Digital wealth manager Yieldstreet Management has announced it is expanding its menu of alternative offerings to qualified retail investors with the launch of its private business credit vertical.
“The world has really changed in the last four months,” said Yieldstreet President Michael Weisz in a news release. He added that the pandemic has disrupted growing businesses’ access to credit because traditional banks are slow to lend.
Weisz said that amid historically low interest rates, Yieldstreet’s new product is designed to give investors access to “better yields typically less correlated to the market and with the potential for consistent passive income”.
“Our mission is to build and introduce innovative wealth creation products,” said Milind Mehere, founder and chief executive of Yieldstreet, whose backers include Soros Fund Management. He said the private business credit offering would allow existing and future investors to diversify their portfolios through new income-generating portfolios.
Private business credit is primarily funded by banks, hedge funds and venture capital, and Yieldstreet believes the segment of the market is set to grow beyond its current estimated value of $1 trillion a year.
Yieldstreet’s private business credit arm will invest in high-growth companies and make loans between $3 million and $30 million in commercial term receivables, inventory purchase orders, consumer instalment loans and others.
Vehicles that can be sold directly to accredited retail investors have been growing in popularity over the past few years. However, individual retail investors are largely limited to making a single alternative investment. More often, alternative products for high-net-worth and mass-affluent investors are marketed through intermediaries such as registered investment advisers, family offices or other wealth advisors. In the digital world, iCapital Network, which was launched in 2014, connects qualified investors and their advisors with private equity fund managers; Mercury Capital Management launched its Mercury iFunds in 2017.
Well-established and powerful asset managers such as Pimco have been developing more products for individual investors that are sold through intermediaries.
“We’ve been working on democratising access to these alternative solutions to the wealth market,” Eric Mogelof, head of US global wealth management at Pimco, told Private Debt Investor. “Over the last couple of years, we have seen allocations to alternatives rising across wealth investors [through financial advisors and other intermediaries]. There are a large number of individual investors where the limited partner structure may not be appropriate.” Pimco’s alternative investment platform is more than $36 billion.
Moreover, the US Department of Labor has loosened rules to allow defined contribution plans, such as 401(k)s, to invest in alternative asset funds, including private equity and venture capital. The US Securities and Exchange Commission last June issued a concept release soliciting industry comment on the idea of expanding private market access to retail investors while maintaining investor protections.
Retail investors of all stripes can already participate in alternatives by buying the publicly traded shares of private asset managers such as Blackstone Group or KKR, or by purchasing shares in publicly traded business development companies.
Yieldstreet expects to deploy hundreds of millions of dollars in flexible capital with its private business credit team to growing businesses across America, as well as through partner relationships and via originating partners. The unit plans to extend single-tranche and multi-tranche term loans in partnership with consumer and commercial originators, banks, speciality finance companies, credit funds and other asset aggregators.
It named Larry L Curran II and Barbara Anderson to lead the private business credit unit. Curran, who co-founded Vion Receivable Investments and i2B Capital and was an angel investor, said the Yieldstreet unit was looking for “operators with strong management teams and proven business models otherwise limited by their size, age or asset class.” Anderson, who co-founded i2B Capital in 2015, has held senior management roles at Bank Boston, LaSalle Bank and National City Bank.
Yieldstreet has funded more than $1 billion of investments since it launched its platform in 2015. Its other asset classes are real estate, legal, marine and art. Including Soros Fund Management, Yieldstreet, which is based in New York, is backed with $178 million in equity and debt funding from firms including Edison Partners, Greycroft and Raine Ventures.