Big Brown Owner IEAH Gaining Ground In Horse Racing World

Big Brown Majority Owner Taking Hedge Fund Approach To Owning Horses

Int'l Equine Acquisitions Holdings (IEAH), the majority owner of Kentucky Derby-winning horse Big Brown, is "about to embark on a bold and innovative venture that will give it even more resources with which to buy thoroughbreds," according to Andrew Beyer of the WASHINGTON POST. While IEAH was "virtually unknown two years ago," it now "occupies the sport's biggest stage." And though industry insiders are "mystified by this new power in the sport," Beyer notes what "distinguishes [IEAH] most is its financial clout." IEAH within a few weeks will "reconstitute itself in a new format, one modeled after hedge funds, and it will be unique in the horse business." IEAH will have a "maximum of 100 participants investing a total of $100[M]," and rather than having a "separate partnership owning each horse, the new entity will give each investor a proportionate share in the whole stable." The new portfolio will include all of IEAH's "current runners," except Big Brown. Under the new format, at the end of each quarter, an "independent appraiser will value all of the holdings; based on this price, investors can cash out and new investors can buy in." IEAH will take a management fee of 2%, plus "20[%] of net profits." Beyer writes the "most intriguing question of all about IEAH is whether it can possibly make a profit." The group is building the Ruffian Equine Medical Center, a hospital which will "presumably be a source of profits, so the IEAH partners will have some cash flow to counterbalance the high risk of their horse ventures." Meanwhile, among racing people, IEAH has "raised eyebrows because of some of the company it has kept." The details of IEAH co-CEO Michael Iavarone's career are "invariably sketchy," as his biography "doesn't mention any firms where he worked." And his partner, IEAH co-CEO Richard Schiavo, "did work for major Wall Street firms, but he was an administrator, not a deal-maker" (WASHINGTON POST, 5/15). The AP's Jeremy Herron wrote Iavarone brings a "bit of Manhattan flair to horse ownership mix." He also brings a "Wall Street business model, soundly beating the long odds against having a horse in the winner's circle," and he "spends big to buy proven assets" (AP, 5/14).