Q2 2024 Letter from the Chief Investment Officer

March 28, 20243 min read
Q2 2024 Letter from the Chief Investment Officer
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Our Viewpoint: Over the past decade, private credit has become a critically important sector within global capital markets. Given the structural attributes of this asset class, we believe private credit instruments are a core component of any well-balanced private markets portfolio.

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As a heavy consumer of financial press and media content, I have seen no topic more discussed and debated than the ever-increasing size and importance of the private credit market.

To best understand private credit, it is important to remember that traditionally, large and medium-sized companies have raised debt financing through either the issuance of loans or bonds. At the center of both the corporate bond and loan markets have been the large regional and global banks, who originated and underwrote these transactions, placed them with investors, and then provided support through research and secondary trading.

The Evolving Debt Landscape

The aftermath of the financial crisis brought considerable change to this model, particularly the loan market (i.e., the “broadly syndicated loan market”). Global regulators realized that large amounts of credit exposure were heavily concentrated on the balance sheets of the largest and most interconnected banks in the world, which required extensive “bailouts” and other governmental intervention.

In the decade since the crisis, regulators have increasingly imposed higher capital requirements and other restrictions that have curtailed the ability for banks to lend and hold risk. This regulatory tightening increased even more over the past year in light of the failure of Silicon Valley Bank and other regional banks.

As banks have reduced their exposure to the loan market over the last couple of years, the demand for corporate loans has continued to grow, particularly from small and mid-sized private companies.

Up to now, this gap has been filled by non-bank lenders, mostly asset managers, who have large amounts of committed capital dedicated to this strategy and have the ability to hold the loans to maturity. From an investor’s perspective, loans originated in the private credit market are generally more lender-friendly, with strong collateral and covenant packages, relative to the ‘cov-lite’ structures generally found in the broadly syndicated market.

So when we use the term “private credit,” we are referring to lending activity that is happening outside of the bank-dominated syndicated loan market and being directly originated by asset managers. While private credit generally refers to corporate lending, this market also includes other related asset classes, such as structured finance, trade finance, and supply chain finance, each of which has been impacted by the decreased risk appetite from banks.

Our Approach to Private Credit

Private credit has been a core asset class for Yieldstreet since our inception, most notably in the asset-backed and structured finance space. Litigation finance, art, consumer lending, leasing, aviation, and supply chain and trade finance are all examples of this asset class, and we will continue to bring you more opportunities across this space (for example, our recent Powersports offering).

In the past year, we introduced our CLO product as well as private credit-related fund offerings, which have expanded the breadth of our private credit portfolio. Looking ahead, we are actively evaluating a wide array of direct lending opportunities. Given the massive refinancing needs over the next couple of years and with banks expected to largely stay on the sidelines, we anticipate that there will be substantial opportunities to invest in this asset class, as supply/demand dynamics will largely benefit lenders in terms of strong loan terms and premium risk-adjusted economics.

Closing Thoughts

We recently reorganized our investment team structure to increase our resources allocated to the private credit space, and we look forward to sharing these opportunities with you in the future.

On behalf of all of my colleagues at Yieldstreet, thank you for being an investor with us. Our mission is to provide you with an ever-increasing selection of curated private market investment opportunities designed to help you and your family attain your financial goals.

Take care,

Ted Yarbrough
Chief Investment Officer

We believe our 10 alternative asset classes, track record across 470+ investments, third party reviews, and history of innovation makes Yieldstreet “The leading platform for private market investing,” as compared to other private market investment platforms.

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