Mystik Dan #3, ridden by jockey Brian J. Hernandez Jr. (R), crosses the finish line ahead of Sierra Leone #2, ridden by jockey Tyler Gaffalione and Forever Young, ridden by jockey Ryusei Sakai to win the 150th running of the Kentucky Derby at Churchill Downs on May 04, 2024 in Louisville, Kentucky.
Michael Reaves | Getty Images
This Saturday marks the 151st Kentucky Derby. The winner will earn $3.1 million from a purse of $5 million divided among the top five finishers.
Bank of America‘s Steven Mason will be at the finish line, watching from a box along with his high-net-worth clients. Based in Nashville, Tennessee, the private banker has specialized in equestrian clients for nearly a decade. It came naturally to Mason, who grew up in Kentucky and bought a small horse farm for his two daughters when he moved to Nashville.
“Horses are a lifestyle,” the senior vice president said of his clients. “In some respects, they think of them as investments, and some of it, they think they are just an extension of who they are.”
Mason cautioned that horses, like other passion assets, are illiquid investments with uncertain returns.
“I think you have to look at it like there may be a return or there may not be a return, but I’m going to have a really good time while I’m pursuing wherever this goes,” he said.
While many of his clients grew up with horses, he has seen an increasing number of entrepreneurs become first-time horse owners after a liquidity event. More hedge fund managers are entering the arena, such as former hedge funder Jack Wolf, who co-owns Justify, the last horse to win the Triple Crown.
Mason’s tax-savvy clients typically take out loans to purchase horses rather than liquidating their assets, which would incur capital gains taxes. However, unlike with other specialized assets such as yachts and jets, Bank of America doesn’t allow clients to use horses as collateral.
“Banks don’t have an appetite to have a breathing, living animal as collateral,” Mason said. “God forbid something happened to the horse. Then you’re left with an uncollateralized loan.”
Clients typically take out a private credit line secured by marketable securities with a floating interest rate. This rate is based on a popular loan benchmark called the secured overnight financing rate (SOFR), which has averaged 4.35% the past 30 days, plus a spread determined by the bank.
Steve Mason (right) pictured with his son John Michael, wife Amy-Beth and daughter Clare at the 2024 Iroquois Steeplechase in Nashville, Tennessee.
Courtesy of Steve Mason
For owners of successful race horses, stud fees are far more lucrative than track winnings. Stud fees for top race horses can top $300,000, though most are much lower, according to Mason. Most are bred to 30 or 40 mares per season, he said.
There is robust demand for high-end race horses even though the sport has declined in popularity. Mason noted demand for yearlings, or young horses, is especially strong, which he credits to the increasing popularity of horse racing syndicates. Auction house Keeneland’s September yearling sale generated a record $428 million last year. The average selling price per horse was $150,548 up 5.2% year over year, according to Keeneland.
The finest thoroughbreds, such as those at Fasig-Tipton’s annual November sale, can fetch seven figures at auction.
While race horses can have shorter lifespans due to injuries, the average lifespan for horses is 25 to 30 years. Caring for a thoroughbred is pricey, costing up to $60,000 a year, according to Mason. To clients afraid of saddling their kids with an expensive burden, Mason recommends funding a trust that provides for the horse’s care.
For Mason, working with equestrians is not only a calling card but also a way to earn client loyalty.
“When we can stand shoulder to shoulder with a client and talk with them about their particular situation in our office or out on a farm or at a horse arena, it just really makes that relationship all the more special and all the more close knit,” he said.
