This week we sat down with Matt Klopfer, who is a part of our Investments team at YieldStreet, to ask him about asset-based lending, YieldStreet’s due-diligence process, and his important role of caring for the office fish.
How did you get started in underwriting?
I started out at GE Capital where I visited borrowers at their facilities to perform onsite asset evaluations.
Any crazy incidents while on the road?
We actually had a couple cases of fraud. There were times where fraud was found mid-exam, and we’d find ourselves spending the night in a car outside of the company making sure nobody went into any of the warehouses. Another time, when assessing a winery, we had to validate the assets and make sure it was wine in the barrel, not water. That was… very fun.
How does your experience in asset-based lending shape how you approach investments at YieldStreet?
I use my experience at GE each time I review YieldStreet opportunities by lending a critical eye to our asset classes. The fresh mindset I bring is really in the spirit of what YieldStreet is, an additional data-driven layer of diligence between originators and investors. That review and diligence is founded in the basics of asset-based lending paired with our technology, that focuses on getting a thorough understanding of the asset and the investment’s structure. It’s also important to us to work with proven originators in their given industry that exhibit a specific and deep expertise gained over decades of experience.
What’s the most important thing to look for in an offering?
The actual metrics of an offering (Loan-To-Value, Debt Service Coverage Ratio, etc.) are a big piece of the puzzle in both litigation and real estate portfolios because those help you gauge the risk of a given investment, but when you look at the investment holistically, you should also ask if the metrics make sense in the broader context of the investment. Our technology platform allows us access to historical data so we can view this offering in context with how it has behaved in the past. If I’m not comfortable when these aspects are put together, that’s an indication to continue digging and asking questions until we determine if we’d like to move forward.
What makes someone a proven originator? Is it a certain amount managed, a certain history?
Every originator who we talk to always wants to highlight the best thing about themselves, but YieldStreet makes sure there are hard numbers and documents to back that up. It comes down to asking the right questions, and using our data driven approach that goes beyond performance. We are building a strong and healthy working relationship over the duration of our investment and hopefully beyond. The approach is to standardize the data sets we need for each type of asset class and vis-a-vis originators. As we aggregate and work with more and more originators, the core data set becomes a powerful predictive modelling tool. We are moving rapidly in that direction, where most of the evaluation can become automated and data driven.
How many lines of due diligence are done on YieldStreet investments?
Think of the diligence done on each investment as individual lines of defense. Originators are the first line, as they are experts within their asset class, gathering all of the important data and producing analysis from the data that will ultimately be the motivation to pursue an opportunity for their business. YieldStreet comes along as the second line of defense with an independent analysis to get comfortable with both the originator and the opportunity. Our job is to be objective and use a data driven approach to poke holes in an investment to determine its weaknesses and whether there is a possible mitigant.
How do YieldStreet’s Offerings differ from other online lending platforms?
The one asset class that stands out as being offered most prominently on other platforms is real estate. I think it’s important for investors to note what position their investment is in when looking at the investment’s capital stack. Put more simply, am I the first to be repaid and how? YieldStreet to date has mostly offered senior secured opportunities, which are the first priority when being repaid.
What would you recommend for potential investors looking to gain a better understanding of our investments?
If you don’t understand the offering page or investment memorandum, I highly recommend checking out our resources. If investors still have questions, feel free to call us, we are always available to speak to investors and review our investments.
Finally…could you tell us a little bit about Diver?
You could say that I’m the fish manager at the office. I have a fish at my desk (Diver) who I take care of and watch over. He’s been alive for 6 months, which I’m proud of.
How did he get his name?
Well, as many investors might know, the legal name for our diversified pre-settlement portfolios contains the word DiverPSP and that sounded nautical enough for a fish’s name. As we get more fish, just like our offerings, we’ll have DiverPSP II, DiverPSP III to mirror our platform.
Yieldstreet provides access to alternative investments previously reserved only for institutions and the ultra-wealthy. Our mission is to help millions of people generate $3 billion of income outside the traditional public markets by 2025. We are committed to making financial products more inclusive by creating a modern investment portfolio.