Latest on Yieldstreet

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Droptoptop
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Joined: Mon Feb 18, 2019 2:39 pm

Latest on Yieldstreet

Post by Droptoptop » Wed Feb 27, 2019 6:56 pm

I noticed there hasn't been a post on bogleheads in a while on Yieldstreet. If you don't know it's a crowdfunding website for hedge fund like debt investments, such as private real estate notes, law firm financing, lawsuit financing, container ship financing, and early on they did a couple ride share company financings. It initially seemed great as they were offering 8 to 20% yields and their underwriting notes made it sound like these were well secured investments, usually showing LTVs anywhere from 20 to 60%.

Anyway, fast forward, and it seems that a bunch of deals are falling through. Here are the indications:

1) Their homepage used to advertise "$0 in principal loss" and it no longer does.
2) On the Bigger Pockets forum here ( https://www.biggerpockets.com/forums/52 ... eet?page=2 ) one poster said they invested in a law firm financing back in 2016 and hasn't received "any repayment." Another poster invested in a real estate deal and didn't receive repayments for 90 days and received minimal response from Yieldstreet when he inquired. He did get repaid eventually but claims he lost out on some of the interest he was owed.
3) These links are some of their oldest deals from 2 to 3 years ago, and their "term remaining" is listed as "Ongoing" while all their active deals show an estimate number of months til deal maturity. So pretty sure these deals below have defaulted.
https://www.yieldstreet.com/offering/10 ... ry-leasing
https://www.yieldstreet.com/offering/72 ... -financing
https://www.yieldstreet.com/offering/14 ... tfolio-iii
https://www.yieldstreet.com/offering/14 ... tfolio-iv-
3) I had a conversation with a fund manager in the lawsuit financing world and he told me off the record that he knows for a fact that some of their law deals have suffered major losses.

Anyway, I'm posting the above as a PSA and also to see if anyone else here has invested or has info. In full disclosure, I invested in one of their LawCash deals, but so far it's repaying on schedule. My fingers are crossed. Pretty sure I will not be investing any more with them.

ericcohen
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Re: Latest on Yieldstreet

Post by ericcohen » Wed Feb 27, 2019 9:40 pm

Thanks. I've been considering investing with them. The litigation financing deals are the least appealing to me as very speculative. Real estate deals and marine finance more appealing and backed by hard collateral. Does anyone expect these deals to be risk free with no default? Not a realistic expectation. Even if some deals have defaulted, their record looks pretty good overall

firedinky
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Re: Latest on Yieldstreet

Post by firedinky » Thu Feb 28, 2019 11:29 am

It is unrealistic to expect risk free returns of 10%+. But given the collateral underlying most of these investments, the downside risk is lower than stocks. I have a 20% allocation to alternatives including cargo vessel and real estate loans through Yieldstreet and plan to add to those with the next Litigation Finance offering.

Yieldstreet is also a good place to park cash while waiting for an attractive offering.
Annual yield is currently 2.2% with no minimum. And FDIC insured.

What are the arguments against these investments? They appear to have great collateral backing, better returns than projected for stocks, and almost no correlation. I am fully aware that some investments may lose a little principal but so far they have a good story. I do not risk more than 5% in any one platform.

Mike

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packer16
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Re: Latest on Yieldstreet

Post by packer16 » Thu Feb 28, 2019 11:40 am

The real estate collateral may be OK but the cargo ship market is a commodity & the recovery values can swing widely based upon market conditions. One test I would use is the same type of risk available in the publicly traded market. If so, use the public market as the intermediatation costs will be lower. For ship finance, there is Seaspan, GSL & other cargo leasors, & SFI and Ocean Yield which are diversified across ship types. The public traded entities have both common and preferred equity and debt (so you choose where in the capital stack you want to be) which is pretty actively traded.

Packer
Buy cheap and something good might happen

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SlowMovingInvestor
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Re: Latest on Yieldstreet

Post by SlowMovingInvestor » Thu Feb 28, 2019 12:00 pm

firedinky wrote:
Thu Feb 28, 2019 11:29 am
It is unrealistic to expect risk free returns of 10%+. But given the collateral underlying most of these investments, the downside risk is lower than stocks. I have a 20% allocation to alternatives including cargo vessel and real estate loans through Yieldstreet and plan to add to those with the next Litigation Finance offering.

What are the arguments against these investments? They appear to have great collateral backing, better returns than projected for stocks, and almost no correlation. I am fully aware that some investments may lose a little principal but so far they have a good story. I do not risk more than 5% in any one platform.
How is litigation finance collateralized ? I understand it's uncorrelated, but don't you lose everything if the case doesn't settle or is lost ? If it's a patent case, is it collaterarlized by the actual paent (which could be worthless too if a case is lost) ?

Valuethinker
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Re: Latest on Yieldstreet

Post by Valuethinker » Thu Feb 28, 2019 12:27 pm

ericcohen wrote:
Wed Feb 27, 2019 9:40 pm
Thanks. I've been considering investing with them. The litigation financing deals are the least appealing to me as very speculative. Real estate deals and marine finance more appealing and backed by hard collateral. Does anyone expect these deals to be risk free with no default? Not a realistic expectation. Even if some deals have defaulted, their record looks pretty good overall
The world shipping industry has been subject of brutal rate cycles.

Massive oversupply of ships and bankruptcy of major shipping companies (that Korean one).

This was not just about the GFC, it has happened since then.

That's very much a 30,000 foot level view, but I struggle to see the attractions of an industry that is that cyclical.

Real estate? One has to ask oneself why they need your money. On the equity side there are plenty of institutional RE funds out there. I presume on the debt side there are plenty of ready lenders.

Is it a size issue? I.e. the quantum required falls between the max typical lending size of big banks and the larger requirements of big banks and institutions?

ohai
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Re: Latest on Yieldstreet

Post by ohai » Thu Feb 28, 2019 12:33 pm

I looked into their lawsuit financing issuances a while ago, and they struck me as terrible deals for investors, despite the ostensibly high interest rates (12%).

They have this language on their website:
"The Originator receives its distribution from the case’s settlement directly from the plaintiff’s attorney. The plaintiff does not receive any proceeds from the case until the Originator is financially satisfied."

"The exact timing of case settlements and distributions will vary and, as such, the payment frequency will be event-based. Investors will receive payments of interest and principal as the Portfolio’s cases settle and distribute capital."

In other words, this is not a high interest loan. You are buying a stake in litigation proceeds. There is some other language that I cannot seem to find right now, but it stated that YieldStreet will take any gains above the fixed rate that was promised to you.

In other words, you will not share the gains from blockbuster settlements. However, you will not get paid for cases that do not settle in the plaintiffs' favor. In an asset class with uncorrelated, binary and volatile payouts, this profile is highly undesirable.

So, this looked promising on the surface, but to my disappointment, falls apart under close examination.

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SlowMovingInvestor
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Re: Latest on Yieldstreet

Post by SlowMovingInvestor » Thu Feb 28, 2019 12:57 pm

ohai wrote:
Thu Feb 28, 2019 12:33 pm
I looked into their lawsuit financing issuances a while ago, and they struck me as terrible deals for investors, despite the ostensibly high interest rates (12%).

They have this language on their website:
"The Originator receives its distribution from the case’s settlement directly from the plaintiff’s attorney. The plaintiff does not receive any proceeds from the case until the Originator is financially satisfied."

"The exact timing of case settlements and distributions will vary and, as such, the payment frequency will be event-based. Investors will receive payments of interest and principal as the Portfolio’s cases settle and distribute capital."

In other words, this is not a high interest loan. You are buying a stake in litigation proceeds. There is some other language that I cannot seem to find right now, but it stated that YieldStreet will take any gains above the fixed rate that was promised to you.

In other words, you will not share the gains from blockbuster settlements. However, you will not get paid for cases that do not settle in the plaintiffs' favor. In an asset class with uncorrelated, binary and volatile payouts, this profile is highly undesirable.

So, this looked promising on the surface, but to my disappointment, falls apart under close examination.
I am also guessing any return is after expenses and attorney fees (if per hour rather than contingency) ?

Also, I would assume that investors don't exactly get the cream of the crop -- i.e. lawsuits with a high chance of success don't require external financing ...

ohai
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Re: Latest on Yieldstreet

Post by ohai » Thu Feb 28, 2019 1:28 pm

Yes, of course. Lawyers always get paid first.

Regarding quality of the cases, it's hard to say. It seems that a lot of these are from personal injury litigation. So, many of those plaintiffs probably need funding because they don't have cash themselves, not necessarily because they don't have a good shot at winning.

ericcohen
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Re: Latest on Yieldstreet

Post by ericcohen » Fri Mar 01, 2019 9:32 pm

SlowMovingInvestor wrote:
Thu Feb 28, 2019 12:57 pm
ohai wrote:
Thu Feb 28, 2019 12:33 pm
I looked into their lawsuit financing issuances a while ago, and they struck me as terrible deals for investors, despite the ostensibly high interest rates (12%).

They have this language on their website:
"The Originator receives its distribution from the case’s settlement directly from the plaintiff’s attorney. The plaintiff does not receive any proceeds from the case until the Originator is financially satisfied."

"The exact timing of case settlements and distributions will vary and, as such, the payment frequency will be event-based. Investors will receive payments of interest and principal as the Portfolio’s cases settle and distribute capital."

In other words, this is not a high interest loan. You are buying a stake in litigation proceeds. There is some other language that I cannot seem to find right now, but it stated that YieldStreet will take any gains above the fixed rate that was promised to you.

In other words, you will not share the gains from blockbuster settlements. However, you will not get paid for cases that do not settle in the plaintiffs' favor. In an asset class with uncorrelated, binary and volatile payouts, this profile is highly undesirable.

So, this looked promising on the surface, but to my disappointment, falls apart under close examination.
I am also guessing any return is after expenses and attorney fees (if per hour rather than contingency) ?

Also, I would assume that investors don't exactly get the cream of the crop -- i.e. lawsuits with a high chance of success don't require external financing ...
Yeah, that's not really true. Lawsuits are expensive. And the costs are all incurred upfront while the rewards are often years away. This is the case regardless of the chance of success. The issue I have with the collateral is that you're entirely at the mercy of YS and the originators ability to select the right cases. And the settlement value is completely speculative especially when compared with a hard asset with a low LTV like real estate.

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willthrill81
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Re: Latest on Yieldstreet

Post by willthrill81 » Fri Mar 01, 2019 10:26 pm

ohai wrote:
Thu Feb 28, 2019 1:28 pm
Yes, of course. Lawyers always get paid first.
Perhaps a stake in some major law firms would be a good hedge. I've often thought the same of liquor sales and antacid makers.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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SlowMovingInvestor
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Re: Latest on Yieldstreet

Post by SlowMovingInvestor » Sat Mar 02, 2019 11:02 am

ericcohen wrote:
Fri Mar 01, 2019 9:32 pm
SlowMovingInvestor wrote:
Thu Feb 28, 2019 12:57 pm

Also, I would assume that investors don't exactly get the cream of the crop -- i.e. lawsuits with a high chance of success don't require external financing ...
Yeah, that's not really true. Lawsuits are expensive. And the costs are all incurred upfront while the rewards are often years away. This is the case regardless of the chance of success. The issue I have with the collateral is that you're entirely at the mercy of YS and the originators ability to select the right cases. And the settlement value is completely speculative especially when compared with a hard asset with a low LTV like real estate.
Who exactly receives the litigation financing ? Does it go to some sort of trust account, with payouts being made to the law firm or others by a trustee ?

It does seem like the originators have some skin in the game, i.e. they get any excess recovery, so they have an incentive to keep expenses low.

I do remember reading a book 'A Civil Action' (also made into a film) where a lawfirm was nearly driven bankrupt by a case it had taken on contingency. The partners had to pledge their houses etc.

Tanelorn
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Re: Latest on Yieldstreet

Post by Tanelorn » Sat Mar 02, 2019 3:13 pm

Thank you for sharing your cautionary information. These always seemed a bit too good to be true, and I just avoided them. Good to know some of the details and issues.

Bobby206
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Re: Latest on Yieldstreet

Post by Bobby206 » Sat Mar 09, 2019 5:00 pm

Great thread. Thanks for all the info. I was thinking of throwing a few bucks this way but maybe I would just be throwing a few bucks away if I did that. I think I'll keep looking for other alternative investments. Thanks.

Topic Author
Droptoptop
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Re: Latest on Yieldstreet

Post by Droptoptop » Mon Mar 11, 2019 3:38 am

ericcohen wrote:
Wed Feb 27, 2019 9:40 pm
Thanks. I've been considering investing with them. The litigation financing deals are the least appealing to me as very speculative. Real estate deals and marine finance more appealing and backed by hard collateral. Does anyone expect these deals to be risk free with no default? Not a realistic expectation. Even if some deals have defaulted, their record looks pretty good overall
You're right, it's not realistic to expect no defaults. These are all high yield deals. My issue is that they seem to be almost hiding their defaults by labeling the deals "ongoing." Also, they are not disclosing any hard numbers on their default rates, so how would you even assess whether their overall portfolio is doing well or not. All this combined with how they stalled on providing updates and information to their investors on a defaulted deal (per the link in my original post to the biggerpockets forum where an investor described his experience with them), makes me question their motives and ethics. No matter how good a deal looks, if you can't trust the other party, I think one should always pass.

ohai
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Re: Latest on Yieldstreet

Post by ohai » Mon Mar 11, 2019 9:54 am

willthrill81 wrote:
Fri Mar 01, 2019 10:26 pm
ohai wrote:
Thu Feb 28, 2019 1:28 pm
Yes, of course. Lawyers always get paid first.
Perhaps a stake in some major law firms would be a good hedge. I've often thought the same of liquor sales and antacid makers.
Hmm. Interesting point to think about. As far as I know, the only way to get a stake in a law firm is to become a partner in the law firm itself, since they are almost all structured as LLPs. When you are promoted to a become an "equity partner", the firm will demand a buy-in so that you will be entitled to a share of future profits.

ericcohen
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Re: Latest on Yieldstreet

Post by ericcohen » Thu Mar 14, 2019 7:43 pm

Droptoptop wrote:
Mon Mar 11, 2019 3:38 am
ericcohen wrote:
Wed Feb 27, 2019 9:40 pm
Thanks. I've been considering investing with them. The litigation financing deals are the least appealing to me as very speculative. Real estate deals and marine finance more appealing and backed by hard collateral. Does anyone expect these deals to be risk free with no default? Not a realistic expectation. Even if some deals have defaulted, their record looks pretty good overall
You're right, it's not realistic to expect no defaults. These are all high yield deals. My issue is that they seem to be almost hiding their defaults by labeling the deals "ongoing." Also, they are not disclosing any hard numbers on their default rates, so how would you even assess whether their overall portfolio is doing well or not. All this combined with how they stalled on providing updates and information to their investors on a defaulted deal (per the link in my original post to the biggerpockets forum where an investor described his experience with them), makes me question their motives and ethics. No matter how good a deal looks, if you can't trust the other party, I think one should always pass.
It's odd that there have been no deals available on the platform for the last few weeks. Usually there's one a week or so.

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Droptoptop
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Re: Latest on Yieldstreet

Post by Droptoptop » Fri Mar 15, 2019 7:48 pm

ericcohen wrote:
Thu Mar 14, 2019 7:43 pm
It's odd that there have been no deals available on the platform for the last few weeks. Usually there's one a week or so.
That is a bit odd. Despite all my negatives above though, there is some reason to think things aren't so dire: https://techcrunch.com/2019/02/26/yield ... -and-more/

I've never heard of the private equity funds that did the Series B, but I'd have to think their analysts gave Yieldstreet's book a thorough inspection before handing them $62mln. This raise was only a few weeks ago mind you.

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