Yieldstreet Launches Art Equity Funds Boosting its Alternative Investment Options

1 year ago - January 29, 2022
After a Rain, Arkhyp Kuindzhi 1897
After a Rain, Arkhyp Kuindzhi 1897
Earlier this month, Yieldstreet – an investment crowdfunding platform, added a new art equity fund to its list of alternative investment options.

Yieldstreet has emerged as a dynamic online investment platform providing smaller investors with options like short-term debt offerings, real estate, supply chain finance, legal finance, and more. While catering mainly to accredited investors its Prism Fund is available for non-accredited investors who may be interested in diversifying their portfolio into alternatives for as little as $500.

Since its founding in 2015, Yieldstreet reports over $2.2 billion in investments with a net average IRR of 10.58%. Its mission is to generate $3 billion of income outside of public markets by 2025, according to its website.

Recently, Yieldstreet hired Rebecca Fine as Head of the Art Platform to oversee the company’s art business expansion. She previously served as General Counsel and co-founder of Athena Art Finance, a specialty art finance leader which was founded in 2015 and was acquired by Yieldstreet in 2019. Fine also served as Chair of the Art Finance, Funds, and Fiduciaries Subcommittee of the Art Law Committee of the New York City Bar Association.

Regarding its art investment options, the newest fund, or Art Equity Fund II: Artists of Harlem, is focused on African American art, music, literature, and theater in the 1920s and 1930s,

Its first art equity fund specialized in post-war and contemporary artworks by Jean-Michel Basquiat’s circle of friends including George Condo, Keith Haring, and Kenny Sharf. Yieldstreet said this fund has been one of its most popular launches to date.

Crowdfund Inside recently connected with Fine to learn about their offerings and expectations for the coming year. Crowdfund Insider asked her about the the art funds and she told us they were delighted to be able to provide investors with yet another way to invest in art. The minimum to participate in the art funds starts at $10,000.

Crowdfund Insider asked how the art fund(s) are different from what’s available now?

“Historically, the Art offerings available on Yieldstreet were debt products that provided investors with income generated by a portfolio of art-backed loans. Investors in the art debt offerings receive payments over the life of the portfolio, as our borrowers make interest payments and repay principal. In these Offerings, the borrowers hold the equity upside in the artworks so when the works are sold, YS investors are not participating in that appreciation of value,” said Fine.

Our Art Equity funds were developed based on our investors’ desire to be directly invested in a pool of diversified artworks. When those artworks are sold at some point during the life of the fund, investor returns will be tied to the appreciation in value of the artworks. Our first equity fund went live in November and was fully allocated within weeks of launch.”

Yieldstreet is not the only platform that provides investment in art. We inquired as to how their offerings are different from a platform like Masterworks.

*“Diversification is a key and important differentiator. Masterworks offers investors the opportunity for fractional ownership of a single piece of art, meaning investors are taking 100% concentration risk in one work by one artist. Artists or genres can fall in and out of favor and their markets are definitely impacted by those changes. When you are invested in a single artwork, if the market for that specific artist or genre or particular artistic style falls out of favor, you have 100% exposure to that depreciation in value. *

In contrast, Yieldstreet offers investors the opportunity to invest in a diversified collection of artworks by a number of different artists. This diversification reduces concentration risk and provides better protection against price fluctuations while still enjoying all the benefits of value appreciation.”

Fine said that each fund consists of a collection of artworks that are thematically connected, either because the artworks or the artists have some relationship to one another. They focus on artists who already have strong markets as well as artists we believe have strong potential for value appreciation.

*“We are also committed to highlighting a diverse group of artists in our Art Equity Funds. The funds will generally include blue-chip, mid-career, and some emerging artists.” * The target size of the fund is $15 million, potentially up to $20 million. Yieldstreet states that it may be slightly larger as they don’t want to miss out on an opportunity to include a really important artwork in the fund. Once it hits its targeted size, Yiedlstreet expects to close the fund offering to new investors.

Expected annualized returns on this art fund are anticipated to be between 13% to 17% with a 5-year maturity and 2 one-year extension options. Returns will be distributed once the art is sold. Yieldstreet shares that investment in art-backed loan products have historically yielded investors an annualized return of 9.5%

Yieldstreet reports that throughout the year, they expect to be creating a variety of art equity funds, with a wide variety of artists, representing many different genres and artistic styles. Simultaneously, they will continue to offer art-backed loan products.

While the art offerings are only open to accredited investors, Yieldstreet states that its investors are generally accredited or non-accredited investors who understand the power of alternative investments and technology as a means to build wealth.

Some investors are passionate about art but don’t necessarily have hundreds of thousands or millions invested in an art collection but with $10,000 or $20,000 they can have access to masterpieces in a portfolio worth $20 million.

Crowdfund Inside asked Fine about the impact of inflation, which is currenlty elevated, and she said that some investors are certainly looking at art equity as a way to diversify their portfolio with an investment that is linked to a “hard” asset, in order to hedge against rising inflation.

As for NFTs or non-fungible tokens, a red hot sector of digital assets? Fine did not say either way but it could be an option going forward for Yieldstreet – a combination of digital and physical assets could enhance the marketplace’s offerings.

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