Equity market volatility serves to make private markets look more appealing, although higher interest rates and concerns about US banks' strength means that investors in non-listed assets cannot be complacent.

The ways in which private market investing is being “democratized” appear to be accelerating as firms seek to capture a growing driver of returns. At Yieldstreet, a US-headquartered business with almost 430,000 members, the future remains bright, its CEO says.

Private market assets, such as private equity, credit, infrastructure, and real estate look even better because they are, to some extent, shielded from the volatility that continues in listed equities, Milind Mehere, chief executive of New York-based Yieldstreet, told Family Wealth Report. He spoke around the time that Silicon Valley Bank collapsed in the US and just ahead of Credit Suisse’s demise and state-backed takeover by UBS.

A broader problem is that retail investors are denied access to some of the most important drivers of economic returns, he said. “Retail is getting locked out…if you want to have a holistic portfolio, you need to have access to private markets. We talk to regulators all the time,” Mehere said.

Yieldstreet’s differentiating quality is that it fractionalizes the business of direct investing in private markets, so that investors can participate with small amounts and without having to go via a fund. For example, on Yieldstreet, a person can get into a private equity fund for at least $20,000 rather than a more typical $2 million required from a private equity investor. Yieldstreet works by aggregating individual stakes into a single package, and then making a stake into an opportunity. 

“There is a lot at stake but nobody has done this to scale before now,” he said. 

Besides Mehere, a co-founder is Michael Weisz, who is also president of the firm. There are also seven senior figures: Barbara Anderson (head of private business credit); Rebecca Fine (managing director, art finance); Mathew Keshav Lewis (general manager, investments); Mitchell Rosen (managing director, real estate); Fahd Basir (managing director, capital markets); Jay Nayak (director, fund selection), and James Bedell (associate director (legal finance). The business also has a number of advisors, such as Alan Patricof, co-founder of Apax Partners, and among firms Ron Suber, president emeritus, Prosper Markplace. Investors include Greycroft, Raine, Tarsadia, StepStone, Saturn Partners, Mayfair Equity Partners, Expansion Venture Capital, Kingfisher Capital, and Edison Partners.

Access
A busy trend in the past decade has been how a variety of platforms, often using modern technology tools, say they are opening access to high net worth and mass-affluent clients to areas once the sole preserve of ultra-wealthy individuals, banks, pension funds, sovereign wealth funds, and endowments. A point of tension has been that regulators such as the Securities and Exchange Commission has been concerned that these relatively illiquid investments might be unsuitable for the mass market. 

Players in the “democratization” space include InvestX, CAIS, iCapital, ADDX, and Moonfare. (For example, see a recent interview here with InvestX about some of these issues.)

Major investment firms appear to be fully on board with the private markets narrative. According to Tobias C Pross, chief executive of Allianz Global Investors: "Private markets have become more popular among investors, with global private markets' fundraising having steadily increased over the past decade."

"From a risk-return perspective, private assets often have reduced short-term volatility and a low correlation to public markets. In the current volatile market, we believe diversifying portfolios with real assets, which are relatively resilient in times of inflation, can bring an attractive and somewhat steady cash flow projection for investors," he said.

The collapse of Silicon Valley Bank, a lender with strong exposure to areas such as venture capital, has rattled sentiment in the VC space, however. According Preqin, the research firm on alternative investments: "SVB was not only involved in taking deposits and making loans, but also fund financing, co-investment, asset management, underwriting IPOs, and sponsoring events and networks." 

Assets
Mehere said the most popular asset classes on the Yieldstreet platform are real estate, short-term notes, and private credit. 

“Our members invested more than any year prior (more than $1 billion); we returned more in principal and interest than any year prior ($600 million-plus), and realized our highest return on a single offering (41 per cent net annualized return),” he said.

Yieldstreet, founded in 2015, has 429,800 clients, as of the end of 2022 and the total invested on the platform was $3.454 billion. The average net annualized return is 9.8 per cent, returning more than $2.1 billion in interest and principal to investors. In the fourth quarter of 2022, $233 million, a rise of 7.8 per cent on the third quarter, was invested.

As listed equities fell, and markets were volatile, the market for private markets, etc, did relatively well. “Last year was our biggest ever,” Mehere said.

A big task is educating investors and framing their expectations, so that they have a clearer understanding of the asset classes, he said. 

The firm has a direct-to-consumer business model, and markets via social media, LinkedIn, partnerships with RIAs, and others.

Yieldstreet has different products for different classes of consumers, such as accredited investors. To be considered an accredited investor, individuals must meet one of the following criteria: earn an annual income of $200,000 individually or $300,000 with their spouse; have at least $1 million of assets, excluding a primary residence; or hold a Series 7, 65 or 82 license currently in good standing.

The Yieldstreet Prism fund, for example, is for any investor – retail included.