Greater Baton Rouge Business Report: Divine equines: investors seek handsome returns from horse synd

Like many stock market investors, Bob Auerbach grew weary of the anemic returns he saw after the dot-com bust of 2000.

"Returns on fixed investments have been very, very low and hardly keeping up with inflation," says Auerbach, a semi-retired developer who lives in the resort community of Sippermore Point in southwest Louisiana.

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Then he discovered investment in the thoroughbred racing industry, specifically the buying, selling and breeding of horses for profit. This is not just any investment, but investment in the industry's most elite horses that can fetch hundreds of thousands of dollars even as foals, and which in the course of a lifetime can make millions for their owners.

"When I came across investing in horses as a way to handle my money it seemed a novel idea, full of fun and a little excitement," Auerbach says. "And I couldn't do much worse than fixed investments."

"I can tell you I'm well satisfied with my initial investment in horsing around," Auerbach says.

The company he invested with is the brainchild of Louisiana-born attorney and CPA Andre Regard and his wife, Patricia. Together, the Regards own and operate Occidental Thoroughbreds, a combination horse farm and thoroughbred consulting and investment business.

Their Kentucky farm sits in the world epicenter of the thoroughbred racing industry. From there they put together investment syndicates that buy mares for breeding, as well as young horses called weanlings they hope will become winners and therefore more valuable.

The Regards believe Louisiana's strong equine history makes it fertile ground in the search for new investors. Half of Occidental's investors have ties to Louisiana, and the company is making a push to recruit even more investors from their home state. Andre Regard's brother Jady has experience in sports marketing. He helps operate the family's Cane River Pecan Co. in New Iberia and plans to meet with prospective investors in Baton Rouge in September.

Jady Regard's role in the company is to help boost interest among potential Louisiana investors. "Occidental wants to simply offer a conduit to those investors to participate in the sport at its highest level," he says.

Investing in racing's elite is more competitive but also potentially more lucrative, Regard says. "The top 20% of horses produce 80% of the revenue."

Investors have two types of investments to choose from.

The first is a brood mare fund, a traditional syndicate in the business. Investors' cash is pooled to buy mares that become virtual factories for the syndicate, bearing foals that hopefully will fetch ever-higher sums as their progeny succeeds on the nation's top thoroughbred race tracks.

A brood mare investment requires a five-year commitment and offers--in the most successful cases--annualized returns of 25%.

The second form of investment is a pinhook syndicate, one that is high risk but offers faster returns. A pinhook syndicate involves buying young horses for resale before they are proven and before their actual value plays out on the track. Occidental's pinhook funds require a 10-month commitment and earn investors up to 25% returns.

Occidental pools its investors' cash to buy more than a dozen weanlings. At their farm in Kentucky, the Regards nurture and train the young horses for 10 months, spending up to two hours a day with each horse, focusing on conditioning and training.

"During those 10 months, we hope three things happen: one, that their dominant sire (father) becomes more dominant; two, we hope the female side of the family gets better; and three, we'll train and condition the foal, so we can present a more attractive animal at auction that's grown right and we've put some conditioning on him."

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Regard's wife, Patricia, who grew up in the thoroughbred city of Ocala, Fla., uses novel techniques to get the best out of the young horses.

"She does cutting edge conditioning techniques--like in the movie The Horse Whisperer, she's a big student of all that, she gets into the horse's head," Regard said.

After the 10-month training and conditioning period, Occidental sells its still unproven horses at carefully tracked auctions. Buyers study intimate details about each horse's bloodline and the racing performance of its ancestors and siblings.

In last year's pinhook fund, Occidental bought five horses for $520,000, some of which will be auctioned in the coming weeks.

Even if one horse in a pinhook fund becomes a winner, it can mean exponential returns for investors. For example, a few years ago Occidental paid $27,000 for one horse which the firm sold 10 months later for $660,000.

Of course, not all horses grow up to be winners. Some develop injuries or simply don't live up to their genetic potential. That's why Occidental puts together syndicates to spread the risk.

"We feel we're adding value and putting a superior horse on the market," Andre Regard says.

TOM GUARISCO covers telecommunications and utilities, retail, oil and gas, and insurance. Reach him at tguarisco@businessreport.com.