BBDL’s horse fund taps growing market
Luxembourg manager BBDL has launched what is believed to be the first investment fund focused mainly on thoroughbred horses for show events.
The Equi Future Champions (EFC) Fund is a non-Ucits onshore regulated fund, launched in Luxembourg in August. It aims for annual net returns of at least 10%, which are not correlated to mainstream asset classes. The revenue will come from a mixture of events prize money, proceeds of sales and charges for breeding. The manager, BBDL Luxembourg, is seeking to gather up to €250m during the sixmonth fundraising period.
The SICAV-SIF is designated only for qualified investors and could be added in portfolios of institutional investors, family offices and wealthy private individuals. The managers will use about 60% to 70% of fund assets to buy horses both privately and at auctions globally.
They will invest 20% to 25% along private equity lines in companies related to the equine industry. The managers have pproached some potential targets for this portion, and it is understood it will sit alongside Warren Buffett as an existing coinvestor in one of these ventures.
The rest of assets will be a cash reserve for fresh purchases and extra liquidity. Diversified wealth management group Baumann & Partners, headed by founder John Baumann, is initiator of the fund, and manager of its cash and private equity parts.
Baumann says the horse portion of the portfolio can be sold in a matter of days and, though private equity investments would take longer, this allowed the managers to offer at least semi-annual liquidity to investors, after an initial one-year lock on money expires.
He adds: “Horses form part of a huge industry that has not been detected by financial services. The industry has not regarded it much, because it falls under the category ‘agriculture’. In the US last year, the equine industry contributed $119bn to GDP, and provided 1.4 million jobs. In Germany it provides 300,000 direct jobs and in the UK it is 5.4% of GDP.”
Baumann says there was growing interest in show events in the Middle East, Russia and, maybe most importantly, China: “China had quarantine restrictions, but they are organising the biggest jumping event next year in Shanghai.”
The EFC fund will trade some horses it buys, offer others for breeding, and enter horses in events such as dressage, cross-country races (‘eventing’) and show-jumping. It will not enter its horses for flat races, or steeplechases, nor breed thoroughbreds itself.
The fund will spread horses between 20 and 30 stables. Each stable will hold at most ten top-grade horses, so the fund will be diversified across up to 200 thoroughbreds. This is about one third of the viable sports horses universe the fund has identified.
At purchase, the objectives for each horse are established including what level of events it might reach, forecast sales price and time, and projected costs up to that point. This evaluation is reviewed every quarter.
Baumann says: “Our process is more complicated and sophisticated than equity analysts.”
A radiographic assessment categorises each horse, and the fund has strict criteria what level each horse – or its heart – must meet before it can buy. All the horses will be insured for injury and accidents, and the managers will conduct regular, strict
tests on their housing and trainers to ensure animal welfare standards are being met.
Monthly costs per horse for vets and vaccinations, blacksmiths, food and riders come to about €1,200. Baumann adds that the fund requires each rider to submit quarterly a written update on the training status on every horse. The managers will conduct “unannounced training controls” as well as reviewing operations/facilities, training plans, and the events themselves.