There have been no shortage of bank partnerships in fintech, but this might be the most unique. Last week we learned that Yieldstreet, an online platform which offers investors access to alternative investments was partnering with Citigroup to offer investors access to their private credit investments. What is most intriguing about this announcement is that a big bank is opening up investment opportunities which were traditionally funded by institutional investors and hedge funds. I spoke with Milind Mehere, the CEO and Founder of Yieldstreet to dig deeper into this partnership.
One of the challenges Yieldstreet has faced is keeping investment opportunities available for investors. They currently have 300,000 accredited investors on the platform, but for over 2 years the demand has been insatiable. Most investment offerings fill up within minutes, if not seconds, creating disappointment in investors who miss out. Mehere’s ultimate goal is to continue to create homogenous and repeatable distribution channels. In order to access good supply Yieldstreet is always looking at interesting investment opportunities and the Citi deal is the latest example of that. It will bring $2 billion of assets to investors.
Yieldstreet currently advertises investment opportunities across real estate, litigation finance, marine, commercial, art and more. You can view some of their past offerings here. The deal with Citi will bring similar assets and may include other areas such as energy and infrastructure, railroad contracts, toll booths and even cell phone towers. These deals will be slightly longer in duration, providing steady cash flow over a longer period of time on assets that tend to be uncorrelated to the stock market. Speaking of long term investing, it is worth mentioning Yieldstreet’s acquisition in December 2019 of WealthFlex which will bring these investments into retirement vehicles. This is something that will be welcome news to investors given the high yielding nature of these investments.
The way Mehere views Yieldstreet overall is for investors to have access to a broad spectrum of investments ranging up to around 12%. The mandate with Citi will focus on paper which is either in the 5-6%+ range or around 10-12%. Investors can expect the first deals to hit the platform in the next few weeks.
Yieldstreet investors can expect a similar experience when participating in the deals sourced from Citi and the investment opportunities will be marked as coming from Citi. While Yieldstreet is focused on expanding the number of offerings, they ultimately have the ability to accept or reject offerings. Mehere views their platform as a way to target investment opportunities which offer attractive returns. This means that the current asset classes aren’t necessarily the ones you will see in a year. One way for investors to achieve higher yields is due to inefficiency of capital and perceived versus actual risk. Yieldstreet wants to focus on investments which make sense, opportunities that are not overpriced and that are in areas where they have expertise.
In this way, Yieldstreet is an on demand platform with the ability to be flexible and dial up or down investments based on the current market. It’s important that Yieldstreet is careful with the offerings on the platform since all loans they put on the platform are pre-funded through a warehouse facility before investors are able to allocate. This distribution risk aligns Yieldstreet’s interests with their investor base. This warehouse facility was just renewed and increased to $250 million with Soros Fund Management. Beyond Soros, Yieldstreet works with other banks which provide leverage facilities.
When I asked Mehere about why Citi was looking to expand their base outside of hedge funds and other large investors he noted that ultimately it was a question best suited for Citi. His view though is that this group within Citi called Citi’s Spread Product Investment Technologies (Sprint) is always originating and sourcing opportunities of all kinds. He believes that Citi recognizes that the investment landscape is changing and they want to be the catalyst for this change. Challenger banks and other investment platforms have established strong trust and credibility with the end consumer and thus deals like these can be a strong channel for a big bank like Citi.
As far as what the future holds, Yieldstreet believes there is still lots of room to grow with the enormous size of the private credit market in the US. Mehere also thinks we are going to to see a transformation of behavior from investors over the next decade. Digitally native consumers are going to be increasingly interested in offerings like Yieldstreet. Currently the median age of those participating on the platform is 41. It’s going to be interesting to see where Yieldstreet goes from here as they look for further opportunities that in the past have not been available to individual investors in the US.