Breeders' Cup Explains Investment Plans

Breeders' Cup has publicly explained its investment strategy.

Breeders’ Cup, under fire for a plan to suspend the Breeders’ Cup Stakes program, issued a memorandum Dec. 18 that in part explains the organization’s financial situation and investment strategy.

Elimination of the Stakes program was announced late the week of Dec. 7, but the decision was reversed Dec. 16. The program will remain in place for 2009, but it remains to be seen which stakes will be funded by Breeders’ Cup money.

The decision will be reviewed next year for 2010. The Stakes program has provided millions of dollars a year in purse supplements for Breeders' Cup-nominated horses in non-World Championship events at racetracks in North America.

In the Dec. 18 memo, Breeders’ Cup chief financial officer Matthew Lutz said discussion in the industry concerning Breeders’ Cup invested assets necessitated a public response. “The purpose of this memo is to respond to a number of the questions raised by individual trustees on these matters,” he said.

The memo states that since May 1989, Breeders’ Cup investments have yielded an average annual return of more than 7% and generated more than $26 million in investment gains, and that for the 10-year period that ended Nov. 30 of this year, the portfolio has yielded a return that exceeded S&P 500 performance by more than three percentage points.

The portfolio outperformed the S&P 500 by more than 11 percentage points on a year-to-date basis though Nov. 30, the memo said, and a contributor to the outperformance of the major indices this year was the decision by (the Breeders’ Cup Investment Committee) to overweight fixed income securities beginning in the third quarter of 2007, thereby reducing the portfolio’s exposure to the market’s declines in equity values in 2008.

Lutz said the current balance in reserves is $30.3 million, a figure that had been reported earlier. The investment committee is currently maintaining an allocation with 55% of reserves invested in high-quality bonds and cash managed by Neuberger Berman, and 45% of reserves currently invested in equities managed by Blackrock, T. Rowe Price, Chase Investment Counsel, and others.

Members of the investment committee are G. Watts Humphrey (chairman), Bill Farish, Don Dizney, Antony Beck, and Satish Sanan, who was recently appointed. Two former Breeders’ Cup trustees, Ogden Mills “Dinny” Phipps and Jerry Shields, remain on the committee by invitation of Humphrey given their significant investment expertise, Lutz said.

The committee met on eight occasions in 2008 and will meet regularly in 2009 to “review performance and make adjustments to the allocation based on circumstances in the markets,” Lutz said in the memo.