At Yieldstreet, we’ve created a model to provide our investors with the opportunity to invest in assets that are backed by collateral, typically have low stock market correlation, and are shorter in duration (6 months to 5 years). But before we offer an opportunity on the Yieldstreet platform, each and every offering goes through a vetting process. Let’s dive a little deeper into what may be described (and, perhaps, oversimplified) as a three-stage process: the role of Originators, Yieldstreet, and finally you, the investor.
Originators play a vital role in the due diligence process for all Yieldstreet investments. Think of Originators as the first hurdle that all opportunities must surmount before ever making it onto our platform. Originators are chosen based on their track record, industry expertise, and their ability to manage through all aspects of a deal. Working together, our internal Yieldstreet team is meant to complement the knowledge of these highly-skilled Originators.
Originators are experts within their asset class, identifying potentially promising alternative investment opportunities and, from there, gathering key data about the borrower, business case, and, critically, the assets that may back the financing. All that informs further consideration of the opportunity–bearing in mind that although originators are vetted to identify and assess potential opportunities, Yieldstreet is never committed to go forward with any opportunity and, in fact, most opportunities that Yieldstreet reviews never make it to the platform.
Yieldstreet is unique because we believe we are the only platform to offer investments across multiple asset classes. The main reason we’re able to do this is due to our Originator partnerships (for example, our purchasing participations with Originators, with many Originators participating pari passu with us). Having a relationship with Originators remains important after an offering closes because, in most circumstances, it is Originators who are responsible for monitoring and servicing the investment.
Yieldstreet’s Originators are, as you would expect, as diverse as the alternative investments they identify, assess, and (if the opportunity makes it onto the platform) manage. Although there can be no one-size-fits-all criteria when it comes to evaluating Originators, given the diversity of alternative investment opportunities, there are a few things that we look for in building these relationships:
Below, hear from our Senior Director of Real Estate, Mitch Rosen on what we look for when partnering with an Originator and our due diligence process for our specialized real estate offerings:
To learn more about our origination process please view our raise capital page.
In stage 2, Yieldstreet works as the second line of defense, conducting an independent analysis so we are comfortable with both the Originator’s assessment, and the underlying opportunity more broadly. For each investment, we examine the financial metrics and assumptions behind each offering. This is ultimately how we gauge the risk of an offering and whether it’s appropriate for the Yieldstreet platform.
Most YS investments are asset-backed–so our scrutiny of investment opportunities is asset-centric. Our first focus is always on the collateral–we ask, is it sufficiently collateralized to preserve capital? What is the collateral? How is it valued? Every asset-backed investment is considered on that basis. And if an opportunity makes it to the platform, key facts, figures, and details about the collateral are in the offering documents so prospective investors can make their own decisions.
At Yieldstreet, the investment evaluation process is inseparable from risk mitigation. Due diligence, of course, cannot eliminate risk of investment losses that, for example, result if borrowers fail to repay amounts due or otherwise comply with their obligations. That is why Yieldstreet also uses the pre-offering evaluation process to help mitigate the risk of offerings that go forward. Depending on the investment, once Yieldstreet can understand and describe the risks attendant to an investment that targets high-yield returns, it can evaluate risk mitigators that may reduce (but of course, never eliminate) potential downside. Such as, for example, insurance, personal guarantees, and the added assurance of legal opinions regarding the underlying business and status of the collateral.
During the process of vetting each offering, we take an objective approach. Our approach is data-driven, where it can be, and appropriately critical as we attempt to poke holes in the opportunity to surface additional weaknesses and, again, assess possible ways to mitigate the known risks. During the initial screening process of an opportunity, our investments team considers a range of circumstances, including for example:
Each potential deal is addressed during a weekly pipeline call. These calls serve as check-ins to discuss current deals and inform our team members of any relevant updates to deals. Each deal is brought forward weekly to maintain adequate communication and clarity. It is during these calls that concerns or questions for a deal can also be addressed.
A credit memorandum is created for each deal. This memorandum is essentially a detailed investment document that outlines all of the information that our investment finance team knows about an offering. These documents are extensive and include detailed commentary and data analysis. In this respect, our evaluation of investments before they are offered is, by design, kept in lockstep with how the opportunity and its risks are disclosed to investors. That is because, when it comes to alternative investments that target comparatively higher yields but similarly bring higher risks, disclosure of key facts–about the borrower, the business, the collateral and always the risks–is what accredited and sophisticated investors must consider when making their own decisions. The deal is then considered at a credit committee meeting where the investing team presents the deal to Yieldstreet management and sometimes external experts.
In this final stage, our investments team passes the information on the offering along to the Yieldstreet Marketing Team. The marketing team then works closely with the investments team to create the appropriate educational materials on each offering for our investors. They also determine the opportune time to launch the offering on the Yieldstreet platform.
The most important part of this stage, however, is that Yieldstreet makes informational materials easier to digest for our investor community. Various content is created—whether written, video or email—to help ensure that all necessary information is at the fingertips of our investors. All offerings include both an offering webpage that outlines the offering at a high level, as well as detailed documents for download, such as a series note supplement. We urge and expect our investors to read carefully all associated materials in detail prior to making their investment decision; that is, in fact, why investors must acknowledge their receipt of all of the critical documents associated with each offering on the platform.
We provide these documents and materials in order for our investors to evaluate our offerings. We also expect that our investors educate themselves in many ways, including consulting financial advisors, researching investments available elsewhere, and exercising personal restraint and judgment when it comes to diversification, risk tolerance, and setting personal and family financial goals. Ultimately, it is the investor’s choice if they wish to participate in an opportunity. Our standard mantra is that “you should be able to explain this offering to your mom. If you don’t feel as though you understand the offering, you should not invest.” It’s up to you, as the investor, to make the final decision on whether or not you invest.
As you can see, an extensive amount of work is done on each and every offering before we even consider putting it on our platform. Our process for selecting offerings to launch on the Yieldstreet platform is selective and discerning; we of course cannot eliminate the risk of alternative investments that target higher yields, but we can eliminate offerings that we do not feel comfortable with, and make sure that we understand and disclose the risks involved with those offerings that do make it to the platform. To date, Yieldstreet has reviewed over $10B worth of deals and funded slightly over $1.3B. In 2019 alone, we reviewed over $6B worth of transactions and funded slightly over $700M.
Below are additional resources to help you make the most educated decisions possible when investing on the Yieldstreet platform. If you have additional questions regarding our due diligence process, please do not hesitate to contact us at [email protected].
This communication and the information contained in this article are provided for general informational purposes only and should neither be construed nor 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. Any link to a third-party website (or article contained therein) is not an endorsement, authorization or representation of our affiliation with that third party (or article). We do not exercise control over third-party websites, and we are not responsible or liable for the accuracy, legality, appropriateness, or any other aspect of such website (or article contained therein).
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.
2 Represents a net estimated, unrealized annualized internal rate of return (IRR) of your portfolio and is based by reference to the effective distribution dates and amounts to and from the investments, as well as any outstanding principal and accrued and unpaid interest as of the current date, after deduction of management fees and all other expenses charged to the investments.[read more]
3 "Annual interest" represents an annual target rate of interest and "term" represents the estimated term of the investment. Such target returns and estimated term are projections of the returns or term and may ultimately not be achieved. Actual returns and term may be materially different from such projections. These targeted returns and estimated term are based on the underlying agreement between the SPV and borrower or originator, as applicable.
4 Reflects the initial quarterly distribution declared by the board of directors on February 6, 2020, which will be payable to stockholders of record as of June 10, 2020, and the initial offering price of $10 per share.
5 The Fund will cease investing and seek to liquidate the Fund's remaining portfolio no later than 48 months after the Fund's initial closing. It may take up to twelve months thereafter to fully monetize any remaining illiquid investments in the Fund's portfolio.
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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.
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