Investing in thoroughbred horses can be a route to wealth and glory—or more likely an expensive but joyous passion

Annual turnover at Tattersalls in the UK, Europe’s leading bloodstock auctioneer, rose from 248 million guineas in 2013 to a record 263 million last year.

Several years ago I owned a stake in a racehorse. Part of a syndicate of naive City boys, I thought we were investing in a future Cheltenham Gold Cup winner, but instead ended up burning cash supporting a stumbling donkey. Its glib-tongued Irish trainer always had plausible excuses for the nag’s poor performance: it was wrongly handicapped or preferred soft ground, it had developed an allergy or needed a special diet. Yet we enjoyed our Saturday visits at dawn to the Lambourn gallops on the Berkshire Downs, dressed like country folk, feeling proprietorial and pretending that we were part of a more tangible world away from the trading desks. Of course, we were deluded fools and the tough, down-to-earth horse people were rightly contemptuous.

However, with diligent research and planning, we need not have made such asses of ourselves. Buying the leg of a racehorse might hold out the promise of instant gratification, but investing in bloodstock—that is, the breeding of thoroughbred horses—would have been a savvier option. “It’s difficult to predict returns because they are determined by supply and demand, which is driven by the broader economic cycle,” says William Sporborg, managing director of Breeding Capital, a bloodstock investment firm based in Newmarket, the centre of the UK’s horse racing industry.

“But it’s possible to make a fortune investing in bloodstock if you are prepared to take a long-term view and make the commitment,” Sporborg says. Billionaire John Magnier, for instance, left school at 15 to build Coolmore Stud into one of the world’s largest and best stallion breeding operations and thoroughbred nurseries. Based in County Tipperary, Ireland, it has operations all over the globe, including the Ashford Stud in Kentucky and Coolmore Australia in the Hunter Valley of New South Wales.

And the market is buoyant again, boosted by the emergence of the Qatari royal family as major buyers, led by Sheikh Fahad al-Thani’s Qatar Bloodstock, and a resurgence of activity by the ruler of Dubai, Sheikh Mohammed bin Rashid al-Maktoum, whose Godolphin Racing and Darley Stables operations have dominated the industry for two decades.

Buyers have the choice of investing in different industry segments. The least risky, broodmare investments, provide several opportunities to earn rewards. For instance, you can buy a maiden mare, breed her to a top stallion and then sell her in foal, or keep the mare and sell the foal as a weanling or a yearling. Alternatively, you can buy a mare already in foal. There is a very active market in yearlings, which are then resold as two-year-olds, known as “breeze ups” because prospective buyers have a chance to watch them galloping before making a purchase.

A 1913 cartoon by French caricaturist Georges Goursat, known as Sem, parodies Coco Chanel and her lover Boy Capel, who shared a passion for polo and horse racing in Deauville

The most expensive and most lucrative segment is the market in stallions. Their price is determined by their pedigree, racing record and confirmation (successful stud performance). For US$500,000 investors can acquire a top stallion or, for a lesser outlay, buy a share of the horse, whose value is based on likely future cash flows. Top-rated stallion Galileo, whose progeny had a 40 per cent win rate in 2014, earning total prize money of £7,193,916, covers about 300 mares a year at ¤40,000 each, according to Sporborg. And some stallions have stamina as well as regularity; Sadler’s Wells continued to service mares until he was 28 years old.

Alternatively, investors can indulge in “pinhooking,” which is the practice of buying a horse with the intention of reselling it for profit—basically short-term trading. The two most common pinhooking ventures are weanling to yearling partnerships and yearling to two-year-olds.

For long-term investment, it is also possible to buy shares in tax-efficient funds that hold a portfolio of thoroughbreds. Breeding Capital plans to launch its sixth (Enterprise Investment Scheme) fund later this year, and another UK-based business, Windmill Bloodstock Investments, also offers participation in most segments of the market. Investors can expect a 15 to 20 per cent return, according to Windmill’s Charlie Budgett, who manages the firm’s Kirtlington Stud in Oxfordshire, which buys top-quality bloodstock from all over the world.

Market activity is robust. Annual turnover at Tattersalls in Newmarket, Europe’s leading bloodstock auctioneers—where Chanel’s owners, the Wertheimer brothers, have bought more than 60 horses—rose from 248 million guineas in 2013 to a record 263 million guineas last year. Sale highlights included the world’s top price for a yearling for the third year in a row, the world’s highest priced “breeze up” two-year-old, and a record average of 53,376 guineas for the 4,935 lots sold during the year. Many of the horses go on to compete at Hong Kong’s Happy Valley and Sha Tin racecourses. 

However, few investments in the racing industry are likely to make the punter a fortune. “Instead, the attraction for many people is to learn about bloodstock and become involved in the breeding process. It becomes a passion,” says Budgett.  

Read more about investing in thoroughbred horses