Investing in alternative asset managers: Another way to tap into the growth of private markets

Individual investors have historically missed out on certain alternative investments as institutions gobbled up the lucrative and exclusive opportunities private market managers offered them. Today, however, it’s not only possible for individuals to invest in  private markets on platforms such as Yieldstreet – but now they can also invest in some of Wall Street’s best known asset managers. Instead of getting returns on the assets in a strategy managed by a firm like Blackstone, investors share in Blackstone’s overall success by investing in the firm itself. Investing in asset managers themselves presents another investment opportunity for those individuals seeking to diversify their holdings, generate cash flow and growth. Instead of getting returns on the assets in a strategy, investors share in the business’s success.

How to gain become a private equity exposure

It was rare even a decade ago for private alternative asset managers to offer outsiders ownership stakes in their firms. Today, however, the growing size and age of some firms have led them to explore new ways to raise cash for running their businesses or cash out some of their equity ownership by selling stakes in their firm to outside investors. In private markets, the group of owners of the asset management firms are referred to as general partnerships or “GPs” while the investors in their underlying funds and strategies are known as limited partners or “LPs.” The ownership stakes in an asset management firm are offered as “GP stakes” and can be made directly or through a fund. Blackstone, for example, recently raised $5.5 billion in a GP stakes fund, exceeding its target by 37 percent.

The ownership shares offered in a private alternatives manager are not usually the same as those held by the company’s management team. They are typically minority, non-voting shares with no management authority over the business, investment approach, or funds. What ownership stakes do provide, however, is access to the regular recurring revenue stream that private managers earn through management fees. Private managers typically charge their investors a 2% management fee on their total amount of invested assets. A $1 billion fund that charges a 2% management fee, for example, generates $20 million annually in fee revenue. Fees are steady, predictable income and not directly tied to the ups and downs of market performance. Managers may have different clauses for adjusting fees based on their performance, but private markets fees are mostly fixed.

Private managers also earn what is known as carried interest, which are the profits generated by the underlying investments in their funds. These profits are distributed to the investors and the firm’s ownership.

How does it work?

Like most private investments, ownership stakes in management firms are illiquid and tied up for terms that can last ten years or so. The investor trades liquidity in exchange for regular cash flow from management fees, in addition to the potential growth of their ownership stake as the business expands and as carried interest accumulates. 

One of the key potential benefits of investing in management stakes is choosing which managers to invest in. Like any industry, performance can vary greatly. The chart below shows the average performance of top-performing, median and bottom-performing managers across several private markets categories. 

Exhibit 1: Private markets performance by category

Chart, waterfall chart

Description automatically generated

Source: McKinsey, chart shows Global fund median IRR and percentile spreads by asset type, net IRR to date through Sept 30, 2020, for vintage 2007-17 funds, %.

Investing in built-to-last managers

For the better part of two decades, investors have scoured the market for alternative sources of yield, income and return. With bond yields pegged near historical lows, stock indices at historical highs and inflation eating away at savings, many investors are seeking novel ways to diversify a portfolio without taking on too much risk. In recent years, institutions have poured record amounts of cash into private markets, and the returns haven’t disappointed. Private equity has outperformed broad US stocks over the last 5,10, and 20-year periods. The long-term return on the Cambridge Associates Private Equity Index, for example, is 13.8% versus 9.1% for the S&P 500 index. [2]

By owning a slice of an alternative private manager via an equity stake, an investor can earn long-term potential return growth while collecting regular cash payments from the management fees that firms earn. Individual investors now have this opportunity to further diversify their own alternatives portfolios and revenue potential through owning stakes in private markets managers.

If this investment approach has you curious, be sure to register for our upcoming webinar and consider whether the GP stakes opportunity on Yieldstreet makes sense with your portfolio.

How helpful is this content?

Was this content helpful?

Sign up with Yieldstreet and be the first to know about our latest offerings, recent news, upcoming events, and more.

Your email will never be shared and will only be used for Yieldstreet updates. Already a Yieldstreet member? You're already set up to be notified.

Share this article:

Sign up for Yieldstreet in 3 easy steps

Sign up with your email address

Securely verify your identity and link a bank account

Verify your accreditation (if applicable) to access all of Yieldstreet’s offerings.

The Yield

Our weekly podcast providing ideas about how to make money work for you and bring you closer to your dreams.

Since inception, over $2.2B has been invested on Yieldstreet

Join today for free to access alternative investment opportunities.

1 Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in significant losses.

3 "Annual interest" or "Annualized Return" represents an annual target rate of interest or annualized target return and "term" represents the estimated term of the investment. Such target interest or target returns and estimated term are projections of the interest or returns and or term and may ultimately not be achieved. Actual interest or returns and term may be materially different from such projections. This targeted interest or returns and estimated term are based on the underlying investments held by the applicable.

4 Reflects the annualized distribution rate that is calculated by taking the most recent quarterly distribution approved by the Fund's Board of Directors and dividing it by prior quarter-end NAV and annualizing it. The Fund’s distribution may exceed its earnings. Therefore, a portion of the Fund’s distribution may be a return of the money you originally invested and represent a return of capital to you for tax purposes.

5 Represents the sum of the interest accrued in the statement period plus the interest paid in the statement period.

6 The internal rate of return ("IRR") represents an average net realized IRR with respect to all matured investments weighted by the investment size of each individual investment, made by private investment vehicles managed by YieldStreet Management, LLC from July 1, 2015 through and including Dec 22th, 2021, after deduction of management fees and all other expenses charged to investments.

7 Investors should carefully consider the investment objectives, risks, charges and expenses of the Yieldstreet Prism Fund before investing. The prospectus for the Yieldstreet Prism Fund contains this and other information about the Fund and can be obtained by emailing [email protected] or by referring to www.yieldstreetprismfund.com. The prospectus should be read carefully before investing in the Fund. Investments in the Fund are not bank deposits (and thus not insured by the FDIC or by any other federal governmental agency) and are not guaranteed by Yieldstreet or any other party.

8 This tool is for informational purposes only. You should not construe any information provided here as investment advice or a recommendation, endorsement or solicitation to buy any securities offered on Yieldstreet. Yieldstreet is not a fiduciary by virtue of any person's use of or access to this tool. The information provided here is of a general nature and does not address the circumstances of any particular individual or entity. You alone assume the sole responsibility of evaluating the merits and risks associated with the use of this information before making any decisions based on such information.

300 Park Avenue 15th Floor, New York, NY 10022

844-943-5378

No communication by YieldStreet Inc. or any of its affiliates (collectively, “Yieldstreet™”), through this website or any other medium, should be construed or is intended to be a recommendation to purchase, sell or hold any security or otherwise to be investment, tax, financial, accounting, legal, regulatory or compliance advice. Nothing on this website is intended as an offer to extend credit, an offer to purchase or sell securities or a solicitation of any securities transaction.

Any financial projections or returns shown on the website are estimated predictions of performance only, are hypothetical, are not based on actual investment results and are not guarantees of future results. Estimated projections do not represent or guarantee the actual results of any transaction, and no representation is made that any transaction will, or is likely to, achieve results or profits similar to those shown. In addition, other financial metrics and calculations shown on the website (including amounts of principal and interest repaid) have not been independently verified or audited and may differ from the actual financial metrics and calculations for any investment, which are contained in the investors’ portfolios. Any investment information contained herein has been secured from sources that Yieldstreet believes are reliable, but we make no representations or warranties as to the accuracy of such information and accept no liability therefor.

Private placement investments are NOT bank deposits (and thus NOT insured by the FDIC or by any other federal governmental agency), are NOT guaranteed by Yieldstreet or any other party, and MAY lose value. Neither the Securities and Exchange Commission nor any federal or state securities commission or regulatory authority has recommended or approved any investment or the accuracy or completeness of any of the information or materials provided by or through the website. Investors must be able to afford the loss of their entire investment.

Investments in private placements are speculative and involve a high degree of risk and those investors who cannot afford to lose their entire investment should not invest. Additionally, investors may receive illiquid and/or restricted securities that may be subject to holding period requirements and/or liquidity concerns. Investments in private placements are highly illiquid and those investors who cannot hold an investment for the long term (at least 5-7 years) should not invest.

Alternative investments should only be part of your overall investment portfolio. Further, the alternative investment portion of your portfolio should include a balanced portfolio of different alternative investments.

Articles or information from third-party media outside of this domain may discuss Yieldstreet or relate to information contained herein, but Yieldstreet does not approve and is not responsible for such content. Hyperlinks to third-party sites, or reproduction of third-party articles, do not constitute an approval or endorsement by Yieldstreet of the linked or reproduced content.

Investing in securities (the "Securities") listed on Yieldstreet™ pose risks, including but not limited to credit risk, interest rate risk, and the risk of losing some or all of the money you invest. Before investing you should: (1) conduct your own investigation and analysis; (2) carefully consider the investment and all related charges, expenses, uncertainties and risks, including all uncertainties and risks described in offering materials; and (3) consult with your own investment, tax, financial and legal advisors. Such Securities are only suitable for accredited investors who understand and willing and able to accept the high risks associated with private investments.

Investing in private placements requires long-term commitments, the ability to afford to lose the entire investment, and low liquidity needs. This website provides preliminary and general information about the Securities and is intended for initial reference purposes only. It does not summarize or compile all the applicable information. This website does not constitute an offer to sell or buy any securities. No offer or sale of any Securities will occur without the delivery of confidential offering materials and related documents. This information contained herein is qualified by and subject to more detailed information in the applicable offering materials. Yieldstreet™ is not registered as a broker-dealer. Yieldstreet™ does not make any representation or warranty to any prospective investor regarding the legality of an investment in any Yieldstreet Securities.

Banking services are provided by Evolve Bank & Trust, Member FDIC.

Investment advisory services are provided by YieldStreet Management, LLC, an investment advisor registered with the Securities and Exchange Commission.

Our site uses a third party service to match browser cookies to your mailing address. We then use another company to send special offers through the mail on our behalf. Our company never receives or stores any of this information and our third parties do not provide or sell this information to any other company or service.

Read full disclosure
Copyright © 2022 YieldStreet, Inc.