Yieldstreet Explains How they Carry Out their Stringent Multi-Step Vetting Process Before Offering Investment Opportunities

Yieldstreet explains that they aim to provide a diverse range of “unique” private market investment opportunities that offer “potentially attractive benefits” to investor portfolios.

But before a particular offering makes it onto the Yieldstreet platform, it needs to go through a “stringent” multi-step vetting process, which is designed to “holistically review an investment opportunity from various risk lenses, with the goal of minimizing the likelihood that an offering on the platform will fall short of its initial expectations.”

The team at Yieldstreet further notes that their multi-step curated process is one of the main reasons that “most investment opportunities [they] evaluate may never make it onto the platform.” Since 2018, “less than 10% of all investment opportunities presented to Yieldstreet made it onto the platform,” the firm claims.

The company also shared:

Why this is important: As Yieldstreet evaluates different alternative investment market opportunities, the investments that “ultimately pass through the multi-step process must be able to withstand our vetting process to ensure a resilient investment structure that seeks to minimize surprise downside outcomes.”

The vetting process employed by Yieldstreet reportedly includes:

  • Originations & Screening
  • Diligence
  • Assessment
  • Committee Review
  • Investor Decision

Originations & Screening: The process starts with the Yieldstreet originations team, which “screens each opportunity and prospective partner.”

Yieldstreet further noted that they “leverages [their] network to access opportunities from multiple sources, including partner originators with successful track records.” Yieldstreet develops these partnerships “with originators through a stringent screening process.”

The company also shared:

“Only a handful of potential opportunities are allowed to progress through the investment vetting process. At the initial stages we eliminate the potential risks of doing business with those subject to prior scrutiny by others – including past material litigation or even certain government investigations into companies and the decision makers behind them.”

Diligence: After the first screening, both the originations and investment teams “evaluate a multi-step review of the track record, experience and reputation in their respective asset classes.”

The company further noted:

Yieldstreet investment process takes a long-term view, looking for partners whom Yieldstreet and our investors can grow with beyond any given opportunity. We pride ourselves in partnering with originators who understand our investment ethos (performance, transparency, openness, discipline, structure and rigor), our mission to provide more access to private market investments and whom we and our members can develop deeper relationships with or a ‘familiarity factor.'”

They added that they “take a structured, rigorous and holistic approach when scrutinizing originators and opportunities.”

For instance, when they are evaluating an originator partner, they make the decision after their  structured assessment based on several different factors, including the following:

  • Management team experience, stability and exit strategy: We assess partners’ domain, operational, industry sector, and geographical experience and how the team design aligns to the origination, investment and exit strategy. We also assess cohesion of the origination partner team in not just good times, but review historical stability in down markets.
  • Demonstrated track record and external validation: Typically verified by analyzing past track records, the current investment portfolio, performance to comparable funds, historical performance metrics, reoccurring investors, and external reference checks. We want to verify our partners have a documented history of putting money to work and also meeting performance targets. We typically target firms with track records ranging from $50M – $2B+ in total deployed capital.
  • Alignment of interest: We assess the management team’s incentive structure, reputation, independence and self-investment and alignment of interest in compensation.
  • Infrastructure and overall strategy: Understanding of the originator’s scope of operations (team size, backgrounds, process manuals, reporting systems, underwriting guidelines, etc.), deal flow strategy, hands-on approach, investment focus, fund size, and exit strategy alignment to the overall strategy.
  • Integrity: Formal diligent background checks on key principals of the firm coupled with our own independent research and referrals. The process follows a deeper investigation of key issues based on our holistic diligence process.

Assessment– After the investment survives the first and second stages, “the opportunity is then passed along to the respective Yieldstreet investment team responsible for the relevant asset class.” For example, a multi-family equity ownership opportunity “would get passed along to Yieldstreet’s real estate team and a litigation opportunity would be passed along to Yieldstreet’s legal finance team.”

The investment team’s work plan starts with a review and evaluation of the due diligence conducted, and assumptions drawn, “by the originator or internal equivalent presenting the opportunity,” the update explained.

The investment team will reportedly perform their own assessments on the investment opportunity. This next step is one in which “the breadth and experience of Yieldstreet’s teams can play an important role in identifying issues with a potential transaction,” the firm noted while adding that the team will “evaluate components” of a deal including:

Investment Thesis – Market trends and industry analysis, “study of key players and stakeholders in the investment project, financial potential with emphasis on growth potential & cashflow and reviewing sensitivities, including possible negative outcomes.”

Performance validation

As noted by Yieldstreet:

“Investment performance details including granular investment data and external validations In many instances, the investment teams will also work with and rely on industry-leading specialists. This may include additional market research to confirm certain assumptions that will influence an investment’s potential return or may include an industry expert to assist in providing a different perspective on a potential investment.”

Yieldstreet further revealed that it “carries out deal transaction “post mortem” reviews to compare outcomes to underwriting thesis to ensure continual learning and improvement where appropriate.”

Committee Review– If the Yieldstreet investment team “responsible for an opportunity determines to move forward, the next steps are passing through additional checkpoints and committees, which are composed of different groups of resources for each investment strategy.”

For each investment, the respective Asset Class team will “prepare a detailed Investment Committee memo outlining the investment thesis, associated risks & mitigating factors and downside protections.”

The Investment Committees are designed to “help identify any potential risks and scrutinize and challenge the investment team’s conclusions.”

Each Investment Committee is “responsible for evaluating, identifying and approving the investment limitations or constraints and will determine appropriate investment sizing based on portfolio construction and concentration guidelines.”

This process calls for “an ongoing dialogue between the sponsoring investment team, investment teams from other asset classes, capital markets, internal risk management professionals and legal.”

As explained in the update:

“Basic to this process are the Green Light Committee (GLC) and the Credit Committee (CC). An investment team formally submits every potential offering to the GLC, often soon after the investment team has begun its review. The GLC is a formal opportunity for the teams to identify key considerations and risks that the investment team will need to address and review before moving forward.”

The Credit Committee (CC) “considers opportunities later in the process, ensuring that any considerations or questions raised before the GLC have been appropriately addressed.”

The Investment Committee then “considers the opportunity once more, and will only clear an opportunity for the Yieldstreet platform following a vote of the Investment Committee that excludes the presenting investment team.”

Investor Decision: Once an investment opportunity has made it to the Yieldstreet platform, it still is “subject to what [they] consider the most important vetting stage – our investors’ own decisions.”

The firm noted:

“Yieldstreet is ultimately all about empowering investors to exercise their own judgment, based on their own investment philosophies, and educated by the great wealth of information available to all of us. Just because we are comfortable offering a deal on the platform does not mean it is the right deal for any particular investor.”

That’s why they “urge investors to carefully read the offering materials – including the description of the opportunity and the critical risks we have identified and disclosed – when considering whether to participate in any of the opportunities that they see online.”

To review the complete due diligence process shared by Yieldstreet, check here.

Sponsored Links by DQ Promote



Send this to a friend