Wealthy individuals interested in the fast-growing sport of reining now can invest in their passion through syndicates, which have been much more common in the racing world but are increasingly being used for other riding disciplines like eventing and show jumping.

Equine syndicates are typically structured as partnerships or LLCs with members who range from individual horse buyers and owners to unaffiliated investors looking for something different. Like other speculative investments, equine syndicates carry significant risk for the reward. They are usually structured as private placements, restricting them to the most sophisticated and qualified investors, and with good reason: The investments are highly concentrated, often built around just one or two horses, and highly illiquid with lock-up periods ranging from a few years to a few decades. Most are not managed full time, but loosely organized around key opportunities identified by one of the lead investors. Other costs might include sharing monthly expenses, such as training and entry fees.

There are, however, some appealing characteristics for the seasoned investor including little to no correlation with equity markets and the chance to be part of a multi-billion dollar industry that shows no signs of shrinking or slowing. Across all its disciplines, the equine business is thriving on the support of its participants, fans and the large corporate sponsors that supply feed, tack, barns, medicine and other associated products and services on a worldwide basis.

Newer syndicates are adopting a more traditional investment approach that utilizes research, discipline and established methodologies as part of full-time professional management that will help attract new investors to this low-profile opportunity (see case in point below).

Capturing Emerging Growth
Reining is one of the fastest-growing equestrian sports today. Sometimes referred to as the "dressage of Western riding," reining displays horse and rider in a graceful yet exciting manner with a distinctly hard-driving, sliding, spinning flavor. Its purpose is to show the horse's smoothness, finesse, obedience and attitude.

Like all western riding sports, reining had its start on the ranch. Cowboys who had to herd cattle, rope calves and ride long distances needed reliable, agile and obedient horses. Unlike the cowpokes depicted in the popular movie City Slickers, in the olden days riders did not collapse by the campfire with a bottle of liniment when their work was done. Instead, they engaged in riding sports, competing with one another to see who had the fastest horse, who had the most obedient horse and who could do the best tricks.

Out of these cowboy contests came the elegant and high- energy sport of reining. Today, the skills of the horse and rider are demonstrated in the riding of patterns around an arena. These involve a variety of movements that must be chained together in a graceful sequence with no observable resistance on the horse's part. The American quarter horse dominates reining, just like the European warm blood breeds dominate dressage and the Thoroughbred dominates horse racing.

Over the past 15 years, reining has experienced tremendous growth, largely due to high-levels of interest from the international equine community. Reining is the only Western discipline of the United States Equestrian Team (USET) and its international counterpart, the Fédération Equestre Internationale (FEI). Additionally, it is the only Western discipline in the Pan American and World Equestrian Games. Thanks to the sport's groundswell of popularity, the 2010 World Equestrian Games for the first time in its history will be held outside of Europe and in the United States. As a result, reining is likely to be included in the 2012 Summer Olympic Games.

Taking Diversification To A New Level
The international and domestic fascination with reining has caused a tremendous increase in demand for quality reining horses. This has not only resulted in an increase in the purses to be won in reining competitions, but also increased the value of a champion-caliber reining horse.

Reining horses are typically sold as yearlings, 2- and 3-year olds. At the December 2005 NRHA Two-Year-Old Prospect Sale held in Oklahoma City, the average selling price for top horses was $131,750, with the highest price hitting the $167,000 mark. Less than 10 years ago, the average price investors and breeders paid for comparable horses was in the $30,000 to $40,000 range. It is important to note that at this age the horses are untested and considered purely prospects. They have not begun their competitive careers yet and are being valued solely on pedigree and earning potential. The most valuable prospects never even make it to auction; they are sold in private sales in the $200,000 to $300,000 range. With the coming World Equestrian Games, and possibly the Olympics, these numbers could begin to approach or exceed $1 million.

Historically, the competitive life of a reining horse was over by the time it had reached 6-years old. As part of the World Equestrian Games, where horses must be at least 6-years old to compete, and likely inclusion in the Olympics, where the minimum allowable age of a horse is 9, a lucrative aftermarket for proven champion reining horses has been created.

Finding The Crème De La Crème
The United States is the only place reining enthusiasts and equestrian teams can purchase both champion reining horses and the semen to impregnate their mares. And as in all sporting events, reining has its all-star players. These super elite horses are known as the "Million Dollar Sires," as they have been designated by the National Reining Horse Association (NRHA). By definition, these are horses whose offspring have accumulated more than $1 million in winnings from NRHA competitions.

In the history of the NRHA there have only been 12 such elites, and all of the champion reining horses of today can trace their bloodlines to one of these sires. Only seven of the Million Dollar Sires are alive and breeding today, and all of them "stand" on domestic soil-Arizona, Oklahoma and Texas, to be specific.

Luckily, an investor doesn't have to "bet the ranch" to take advantage of this investment opportunity. Those wishing to participate financially in the sport's growing popularity can simply invest in a reining syndicate.

Knowing The Issues
As with any investment, an advisor and his or her client should consider several factors before buying into a reining horse syndicate.

First, the pedigree of the horses. It is all in the genes. Reining is a very special discipline, and the horses that compete at the highest levels are the equivalent of any Olympic athlete. As in all equine disciplines, the horses are bred for the specific task. Many try but few are chosen. At the NRHA Reining Futurity in Oklahoma City last November, approximately 400 3-year-old reining horses competed for the prize, but only 30 made it to the finals! We have all heard the story of Seabiscuit, and long shots do happen-even in the world of reining-but the odds are too slim to be sensible.

Second, the trainer and rider. Great horses need a great trainer to bring out their talent. Where would most of our superstar athletes be if it weren't for their coaches? In most equine disciplines, the trainer and rider are two different people. But in the world of professional reining, they are usually the same person. The level of communication that must exist between horse and rider in reining is very high. The ultimate trainer/rider needs time to develop the horse to his or her style of riding and to cultivate the degree of synergy and attunement needed to win competitions. This is why reining horses bred from the best bloodlines command so much money before they have ever been in a competition.

Third, diversification. Investors must be fully aware that horses are living creatures and, despite their size, they are very delicate; they are being trained to perform very strenuous tasks, and injuries and other unforeseen events do occur. A horse might be injured during a major competition, offspring might harm themselves while in pasture before they have been fully trained or evaluated, a mare in a breeding syndicate may be unable to conceive one season. While every precaution is taken to avoid setbacks, many of these scenarios are out of the hands of professionals and syndicate members, which means investing in a syndicate clearly has uncontrollable risks. This type of investment should probably be limited to no more than 15% of an individual's portfolio and, ideally, syndicates will invest in multiple horses to further mitigate risk.

Finally, the investment itself. Reining syndicates are unique in many ways-where else can an investment be petted, fed and played with? So setting the expectations of a new investor upfront can help prepare them for a better experience. Participation is expensive, with single shares ranging in price from $10,000 to $30,000. In addition, there are the training fees, health costs and other expenses that syndicate members may share equally with monthly capital contributions. These types of investments are illiquid and priced only semi-annually, so an investor may not know the exact status or value of his or her investment for several months at a time. Profits are usually distributed on an annual basis for the duration of the syndicate, and when the livestock is sold the syndicate is liquidated.

CASE IN POINT: SILVER SPURS - By Hannah Shaw Grove Silver Spurs Equine LLC based in Cave Creek, Ariz., is one of the few firms trying to raise the bar on equine syndicates. Staffed with professionals from both the investment and equine fields, Silver Spurs employs a more methodical and diversified approach to reining syndicates than seen elsewhere. Drawing on the practices of asset management firms that incubate mutual funds or hedge funds to determine how a specific strategy will perform in actual market conditions, Silver Spurs has established a proprietary training and evaluation program for competition horses and breeding stallions. The firm turned to Bret Stone, a 26-time world champion and 1992 NHRA Futurity winner, to direct their efforts. Stone and syndicate manager Michael Miola apply a very critical eye to breeding stallions and competition prospects, working together to identify and purchase the strongest animals. "As the saying goes, garbage in, garbage out-by restricting our efforts to only the highest quality prospects, we increase our chances for success," says Miola of their process. Over the past few years, Silver Spurs has systematically acquired what it believes to be the best breeding and competition livestock with a goal of creating a super-elite line of reining horses. Once achieved, they will be able to control the supply and, in turn, the value of the properties. Part of the strategy was implemented last September with the purchase of Boomernic, the world's 12th Million Dollar Sire and the only living son of a Million Dollar Sire to become one himself. With a litany of honors, championships and earnings to his name, Boomernic "will become the cornerstone of the Silver Spurs breeding program," says Stone. Ongoing searches for suitable additions have allowed them to anonymously acquire through dealers the best Boomernic mares and colts alive today, along with offspring of other Million Dollar Sires. This means that all the offspring from Silver Spurs breeding program, managed by Miola's wife, Michelle, have the genes of Boomernic and several of the other Sires. "Michael will make sure that all of the great ones are eventually owned by Silver Spurs and our investors," Stone says with a smile, exhibiting confidence in both the strategy and their ability to execute it. Silver Spurs offers a variety of syndicates with different investment objectives. A short-term investment, for instance, is structured around 2- and 3-year-old horses trained to compete in NRHA Futurity reining competitions. The objective is to win as much money as possible during the available timeframe, then sell the proven horses to equestrians to compete in NRHA events for aged horses (4 years old and older) and, ultimately, in the 2010 World Equestrian Games where reining horses must be at least 6 years old. Conversely, their longer-term investments are focused on breeding their Million Dollar Sire, Boomernic, to several proven broodmares each year with the goal of creating an elite line of champion prospects. The syndicates do, however, share a common exit strategy. As soon as the present value of a syndicate's horses exceeds the future earning potential- from competition winnings, the market value of its livestock, or both-the syndicate is liquidated. Most syndicates focus on a single aspect of reining, but Silver Spurs is active in breeding, training, sales and competition-a fact that distinguishes them from their competitors. "There is a strong probability that several of our prospects and offspring will become tomorrow's champions," says Stone. But Miola emphasizes that counting on the creation of superstars is foolish. "At the end of the day we're an investment firm, and we have to generate results for our members. With diversification and careful management, we can deliver consistent and reliable performance." Reining is all about having fun, but the competitive spirit is alive and well at Silver Spurs where the team shows up each day with every expectation of winning!

Michael Miola is co-chairman of NorthStar Financial Services Group LLC, a pioneer in the mutual fund and ETF industry, and manager of Silver Spurs Equine LLC. More information can be found at www.SilverSpursEquine.com.