Monark Monthly, April Edition

Happy Sunday! Welcome to the April Edition of the Monark Monthly, a newsletter that covers recent events and analysis for all things alts and retail investing. This month, the newsletter will take a slightly different format. Recently, I listened to an incredibly insightful podcast and conversation between two thought leaders in private markets, Michael Weisz of Yieldstreet, and Michael Sidgmore of the Alts Goes Mainstream podcast. Their conversation covered the democratization of the alts market, how to effectively distribute alternative investments, and the importance of distribution partnerships and brand. For the April edition of Monark Monthly, I will use some of the most interesting quotes from the podcast to discuss some important themes that we are seeing, as the alternative investment space becomes more democratized. I encourage everyone reading this to take an hour this Sunday afternoon and listen to the full dialogue of the conversation between Michael Sidgmore and Weisz, linked below.

The podcast highlighted six themes related to investing in alternatives, through the context of Yieldstreets positioning as a platform. I have written about Yieldstreet in the past, as the platform has become an anomaly relative to its peers. Yieldstreet is a direct-to-consumer alternative investing platform, targeting the high-net-worth channel, and primarily self-directed investors today. With a self-reported 500,000 investors on the platform, and over $5B of closed offerings, Yieldstreet has emerged as a clear winner in the d2c alts space. And yet, relative to the much larger Charles Schwab 's or 富达 of the world, Yieldstreet is, as Michael Weisz put it himself, "but a pimple to them." For each theme discussed below, I will start with a quote(s) from the podcast, provide additional context, and add my analysis of the topic.

The Market Today

"Yieldstreet wants to be a one-stop shop where investing in private market alternatives is seamless, and it doesn't matter who the audience is. The audience is our core, which is our high net worth, 45 million Americans, $30T of investable assets, and there's a huge mountain moving, another $70T from the boomers to the next generation."

"I've been saying for the past 8 years, alts should be 30% of your portfolio."

-Michael Weisz

For context, these quotes are from the beginning of the podcast, where Michael Weisz is describing Yieldstreets business now, and what the platform hopes to become in the future. The sheer volume of the numbers really highlights the broader market opportunity in alternatives. Today, platforms like iCapital and CAIS target the UHNW investor, with $20M+ of investible assets, and reach those clients through the advisor channel, either Wirehouse or Independent RIAs. In contrast, the Mass-Affluent or HNW channel that Michael Weisz is describing is one of the largest, and most underserved pool of capital for asset managers and issuers of private investments to tap into. Thus far, Yieldstreet has just scratched the surface with about 1/2M users from that investor base.

My take: We are in early innings of what will be an explosive era for private markets. Creating efficient and seamless points of access for the mass affluent (HNW) channel to access private markets, will drive trillions of dollars of in-flows over the next five to ten years. Given the massive volume of the broader opportunity, I think intermediary platforms will be wise to focus on a single distribution channel. Otherwise, platforms risk chasing to many distribution opportunities at the same time. For example, Weisz mentions that Yieldstreet wants to be the "one-stop shop, for everyone," regardless of "how they invest." He goes on to mention endowments, family offices, RIAs and d2c. The challenge I have with this wide cast net is that it is difficult to be everything for everyone. The reality is that family office clients expect a different investing experience and products than a retail investor, and to cater to both simultaneously is difficult. Trying to be everything for everyone introduces the risk that you end up being nothing for anyone.

A Single Point of Access for Investors

“Why weren’t we seeing that (everything in one place) in financial services. We were still expecting to go to 20 different platforms… From day 1, we we're going to start with one asset class, and we are going to continue to expand until we can offer you a holistic offering."

"Yieldstreet wants to be a one-stop shop where investing in alternatives is seamless.”

-Michael Weisz

For context, the problem Michael is describing here is the fragmentation that exists today across the alternative investment landscape, particularly for retail investors. If you want venture exposure, you need an AngelList account, for SFR exposure you sign up for Arrived , for artwork you sign up for Masterworks . The idea that investors will be able to track and manage 20 different accounts to create a diversified portfolio is inefficient and creates a higher barrier to entry for investors.

My Take: Michael is absolutely right. Overcoming the challenge of fragmentation and making the investment process more user friendly and efficient through a single point of access is necessary for opening up the individual investor channel as a recurring source of capital for issuers. The proof is in the pudding, as many d2c alts platforms that focused on a single asset class have shuttered their doors over the past 24 months, Yieldstreet has been in a strong position as a strategic acquirer. Yieldstreet was one of the only platforms to offer a broad set of alternative asset classes from the beginning, while other platforms like Republic and Fundrise are just starting to diversify into new asset classes now. The risk here for Yieldstreet comes from brokerage platforms that offer stocks and bond investing, moving into the alts market. The recent moves from SoFi show that this is possible and eminent, as SoFi rolls out their alternative investment offerings. What will it mean for Yieldstreet when investors can access the same or similar alts products from their brokerage account at Fidelity, SoFi or Robinhood ?

Shifting Competitive Landscape

“Nobody owns a holistic portfolio, what are you gonna do? E*trade, Robinhood, Schwab, Fidelity. One place for stocks, bonds and alts. Where can you go that can do that?"

“You’ve got to decide who you are in life, are you an investor or a distribution platform. We’re (Yieldstreet) a distribution platform."

"We're not an investment platform, we're a consumer business... We’re really good at understanding who our customer is, and what they want."

-Michael Weisz

Rolling right along here, Michael Weisz acknowledges that no single platform today offers a fully holistic portfolio. He later questions Schwab's and Fidelity's ability to distribute alternative investments themselves and suggests a partnership with Yieldstreet could be in the cards. He also calls on the Apollo Global Management, Inc. 's and Blackstone 's of the world to view Yieldstreet as a distribution partner. Weisz is clearly positioning Yieldsteet as a distribution platform, instead of an asset manager or investor.

My take: I think Yieldstreet has two potential paths going forward.

1. Acquire a brokerage platform and make stocks and bonds available on Yieldstreet, in essence, owning the entire portfolio experience for investors.

2. Establish distribution partnerships with the large brokerage platforms like SoFi, Robinhood or Fidelity.

Otherwise, when brokerage platforms begin offering their own alternative investment opportunities, Yieldstreet will be quickly swallowed up by the sheer scale of a platform like Fidelity, with 45M brokerage accounts, as a competitor.

The challenge with approach #2 is that established brokerages are unlikely to work with a single platform like Yieldstreet, and are more likely to partner with a broad array of asset managers, distribution platforms and product originators to build their own alternative investment offerings. For example, Schwab already has a partnership with iCapital to offer alternatives to their advisor community, while SoFi has gone direct to 40'act fund originators. I think Michael Weisz is right about one thing: Yieldstreet has to decide if they would rather compete with an iCapital or CAIS as an intermediary platform or compete directly with Fidelity and Schwab as a direct-to-consumer distribution channel. It is unclear from this podcast episode if Yieldstreet has figured out which path is more attractive for the platform going forward.

As large brokerage platforms look to offer alternative investments, their current challenges have more to do with the back-end infrastructure and compliance challenges of offering alts, versus a lack of trust or brand recognition with their consumers. While Yieldstreet may be a viable product origination partner to a brokerage platform, they do not add enough value or command enough scale to do so on an exclusive basis.

Picking a Lane: Product Origination or Distribution

"My pitch is very simple, I represent 1/2M people. I represent Family Offices, Institutions, Endowments and RIAs. We are looking to find best in class opportunities, and we are able to help you distribute into a new market... It’s a very powerful message to walk in and say hey, I have 1/2M people that I'm here to represent. That’s how we get access to some of the best opportunities, and often at even more compelling prices than you can get anywhere else."

“You need a robo-advisor in private markets to create a rush of capital into private markets. I do think that the private markets need to see an expansion of product type and investment packaging to expand at the scale that we are envisioning.”

-Michael Weisz

These quotes further highlight Michael Weisz's intention to turn Yieldstreet into a pure-play distribution platform and how Yieldstreet has leveraged its scale thus far to get access to high quality investment opportunities. Further, Michael highlights future opportunities that he sees from passive investment vehicles/strategies (index or robo) entering the market.

My Take: There is a lot to unpack here. First of all, I agree with the position that platforms need to pick a lane and either focus on product origination or distribution. Balancing both is like running two businesses simultaneously. In practice however, Yieldstreet is balancing both today, serving as both an investment bank by sourcing and underwriting deals, and as a distribution platform for third party fund managers. I'm not convinced that Yieldstreet has actually picked a lane as either a distribution platform for third party issuers, or a product originator, and I see that creating significant channel conflicts for the platform down the road. It is difficult to make a sound case that Yieldstreet is an impartial distribution platform, if they are also originating their own investment products. It seemed that Michael was alluding to Yieldstreet structuring more 40'act pooled investment products in the future. This strategy is similar to what Pool-It was originally trying to build, a 40’act fund that invested in underlying brand name PE or VC managers.

The notion that private markets need more passive investing strategies, whether robo-advisor or index funds is spot-on. The expansion of retail access to public markets really came from the rise in popularity of mutual funds, and for retail investors exploring the alts market for the first time, passive and diversified vehicles are a great first step to access the market. Over time however, as investors become more sophisticated on alts, they do tend to seek out more direct deal opportunities in order to gain alpha and avoid double layer fees.

The leverage that Yieldstreet has today to get access to high quality products is impressive, but not defensible, and will be quickly dwarfed by more incumbent distribution platforms entering the alts market. For example, SoFi recently began offering 40'Act Interval Funds to the 7M users on their Invest platform, from KKR , 凯雷投资集团 , Franklin Templeton , and ARK Investment Management LLC , with limited marketing push, and great success. SoFi is now seeing massive demand from other interval fund managers to offer their products as well, highlighting the risk facing Yieldstreet of larger consumer platforms disintermediating Yieldstreet and offering alternatives directly.

Engendering Trust with Users

"Going back to the Apollo’s and large asset managers, what they don't realize is, outside of Park, 5th, 6th Avenue, Madison, nobody knows who that is…If you leave your studio today and ask the first 100 people if you know who Apollo is, I’ll give you a $100 if more than 5 people know who Apollo is.”?

“We are building brands for our partners... More product and more success, beget more distribution, and more and more retail investors are learning about these brands.”

"The common denominator for building trust with users is simplicity."

-Michael Weisz

For context, Michael Sidgmore had asked on a scale of 1-10, how important the brand name of the underlying asset manager/issuer is, when engendering trust with investors. To which Michael Weisz replied, "0." As they discussed how to develop trust and increase distribution capabilities with investors, simplicity was highlighted as a common denominator across distribution channels.

My Take: Retail investors are driven by the core factors of simplicity, efficient access and brand name recognition. Recent data from SoFi for example, showed that out of the five interval fund products they offer (Ark Invest, KKR, 2 FT funds & Carlyle), the most in-flows was into the Ark Invest fund, which holds recognizable brand names like SpaceX and OpenAI . The recent launch of the Destiny (D/XYZ) fund on the NYSE also highlights retail investors demand to access brand name products that are familiar to them. To say that brand plays 0 role in a retail investors decision making process is misguided, although it may be true for Yieldstreets more niche investor base. It is true however, that most individual investors have never heard of the largest private equity or VC managers. A recent Bain report found that the most "well-known brand names" in private equity amongst individual investors were Fidelity and 高盛 , neither of which are private equity firms. This lack of brand recognition does create an opportunity for product originators to "humanize" their branding in an attempt to connect with retail investors, which many of the larger asset managers (Blackstone especially) have begun to do.

If Weisz is arguing that Yieldstreets brand name itself and the trust they have built with their users is the primary factor influencing an investment decision, then Yieldstreet faces significant risk from the larger brokerage platforms entering the alts space. Platforms like Robinhood and SoFi have already built significant trust with their user bases and are very capable of replicating an alts investment experience that is user friendly and accessible. Brokerage platforms moving into the alts market may jeopardize Yieldstreets competitive mote as the only trusted brand for retail investors. With only 1/2M users, Yieldstreet has not built enough scale to compete with a SoFi or Robinhood.

Liquidity

“If private markets can see a little bit more liquidity, I think you will see massive, accelerated growth.”

"I do think liquidity is important. I think having the secondary market is ultimately going to create a lot of lending opportunities. In privates, because of the illiquid nature, it's much harder to create lending solutions. If you have a liquidity solution you will have a lending solution, and I think that’s a huge business.”??

-Michael Weisz

For context, Sidgmore asked Michael Weisz about the future of the alts market, and whether liquidity came from product structure (ie. redemption windows offered by interval funds) or through a pure play secondary market. Weisz responded that peer-to-peer secondary trading was the future they expect to see.

My Take: Numerous surveys and studies have shown that the single largest barrier to entry for individual investors to the alts market is the general lack of secondary liquidity. As the alts market looks to expand in-flows from investors further down the wealth channel (ie. mass affluent and retail), the ability for those investors to access a secondary market could help increase portfolio allocation to alts from about 1% today, to the target 30-50% allocation over the next 10 years. Enabling liquidity in alts opens the doors to a multi-trillion-dollar fundraising opportunity for asset managers and issuers of private assets, and one that will massively expand individual investor access to high performing alternative investments. True peer-to-peer liquidity, however, will require a larger user base than Yieldstreets 1/2M investors. Only by aggregating liquidity from users across the largest brokerage platforms, will investors be able to liquidate an alts position at a market clearing price close to NAV.

Secondary liquidity could also create more opportunities for lending against alts, allowing investors to access capital using their alternative investments as collateral. Today, this is not common practice, given the difficulty a lender would face liquidating an alternative investment in the case of default. As lenders get more comfortable with mark-to-market pricing of alts on a secondary trading platform, the ability to underwrite alts as collateral for loans becomes more realistic.

Closing Thoughts

In summary, I think Michael Weisz and the Yieldstreet team have built an incredible platform and overcome many of the distribution challenges that have plagued other direct to consumer alternative investment platform's ability to scale. However, the business faces significant risk from more established brokerage platforms offering alternative investments over the coming years. Yieldstreet will have to be clear about their intended role in the market and pick a path as either a product originator or distribution platform, to avoid being seen as competitive to both the asset management (product origination), and the traditional brokerage (distribution) sides of the market.