Despite presenting a range of variables to rival the riskiest asset class, the thoroughbred horse breeding and racing industry is an international, multi-billion pound business backed by some of the world's wealthiest individuals and families.
There is no such thing as a sure-fire winner when it comes to the sport of kings, something acknowledged even by those in the industry. In fact, it is probably the challenge of producing a winner that motivates the world's wealthiest families (most notably Dubai's Al Maktoum ruling family) rather than the financial rewards on offer.
But that is not to say the potential returns are inconsiderable - Funny Cide, an undistinguished gelding purchased for $75,000 by 10 New Yorkers, went on to win two of the three US Triple Crown races in 2003, amassing more than $2 million in prize money. In 2000, a 20-member syndicate set up by Highclere Thoroughbred Racing sold its horse, Petrushka, for £3.7 million just two years after buying her for £100,000.
More recently Sea the Stars won roughly £4.5 million in prize money before being retired to stud, and is expected to generate stud fees of up to £50 million over the next three years. Yet in many ways the winner of the 2,000 Guineas, Derby and Prix de l'Arc de Triomphe is the exception that proves the rule.
The Hong Kong-based Tsui family, owner of Sea the Stars, spent hundreds of thousands of pounds just to get him to the point where he was ready to be trained, and even horses with his impeccable lineage rarely make their owners a fortune. They get sick, break a leg or just don't have what it takes.
Only a very small percentage of those bought for racing ever make it to the track, but they still need to be trained, stabled, fed, vaccinated and treated by vets. Peter Treadgold of accountancy and investment management group Smith & Williamson reckons that the average financial return on a thoroughbred is about 25% of the total investment. Even fewer get to become stallions and potentially suitable colts are expensive to buy at the outset.
Penelope Lang, tax director at Smith & Williamson and an expert in the bloodstock and equine sector, explains that while relatively few people enter the industry with the sole intention of making money, there are funds that enable tax efficient investment.
One example is Newmarket-based Breeding Capital, which says it has received advance assurances from HM Revenue & Customs that its offer shares rank as "eligible shares" for the purposes of the Enterprise Investment Scheme with its attendant tax reliefs.
Jamie Gutteridge of Bermuda Trust Company Limited draws a distinction between owning horses for pleasure and as an investment. "When viewed as an international investment, appropriate offshore structures should be established for the different aspects of the business - breeding, racing and the operation."
The tax treatment of the horse racing and breeding industry varies from country to country, but tax authorities are in broad agreement that any equine investment must be run as a business to qualify for reliefs – "In other words, you cannot write off losses from your hobby against other income," says Lang.
Countries such as Ireland and France have become leading locations for thoroughbred breeding by offering incentives to investors. However, in August 2008 the tax-free status of stud profits in Ireland was abolished almost four decades after it was introduced following the European Commission's decision that it represented an illegal form of state aid. Breeders now have to pay income tax and corporation tax on earnings.
Lang describes professional services for the equine industry as a niche area because they often relate more to understanding bloodstock or finding the right trainer than purely financial issues. Her colleague Treadgold, who also specialises in the bloodstock and equine sector, admits there are no formal qualifications in equine investment advice.
"However, there are many experienced individuals and companies who are well placed to advise potential investors," he concludes. "Resources such as the owning and breeding section of the British Horse Racing Authority website are a good starting point."