Big Brown's Connections

There was a great article in Monday's New York Times about the majority owners of Big Brown, International Equine Acquisitions Holdings. The founders of IEAH have created an equine version of a hedge fund--based on their experience as Wall Street tycoons--and are currently raising $100 million to create the fund which will buy, sell and breed horses. The company owns 75% of Big Brown, and according to it s president, Michael Iavarone, the $3 million they paid for the colt is small change compared to the stud fees he could command if he wins the Derby.

The concept of a horse hedge fund is fascinating. The premise is that investors earn profits based on management and performance. So instead of buying into a fund of stocks you buy into a group of horses and earn based on their performances. Risky to be sure, plus you have to dole out management fees that I am sure are hefty, but then again given the recent performance of the stock market, there may be some who would see horses as a safer bet than stocks. Certainly if you have a wad to gamble, a horse hedge fund might be a safer bet than a big ticket trifecta.

Each financial quarter, an independent financial auditor will assess the portfolio and investors will have the opportunity to buy into the fund or sell their positions. "What we're offering are liquidity and options that people in the horse business have never had before," says Iavarone.

Fundamentally, the idea of horses as commodities is disturbing to me, even if there is money to be made. I hate to see people get into the sport strictly as an investment because if there is one thing they will learn very quickly, it is that horses are a very expensive investment. Even if they can't run, they need to eat, see lots of vets and have someone take care of them. It is rare that a horse earns his keep and even more unusual for one to turn a profit. But of course those are the ones you read about and those are the ones everyone thinks they can own.

About those vet bills, if there is one thing that Big Brown should have taught the masterminds of IEAH, it is about their frequency. Big Brown has delicate feet and has spent most of his career recuperating from abscesses in each of his front hooves. He has raced only three times and won each of those races in impressive style. Certainly he is the current favorite in the Kentucky Derby based on those performances.

All the connections swear that the foot issue is a thing of the past (and why would they say otherwise?) and that Big Brown is ready and raring to go. While I am delighted that young, ex-Wall Street types are trying to recreate the model of horse partnerships and bring new investment blood to the sport, there is the part of me that wants the horse to win without being part of any one's portfolio, just simply because he is the best athlete competing that day.

Call me sentimental, but I can't help but think that if Big Brown delivers on the first Saturday in May, his owners will do what is best for their pocketbooks and not for the sport.