Most of the new crowdfunding investment platforms focus on a particular type of investment (eg, Prosper in consumer debt; Fundrise in Real Estate; FundersClub for startups). And even within each category, there’s often further specialization — for example, among real estate sites, some focus on residential, others commercial. Understandably, the goal seems to be to clearly define a niche in order to stake out territory within the broader market.
YieldStreet seems to be taking a different approach, and it’s become one of my favorites to watch in terms of new opportunities. Their focus isn’t on a particular asset class, but instead they look at a wide range of secured investments (all assets have validated collateral) with relatively short hold times, experienced asset managers, purportedly low stock market correlation, and target annual returns of 8-20%.
You can invest in YieldStreet using a Self-Directed IRA or 401(k) like the ones offered by our friends at Rocket Dollar.'
Types of investments YieldStreet offers
The offering types available at any given time vary quite a bit, but all of YieldStreet’s investments are asset-backed debt offerings. A few recent investments include:
- A marine loan collateralized by three vessels
- Accounts Receivable financing
- A loan to an NBA player (secured by his multi-million-dollar contract)
- “Hard money” lending (short-term loans to real estate investors)
- Loans to fund ridesharing fleets (secured by the cars)
- A range of litigation financing (secured by the expected judgment, kinda like a Receivable)
YieldStreet periodically adds further asset types to its offerings. In May 2018, they added marine finance as a new asset class. In April 2019, they added art as a new asset class through the acquisition of Athena Art Finance, which provides loans to art dealers, collectors and museums and galleries to buy fine art and other collectibles. The acquisition price was $170 million. In early 2020, YieldStreet announced a partnership with BlackRock on a new “Prism Fund” to include investments offered on YieldStreet as well as other fixed-income sectors via BlackRock.
Investments on YieldStreet typically have hold times of 6 months to 5 years.
What do you get when investing with YieldStreet?
Either an SPV (special purpose vehicle) or a BPDN (Borrower Payment Dependent Note) is created for each investment.
If an SPV, it is structured as an LLC. Investors receive a membership interest in the LLC equivalent to their proportional investment. For example, if you invest $5,000 out of a $100,000 total raise, you would receive a 5% ownership interest in the LLC created for the investment. You are also then entitled to a proportional share of the interest payments as well – in that example, you’d receive 5% of the interest payments made by the borrower in a given period.
If a BPDN, then it is a debt obligation of YieldStreet linked to the performance of a specific YieldStreet loan. This structure makes YieldStreet debt transactions more efficient because it allows for a larger number of investors per transaction, as well as lower minimum investments. A new SPV is formed for each BPDN, and is a fully owned BPDN Issuer subsidiary. That SPV funds, acquires and originates a loan, or enters into a participation agreement directly with the loan originator. You can read more about YieldStreet’s BPDN structure on their website.
How does YieldStreet make money?
Fees vary per offering. In some cases, a flat fee is charged to the offering sponsor (and if so that is disclosed on the offering page). YieldStreet also collects a management fee on all offerings, which varies from 1-4% annually. There are also annual flat expenses for each investment, which the investors are responsible for. These are paid from initial interest distributions from the investment. These annual flat fees have slight variation, based on the offering’s legal structure- SPV or BPDN. All advertised returns are shown net of fees.
Potential returns and cashflow
Most investments on YieldStreet pay regular monthly or quarterly interest payments (and some also include principal payments), which are automatically deposited back into your bank account. Investments are usually between 6-60 months.
Some of the investments (particularly in litigation finance) have what are known as “event-based” payments. For example, you would receive payments as cases are settled through the civil court system.
Breadth of offerings on YieldStreet
YieldStreet emphasizes their curatorial role in selecting offerings, and that usually means there are only a few offerings available at any given time. YieldStreet offerings often sell out quickly, so you may want to review past offerings and/or ask YieldStreet for more details about prior investments similar to the kinds you’d like to invest in to help get familiar with the terms and documents so you’re ready to move quickly if an offering you like appears.
Regulatory framework and due diligence expectations
YieldStreet is affiliated with YieldStreet Management, LLC, which is a Registered Investment Advisor registered with the SEC. Investments are offered under SEC Reg D, and are only available to accredited investors.
According to their website, YieldStreet “carefully selects each and every originator who posts deals on our platform”, and they have a rather interesting “anti-investments” section, where they provide some detail about deals they didn’t choose. While it is of course fundamentally content marketing, it’s useful to hear them explain their reasoning, and helps provide some additional context for evaluating the active investments. While a platform’s own efforts should ever be a substitute for your own due diligence, that curatorial approach is different from some other platforms offering similar investments, which function more like straight marketplaces.