After more than 20 years in the financial-services rat race, Swiss banker Michael Reichstein packed it in and turned to horse racing for a living.
The 46-year old quit his job as a vice president at UBS AG (UBSN)’s private-banking unit in Zurich where he advised wealthy clients in countries from Jordan to Lebanon and in 2011 began offering bets on British horse races. Reichstein said his Gibraltar-based service, which mostly places lay bets -- a wager that a horse won’t win -- is unique.
“Very wealthy private clients like the approach, they say it’s not correlating to anything,” said Reichstein, who wore sports trousers and a hoody during the interview and spends afternoons betting his client’s money on losing horses at popular U.K. racetracks such as Kempton Park or Wolverhampton.
His betting service is one of various emerging business models tied to horse racing that also include funds that buy and sell horses -- offering alternatives to traditional investments such as equities, bonds or even gold, which dropped 28 percent last year. Reichstein, who rises at 5 a.m. to ride one of his six horses, said his bets returned 6 percent last year.
For horse investors, the market is rallying after a long trough. U.S. thoroughbred sales last year rose above $900 million for the first time since 2008, according to racing industry news and data provider Bloodhorse.com.
Since investors are returning to racehorses, the market is becoming more attractive to funds, Reichstein said. The Swiss national, who also has investments in property and still does some private banking for his own clients, now plans to set up a thoroughbred trading venture wih two partners.
Growth in 2013 was “a significant step up,” Jason Singh, a marketing manager at Tattersalls, the world’s oldest throughbred horse auctioneer, said in a phone interview. There hasn’t been “any real growth over the last few years since the global downturn,” he said.
Money is flowing back into racehorses, known as bloodstock, because of greater interest from buyers such as Qatar’s royal family and improvements in the global economy, Singh said.
At the same time, ownership is diverse. “You get royal families to successful businessmen, bankers who got a good bonus to blokes down the pub,” he said.
For some buyers, it’s also about prestige, said William Sporborg, managing director of Breeding Capital, a Newmarket, U.K.-based fund that sells young thoroughbreds to racing stables.
“You get a lot closer to high society by buying a horse than buying a football club,” said Sporborg, who has raised 12 million pounds ($20 million) to invest in horses in three funds since 2006.
Still, horses have gained value less quickly than equities. The average sale price of a thoroughbred racehorse in U.S. auctions increased 20.7 percent in 2013 from a year earlier to $65,690, according to Bloodhorse.com. That trailed gains made by the S&P 500 index.
Other investors have also been attracted to horses with mixed success.
Michael Iavarone, a former penny stock broker on Wall Street who bought champion racehorse Big Brown, announced plans in 2008 to raise $100 million for a hedge fund to buy and sell racehorses. Iavarone’s International Equine Acquisitions Holdings stables earned as much as $663,362 in races in 2009, excluding horses owned in partnership with other groups. That dropped to just $52,325 in 2012, according to U.S. horse racing database Equibase.com. The fund’s website www.ieah.com is no longer online.
“The most high-risk part is that you are dealing with nature,” said Sporborg, whose first fund lost 8 percent as horse values plunged as much as 70 percent during the financial crisis. The second fund was about break even and the third fund is in good shape.
Reichstein says investing in race horses and betting on races are two separate business models.
While the market for thoroughbred horse trading has a bigger growth potential, because more money is changing hands, it’s more closely tied to global economic developments. Bets aren’t connected to wider economic trends but are more of a niche activity because the volume of wagers per race on markets such as Betfair are limited to about 1 million euros ($1.4 million), Reichstein said.
His fund manages about 1 million Swiss francs ($1.1 million) and a fund with more than about 3 million francs wouldn’t be able to place bets without distorting the market, he said.
In contrast, the best horses can return as much as 1 million pounds per year if they win the prestigious races, he said. After their careers, racehorses can also make a lot of money by producing the next generation of champions.
Galileo, a retired champion, commands a fee of about 350,000 euros if a mare studded by him gives birth to a foal, a person familiar with the matter said. Coolmore, the Irish stallion farm which offers Galileo’s services, says the horse’s stud fee is private.
Buoyed by the results so far, Reichstein isn’t planning a return to full-time banking.
He said he has more freedom to spend time on his passion and he’s not bound to an office or manager, often placing bets in the afternoon from his iPhone. Some of the clients he had at UBS are also investors in his horse-betting fund today.
“Horse trading is like wine trading,” he said. “It keeps getting bigger.”
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