Today is a good time to be an investor in alternative assets. Whether it is art, crypto, private equity, real estate, venture capital, or private credit there are many good options, particularly for accredited investors. And at the forefront of this alternatives boom is Yieldstreet.
Our next guest on the Fintech One-on-One Podcast is Milind Mehere, the CEO and Co-Founder of Yieldstreet. He was last on the show back in 2017 and since then they have grown to be the market leader in alternative investments for individuals with around $3 billion invested.
In this podcast you will learn:
- How Yieldstreet has changed over the last five years.
- The three types of investment strategies they focus on.
- What they are doing in the art space for investors.
- How they structure their art investments to make them more accessible.
- Details of their unique crypto offerings.
- The different types of real estate offerings they make available.
- Some of the marquis private equity fund managers they are working with.
- The two strategies they have made available for venture capital.
- What private credit is and the offerings they have.
- Milind’s thoughts on NFTs as a potential offering for Yieldstreet.
- How awareness has changed when it comes to alternative investing.
- What he thinks about the accredited investor rules.
- The number of investment offerings they have launched since inception.
- What is coming down the pipe at Yieldstreet.
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Welcome to the Fintech One-on-One Podcast, Episode No. 357. This is your host, Peter Renton, Chairman and Co-Founder of LendIt Fintech.
Before we get started, I want to talk about the 10th Annual LendIt Fintech USA event. We are so excited to be back in the financial capital of the world, New York City, in person, on May 25th and 26th. It feels like fintech is on fire right now with so much change happening and we’ll be distilling all that for you at New York’s biggest fintech event of the year. We have our best line-up of keynote speakers ever with leaders from many of the most successful fintechs and incumbent banks. This is shaping up to be our biggest event ever as sponsorship support is off the charts. You know, you need to be there so find out more and register at lendit.com
Peter Renton: Today on the show, I’m delighted to welcome back Milind Mehere, he is the CEO and Co-Founder of Yieldstreet. Now, Yieldstreet is a super interesting company, they basically are a platform for alternative investments and I’ve been an investor for many years and I wanted to get Milind back on the show, it’s been about five years since we had him on and obviously, a lot has changed. We wanted to go through the different verticals, the different niche asset classes that Yieldsteet offers, we do that in some depth, we talk about NFTs, we talk about accredited investors versus non-accredited investors and some of the challenges there. We talk about the scale they’re at, investor returns and what’s next. It was a fascinating episode, hope you enjoy the show.
Welcome back to the podcast, Milind!
Milind Mehere: It’s great to be back, Peter.
Peter: Just looking, it’s been exactly five years since we had you on the show and boy, little did we know what we had in store when we last chatted so it’s been an interesting five years, to say the least. I’d love if you could start off with just talking about how Yieldstreet has changed. In 2017, you were still pretty much a startup and just kind of getting some traction, but how do you say the last five years have been?
Milind: Yeah. The last five years have been fantastic for Yieldstreet and we have changed actually quite dramatically. If your audience and you remember, Yieldstreet, as the name suggested, primarily started by offering access to direct investments across a variety of different asset classes and focused on yield and building that integration. Since then, we have built the most comprehensive platform that gives you access to private markets, not just alternatives, across a variety of different asset classes using a variety of different ways you could invest in products. So, you can make direct investments, but you could get access also to funds so it is the most comprehensive platform that gives you access to private markets and really helps modernize your portfolio. So, it has truly went into the next generation of wealth tech investment platform that we had aspired to build when we started the company.
Peter: Right, right. So, would you say the mission is still the same, that hasn’t changed?
Milind: Mission is absolutely the same, access to and distribution of alts were always broken and we have proven that using technology data and regulatory frameworks, you could open that access up, the mission is absolutely the same, we are staying true to what our true north is.
Peter: Right, right, okay. Let’s dig right in here, I’d love to go through some of the different asset classes because I think this, you know, full disclosure I’ve been a Yieldstreet investor since 2017. I’ve always appreciated more unusual types of assets you can get on here, but, as you say, you’ve got some more mainstream assets and some of the alternatives, but let’s just go through some of them. I know that you made an acquisition, I think it was 2019, if my memory serves me right, in the arts space and I thought it was a little curious at that time, but now I can really see where you’re going here so tell us about the arts space and how you’re making that available to investors.
Milind: Before we dive into asset classes, right, maybe to give a little orientation.
Milind: What is it we’re trying to do? So, if you think about the private markets, what we are trying to really do is if you look at investments strategies there are really, you know, three main areas that we have focused on. One is generative income, the other is capital appreciation or really growth of your money and then the third is going to be the blend of two. And so, any of the asset classes that we bring to you will fall underneath those strategies and I think that is very important as you think about diversifying away from the stock market and really modernizing your portfolio, that’s really at the most top level you have.
And then you have a variety of other asset classes that compliment that portfolio and if you think about what are the primary food groups, if you will, so it is private equity, private debt, real estate or real assets, art is a part of it and we’ll talk a little bit about that, venture capital and then crypto. So, those are like kind of the five main food groups under which all of our products are now offered to our investors so that’s kind of the top-level orientation.
Now, going back to your question around art, so art brings out generally, for us, the pieces really was art is very similar to real estate and so it has two flavors. Debt which produces income so if you are a high net-worth individual or a gallery or an auction house and you have art as collateral, can you borrow against it, which is very similar to crypto like hey, I’m sitting on $2 Million of Bitcoin and Bitcoin loan cannot borrow against that. So, it’s a very similar concept, if you have $2 Million multi-family real estate unit, can I borrow against that? And so, that’s one aspect where you get, you know, monthly coupon, if you will.
And then, the second aspect is investing in art and Yieldstreet actually is essentially launching these passion assets and what does investing in art mean? If you go want to buy a Bastion or a Banksy it’s going to be several million dollars and you know, actually fractionalize that and offer it to investors so they could invest $5,000, $10,000, $15,000, but still get the capital appreciation. And in the last couple of years, you have seen that there is a lot of interest, especially since the pandemic, in this type of passion assets which is potentially sports memorabilia, art, it could be other things such as cars and wines and watches and whisky. These markets have historically been very private and has been done by family offices and institutions to sell to a smaller extent. There are platforms like RallyRoad or Masterworks alongside us that are, you know, trying to bring this asset class to the market and, you know, art is a $2 Trillion asset class that is absolutely 100% illiquid.
Milind: So, these types of products bring that liquidity and also provide that capital appreciation that the consumers are really looking for..
Peter: Yeah. That’s a really good point because such a large asset class, I mean, It should be in every investor’s portfolio, right, because it’s fairly non-correlated and it is great, like you see a Banksy or some of the other famous artists that are around today and you think, I can’t afford to own one of those. So, you’re actually buying the equity of the art, right, you buy and hold, what is the expectation for sort of a liquidity event there. I presume this is pretty long-term investment, right?
Milind: So, the way we are doing it is instead of as you build in Yieldstreet style, right, what we do is take an asset class and make sure that we can structure it in such a way that our investors get the true value fit of the platform so instead of you speculating on an individual piece, what we are doing is that wrapping it into an investment vehicle where you get access to multiple pieces together and the typical hold period is about, you know, three to four years and then you will get liquidity on that. The liquidity will primarily come from potentially selling appreciated assets.
For example, we have one fund open that has Murakami, Yayoi Kusama, it has Warhol, a bunch of these guys. We’re also launching, we are actually sponsors of the new Basquiat show called King Pleasure so it is like the Van Gogh immersion, Basquiat, as all of us know right now, is the most popular and hottest artist in the world. So, we are actually presenting that show as one of the sponsors and our next portfolio is going to be anchored around the Basquiat piece so it’s a really exciting time. The returns are expected to be in high teens if the market continues to fall so the targeted returns are expected to be in that range and, as you said, it’s a really non-correlated way to explore that market.
Peter: Right, right, okay. So, you said that crypto is somewhat similar, tell us a little bit what you’re doing in crypto?
Milind: Again, with crypto obviously, Peter, as you know, we have been very conservative so up until now, for the last two years, our customers are asking us about it. Crypto, obviously, you know, very much kind of in the speculative column bucket. In the last year or so, especially during the pandemic, there has been a wide scale adoption of crypto and so there are really two things that we are doing. One is that we get access to very interesting crypto funds that will, again, give you that diversification so as an example, we launched Pantera Capital, it has been around for a long time, a known investor in crypto.
The fund that we launched was that early stage ICO to open fund and this has a bunch of different positions including PolkaDot and this is something that you can’t get access to at the minimums and obviously are available on Yieldstreet and so we launched that. Basically, we’re subscribed out of $30 Million position in that fund. We’re going to launch another fund that is going to be a basket of the top ten coins so if you are a consumer that doesn’t want to buy Bitcoin or doesn’t know which one to buy and how they have been performing, we are creating a basket of top ten fund that auto balances itself, depending upon how the market moves with a very, very broad asset manager and that’s going to be launched in the next couple of weeks so stay tuned for that. So, that’s one way that we are launching in terms of investing in funds that are diversified of investing in crypto-related assets that can give you non-correlated, very big targeted returns, right. So, these funds could be in 30,40,50% returns obviously all targeted, but that’s really why you are investing in crypto.
The other thing that we are going to allow people to do shortly….I’m giving away all the secrets, my marketing team is not going to be happy (Peter laughs), but you will be able to actually use your crypto if you want to diversify away and invest using crypto on Yieldstreet. So, if you hold Bitcoin, Ethereum, any of these coins, you will be able to move them to Yieldstreet and you will have a crypto wallet and then you use that to potentially invest in offerings so that’s very exciting, you know, big investment for us in that area for the next 12 months.
Peter: That’s really interesting, very interesting indeed.
Milind: So, think about it, right, the opportunities are endless meaning…..
Milind: ……imagine if you are sitting on a million dollars of Bitcoin or Ethereum and you want to borrow against it, you are long on crypto so, you know, there is this margin lending solution, the same way you would do with cash, you know, your private wealth bank, right, and so we are working through partners to offer similar solutions to the crypto universe out there that is sitting on a lot of crypto, but want to obviously hedge and diversity that portfolio, but no one to sell that underneath asset. And so, imagine if we gave them 60/70% LTV, they could get fiat and then invest in alternatives that is generating double digit returns, but they are, at the same time, reserving that stake that they’re obviously very bullish on long term.
Peter: Right, right, yeah, totally get it. Okay, let’s go to a more traditional asset class, real estate. I’ve seen lot of real estate offerings come on your platform, tell us a little bit what you’re doing there.
Milind: Yeah, absolutely. So, in the last year and a half, it’s really been a big push towards, actually last two years big push towards real estate equity. Yieldstreet, by the way, was the first platform to identify single family rental, SFR, and build for rental, BFR, trend. We put our first portfolio before the pandemic and you know what happened during the pandemic in the last couple of years, like big asset managers like Blackstone have doubled down with worth $100 Million funds in that space. We have continued to evolve that space offering single family rental portfolios to our investor base, along with that, we have offered lots of real estate equity deals, multi-family, commercial real estate, office space, warehouse and so like really rounded off the Yieldstreet offering from the traditional real estate debt that we used to do. We still do this, but like really a compliment to that.
We are obviously also trying to figure out how to get more and more people enrolled in this type of offerings with regards to the consumer that keep on buying so we actually launched our first private REIT and the idea there is to give more access to people and also, in short, investing directly in one or two real estate investments. You invest in this private REIT that, you know, generally will give you that diversification without traditionally……you know, public REITs are highly levered with very expensive structures and, you know, like what we are doing at Yieldstreet is obviously demystifying that and making it easy for people to access similar products but much more cheaply.
Peter: Right, right. And speaking of demystifying, let’s talk about private equity because that’s obviously an asset class that has really only been available to institutional investors for many decades so what are you doing there exactly?
Milind: So, the strategy there, Peter, in private equity is actually pretty straightforward. We are taking marquis managers, both across private equity and hedge fund ecosystem and making them available on Yieldstreet. For example, we launched with Avenue Capital which is a well known manager last week and we launched two of its funds, along with Onyx which is in private credit, they actually have quarterly coupons and invest in a whole variety of private credit, again, a very, very popular fund.
Along with that, we are launching, you know, in the coming months could be big asset managers such as Fortress and KKR and the idea really is that you give people access to these marquis managers who have established track records. The main thing and the main ethos of Yieldstreet is having minimums that are palatable so unlike private wealth management where the minimums could be $250 to 500 Million, you get access to that. And while speaking of funds outside of private equity maybe we can touch on venture capital for a minute.
Milind: So, there we also have two strategies. So, for example, we launched Greenspring Associates which is a 20-year old asset venture secondary manager who’s now owned by StepStone which is publicly traded. We launched their funds on our platform and the idea is like they are LPs Andreessen, Accel and Khosla and NEA and Bessemer so, you know, you got like the secondary fund gives you access to like really the investments that they’re making in the secondary market, but they also have fund of funds that are LPs in all of these things. These types of strategies, you just don’t get access to them. And then what we did is yesterday, we launched our first VC co-invest so we launched two investments including Flutterwave which is the biggest African unicorn right now in the payments space so excited about that as well.
Peter: Yeah, yeah, saw that news, it was really cool, okay. So then, the other broad category then is private credit, you touched on it, but tell us a little bit about what you’re doing there on the debt side of things.
Milind: This is going to be very interesting especially with the momentum, the interest rates that’s happening and the dramatic supply chain issues and other aspects of inflation that are coming in, but private credit simply is, these are funds that lend to middle market companies, that do $100/$200 Million in revenue, you know, they could be across consumer lending companies, they could be around auto loans that are taking pitches, middle market companies that are, you know, in the manufacturing space and this is to similar to secured debt for the most part.
It’s a variety of different kinds of strategies within one fund that you would get access to. You know, these are companies that may not be in the leverage loan market but one rank below that and so people get a very diversified pool of a variety of a different investments such a credit fund would do so that’s we are trying to bring.
Peter: My very first investment with you guys was your legal finance, I remember it was like a group of like 300 plus cases or whatever, where do you put that? Is that under private credit or how do you kind of categorize that?
Milind: Yeah, it’s interesting. So, potentially the legal finance fund could go inside of private credit as a food group, as we speak, so, yeah, the simple answer is yes.
Peter: Are you still doing those sorts of offerings?
Milind: Yes, we are still doing legal finance. We are partnering with top-of-the-line kind of industry, you know, partners. In the last six months, let’s say if you’re watching the platform, we have partnered with Bench Walk Associates as well as with Parabellum which are big funds in the legal industry and we are basically giving access to those funds.
Peter: Right, another great non-correlated asset class there. So then, I’d love to get your thoughts on NFTs, I mean, they’re all the rage, they’ve been all the rage since the last year and I know you don’t sort of jump in on the latest trend, but what are your thoughts there?
MIlind: Yeah. So, Peter, I think you’re absolutely right. I think the way we would really integrate NFTs, if at all, would be on our passion assets so if you are potentially, you know, buying or investing in an art portfolio, if the artist is levering and they’re buying their art, potentially collaborating there and creating some digital NFTs that could be part of that group, you don’t anticipate, you know, launching or selling NFTs for that. It could go to Open Sky, or one of these many platforms that are available, but it would be related to passion assets and looking at that space, but just getting our toes wet, if you will, not diving in at this point.
Peter: Understood, understood. So then, let’s take a step back, how do you….you look at sort of alternative investing and, I imagine, not everything you do is alternative, but has awareness changed, I mean, obviously you’ve grown really well over the last few years, but where are we at with awareness of alternative investing would you say?
Milind: I think awareness has dramatically changed, Peter, and I would love to actually get your thoughts on it. I mean, we were the trailblazer since 2015, you know, we were actually developing the market, the market didn’t exist and today there is a timing market, right. If you look across the industry, the number of alternative investment platforms and different mediations of them mostly align to an asset class, but there is a tremendous proliferation of just knowledge that’s out there. So, I think the market is still not like obviously big, they are still I think on the not cross the chasm, if you will, but like about to cross the chasm.
What are the reasons for that? I think there are two main drivers so massive tailwinds. One driver is human behavior, a consumer is much more knowledgeable today, they want to invest, they want to take control of their financial life that traditionally people have shied away from and they are saying hey, we want a seat at the table, but don’t just stuff us with ETFs and passive products, give us what institutions are investing in. Yours want the most sophisticated investors what the top 1% is investing in so we want a seat at the table and they are willing to put in effort to learn and understand.
Second is tied to the consumer behavior. What has happened is, you know, think about during the pandemic, mean stocks, rise of crypto. That has generally created a ton of awareness that new consumer-driven behavior can really open-up industries. So, I think those two factors are creating this tailwind behind alternatives. I think that we are in the first innings and our belief at Yieldstreet is that by the time this decade is over, so I call this as the golden age of fintech, meaning the next ten years.
We were in the golden age of tech the last decade, 2010 to 2020, and within that if you think about alternative investing and investing landscape, I can assure you by the end of this decade, it’s going to be the allocation to alternatives for a retail investor share a wallet is going to go from less than 5% today to 30%. The drivers of that is going to be private markets, VC, crypto, private equity and you’re seeing asset managers all jumping in. Look at Apollo, Blackstone, Blackstone launched BREIT, you know, and is raising billions of dollars from retail. I think that’s going to drive a bigger option. The other big secular trend, Peter, is that in the next 15 years, so next decade and a half, $67 Trillion of money is getting transferred from Baby Boomers to GenerationXYZ.
Milind: They are going to their parents’ advisor and so when you think about the consumer profile that’s changing, I think a lot of that will be taken from online digital platforms like Yieldstreet. There’s going to huge race where who becomes the super app of investing and wealth management because I think with DeFi and all the things happening there, banking is becoming a commodity, it’s asleep, you know, and everything can be done literally. I mean, we have 100,000 bank accounts without us being a bank, right, through a partner bank, through an API same FDIC insurance, same everything. How are you going to differentiate yourself and who is going to be that super app of investing and wealth management? I think that’s going to be a big race and, you know, we like to think that we are in the forefront of that.
Peter: Yes. You are certainly well-positioned and I would also argue not the tailwind and something you’ve really focused on I know is the fact that it’s easy. Before, investing in alternatives, you know, 10 or 15 years ago, even for a high net-worth individual was not an easy process, you’ve made it like it’s just buying a stock kind of thing. You open up an account, say how much money you want to put in and boom, it’s done, it’s a very simple process and I think that’s the other piece that I see as being really critical for getting mass adoption.
I think, as you say, there’s more tailwinds coming, as you say, like the transfer of assets and all sorts of things. So, I want to ask about accredited investors versus non-accredited, I know that most of your offerings are for accredited investors, how do you feel about….I know that you talked before about the importance of non-accredited investors, but where are you at with that now?
Milind: I would say 90% of our offerings is open to accredited investors. One of our funds, the Yieldstreet Prism Fund, that’s open to non-accredited investors and we are continuing to work within the constraints of regulation to open products to offer to much more of the population. That’s really where, you know, regulation…..we really have to figure out, whether it’s a combination of regulation as well as technology and what role we can play there to really educate the regulators, in general, about what it means to invest in these types of investments.
I think they are taking the right steps so now there are private funds where you could invest your 401(k), the Department of Labor has proposed that and these are all the steps in the right direction. Accredited, definition itself, needs to be re-looked at, you know, regulation obviously when we refer to the Investment Act of 1940 and Advisers Act of 1933, there is fundamentally something wrong, right, where you are referring to something that had happened pre-World War II.
Peter: Right. (laughs)
Milind: How do we sit down with regulators and say hey, general solicitation was never allowed because, you know, a lot of the hedge funds, people didn’t have transparency, but if you look at Yieldstreet the level of transparency you get on an investment has never been done in the private markets and alternative investments before. So, war on the platform is really brewing, where should the platform….it should have been restrictive, really have a dialogue about like hey, what is required so that the platform can do the right thing by the consumer, make the right data and information and content available versus saying hey, this has not been done for the last 30 years and you’re not financially qualified to do that, you know, that’s like the wrong approach, like how should we have that dialogue.
So, think about it, right, you and I, we spend way too much time in, you know, potentially attending conferences, we have fintech conferences. LendIt has been a, you know, there and when you have attended conferences in the same place that any consumer can come and freely lose money, 100% of your money you are guaranteed to lose and you can allow them to do that, but you can’t allow them to invest in the private market. That’s something that’s fundamentally incorrect about that whole proposition so how can we kind of walk hand-in-glove with regulation and with that.
By the way, now, again, we are getting a lot of tailwinds because crypto is becoming a real, financial institutions are paying attention and so there is going to be a lot of dialogue around what’s the role of blockchain to, again, for the decentralized and offer transparency and obviously do it the right way so that the consumer is always protected. But, at the end of the day, we have to live with the technology of 2020, not with something that had happened in 2000 or 1980, forget about 1933 and 1940 you know. (Peter laughs)
Peter: Yeah, it is a little bit ridiculous, I should say. We’re running out of time, but I want to couple of things here, I want to talk about, like I’ve see on your site historical returns to investors, you obviously share that publicly, can you just share what the historical return has been, just a little bit about that.
Milind: Peter, super exciting. You have been with us since, you know, almost our beginning days, yesterday, or actually two days ago, on Tuesday we launched our 360th offering on the platform.
Peter: Wow, that’s great!
Milind: I don’t think that any funds, including BlackStone or Apollo, have done so many investments in like a 20-year period, right, so we obviously are very proud that we have done that, but I think what we are more proud of is that our 480 investments are fully mature and paid off, we have returned $1.5 Billion plus back to our investors in principal and interest, we have generated close to $175 Million + of interest income for our investor base. The platform IRR, we have statistics based that walks through everything, but it’s tracking towards double digit platform IRR and so we are very excited about how the platform has really evolved.
We are the only platform that has, you know, distributed now close to over $3 Billion in diversified product, right, across the multiple asset classes in multiple strategies and I think from an end consumer user experience standpoint, you don’t want to go to monoline platforms and have ten platforms where you are able to get access and I think that’s what Yieldstreet does is to like really providing that complete alternative point of view.
Peter: Sure, sure, okay. So then, as we wrap maybe you can tell us about what you’re working on that’s interesting What can you tell us that’s coming down the pipe at Yieldstreet?
Milind: Yeah. I think there are two or three things that are very exciting for us for the remainder of the year. So, we spoke a little bit about crypto, we are going to continue to evolve, how do you offer crypto products or also use crypto to invest in alternatives. I was going to say traditional asset because compared to crypto, alternatives is traditional.
Milind: It’s much more of non-crypto alternative asset so that’s one bucket. The second bucket is we launched our secondary market last year and we are continuing to evolve so we have exposed over 65% of our users to the secondary market. And so, we are making some big bets because, ultimately, our vision is that the vision of private market adoption is so foreign in the retail ecosystem and, of course, there is no liquidity and the liquidity premium is 20/40%, it just makes it really unpalatable for so many consumers. So, you will see a bunch of new workflows, new commitments that we are making to the secondary markets including the launching of a very interesting fund in the summer that could be of interest to your audience.
And then the last thing is think about robo advisory meets smaller portfolio which is obviously being done in public markets, right, nobody is really truly doing it in the private markets, nobody can really do it because they don’t have the diversity, but we do. So, imagine if CalPERS has to allocate $5 Billion, what they would do is go to Cambridge Associates and say hey, please lay out a plan for us to really…how should we think about it across alternatives product markets ecosystem.
The same question consumers should be asking and how can you automate that experience. So, I think for us, we are working on something very cool in that oral space where you’re able to come to the platform, answer a few questions and we would basically layout for you in those five or six food groups that I had said in the beginning, private equity, private credit, venture, crypto, real assets. How do you distribute that if you want to invest if you don’t know, how do distribute that, how do you automatically re-balance it and so I think that has never been done for retail and we are super excited that, you know, we are embarking and taking baby steps towards that.
Peter: Right, right, that is really interesting. Well, we’ll have to leave it there, Milind, it’s always great chatting with you, you are doing important work for investors like myself, we appreciate it. So, thanks for coming on the show.
Milind: Thank you for having me.
Peter: So, I want to go back to what Milind was talking about there with accredited investors. It’s been on the books since the 1980s, there has been some movement, change in the definition. I, personally, would like to abolish it, I think it’s meaningless today because you can invest your life savings in the latest crypto token, you can invest your life savings on going to the casino and betting on red or black at the roulette table, you can do it in a penny stock. All those things are completely legal, but some of these great investment opportunities that are really non-correlated are only available to accredited investors and I just think that’s plain wrong. I don’t think the rules are going to abolished anytime soon, but I hope they do dramatically change the rules so it’s open to many, many more people.
Anyway on that note, I will sign off. I very much appreciate your listening and I’ll catch you next time. Bye.