Syndicates are fun, but they're not a racing cert

There's glamour, thrills galore, and the joy of a big win, but investors mustn't mind taking the odd tumble too
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The Independent Online

On a glorious Newmarket morning four weeks ago, Workforce, the winner of the 2010 Derby, was charging up the famous Warren Hill gallops, slightly behind stablemate Harbinger, his main rival for the prestigious King George VI and Queen Elizabeth Stakes later that month. Among the spectators was Harry Herbert, for whom it was a beautiful sight in more ways than one.

In 1992, Herbert founded Highclere Thoroughbred Racing (HTR), the racehorse syndicate company that owns Harbinger. The colt had already delivered a healthy profit, principally by winning the Hardwicke Stakes at Royal Ascot in June. Still, as Herbert's handicapper, Rolf Johnson, hopefully observed at the time: "Harbinger will be worth £20m to £30m with stud fees if he can win the King George."

Last weekend, Harbinger did just that, scooping the £567,700 first prize.

The horse's latest triumph illustrates the massive imbalance in the economics of thoroughbred flat racing. For the 12 members of Harbinger's syndicate, who paid £36,500 for each share, racehorse ownership is proving a very profitable investment indeed. Meanwhile, other Highclere members are crowing after a phenomenal Royal Ascot, which capped a very successful season. The firm is looking at prize money of more than £1m, with a 28 per cent runner-to-winner strike rate and 65 per cent runner to win or place.

Yet despite these triumphs – plus syndicate members' profits being free of capital gains tax – this is no investment scheme. Had you joined all 100 HTR syndicates since it was founded, you would have would have lost 45 per cent of your stake, at least up to May 2009. In total, 75 per cent of Highclere syndicates cost their members money.

"We couldn't begin to give hints that this is a collective investment scheme," says Herbert. "You enter these syndicates for the enjoyment of racing."

Plenty do. Highclere's syndicate members include Manchester United's manager Sir Alex Ferguson, actress Elizabeth Hurley, polo player and model Jodie Kidd, television presenters Gabby Logan and Ben Fogle, and former England rugby captain Lawrence Dallaglio, although Herbert admits there are promotional benefits from having such stars in the syndicates. "We may not charge the celebrities our management fees, or we give them part of a share," he says. From the world of business, Diageo boss Paul Walsh is also a member, as is Australian healthcare entrepreneur Paul Ramsay.

They are attracted by the syndicate sales pitch of a lower outlay for an interest in more horses when compared with owning a runner outright. For example, Harbinger is now the only horse in his syndicate, but originally he was one of two: another colt, Hydrant, never recovered from a knee injury. "That shows the underlying benefit of a syndicate," says Rolf Johnson. "Nine times out of 10, things can go wrong."

Syndicates tend to have a less than thoroughbred reputation in racing circles. Sir Michael Stoute, the trainer of both Harbinger and Workforce, says: "Most syndicates are a disgrace. But Highclere has been successful because it is run so professionally."

For Herbert, who owns 99 per cent of Highclere's shares, there is more riding on this than mere sporting success. In 2008, Highclere made a profit of £363,241, when it had more than £3m in the bank. But by 2009, the numbers had pulled up, with a loss of £516,588 and cash halving.

Highclere makes its money by taking a management fee on each syndicate share, plus 10 per cent of any horse selling for more than twice its purchase price. So, after this year's successes, there is scope for the numbers to improve considerably. Still, this is not the first time that recession has hit Herbert, the great-grandson of the fifth Earl of Carnarvon, who discovered the tomb of Tutankhamun.

In 1984, Herbert set up HMH Management with Irish entrepreneur Michael Smurfit and Nick Robinson, then publisher of Pacemaker magazine. Herbert recalls: "When the recession started in the early 1990s, I was told by backers that we wouldn't be buying any new horses that year. So I set up Highclere. We put in a lot of time and effort to find them. It is done by introductions from existing owners and through the website. We sold one share through the website in the first year. The next year it was four. The year after eight and then 16. At an average of £15,000 a share, that adds up."

As do this season's victories, which Herbert will be hoping are harbingers of boom for Highclere. Economic recovery and sales efforts are important, of course, but the horses still remain his most potent sales pitch.