealing with entertainment industry clients.

“With institutional investors, they can like you, or not like you, it doesn’t matter,” said Ken Malamed, president of Financial Management Advisors Inc., a Century City money management firm with $800 million under management. “But with entertainment industry types, there has to be chemistry.”

Malamed concurred with the bankers that safety, and not return, is paramount to entertainers. But he has a different take on why Hollywood clients may not demand such high returns on their investments.

“My speculation is that they have tremendous confidence in their ability to earn,” he said. “I have heard people say, ‘If I really need that (extra money), I’ll just make another picture.’ When it comes to investing, they are thinking long term.”

Money manager Robert “Bob” Nichols of Windward Capital Management in West Los Angeles, a 30-year veteran who has long served Hollywood investors, said another key feature of entertainment clients is the business manager.

“You almost really have two clients,” said Nichols, who has worked with Dolly Parton and Madonna. (He wouldn’t reveal details about either one, except to say that Madonna was “all in equities”).”The business manager needs to feel that he has placed his client into responsible hands.”

Like most Hollywood bankers and investment managers, Nichols finds that celebrities tend to invest long-term, and safely, but they also sometimes abruptly withdraw funds.

“I had one client, a famous (Hollywood) writer, who saw a house and decided to buy it. He pulled out $2 million just like that. We had carefully built up the portfolio, and one day it was cut up.”

Nonetheless, Nichols said he very much enjoys working with show biz folk.

“It seems more of my clients, if not stars, are involved in the Hollywood food chain one way or another,” said Nichols. “They may be lawyers, or behind the scenes. But the industry is booming.”

Added Kozlen of City National Bank: “The sums (earned) have increased astronomically. But so have they for executives and entrepreneurs. The common ground is that all are seeking very professional management of their assets.”