“Leveraging data and technology to create access can change the future.“
Michael Weisz is the Founder & President of Yieldstreet, an alternative investment platform focused on generating passive income streams for investors. Gil Mandelzis is the Founder & Chief Executive Officer of Capitolis, the leading SaaS platform driving financial resource optimization for capital markets.
“What is the power of capital and how can you use it to change the world?” Correcting income disparity has the potential to improve countless life and create new opportunity. But what true innovation has happened in financial services over the past decade? “Not a whole lot: payments and distribution.”
Post-financial crisis, we are seeing fewer, larger banks with more constraints on their capital, meaning there is abundant independent capital seeking out returns. With this comes the need for regulation, something that separates FinTech from other industries like ride sharing.
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SPEAKERS
Michael Weisz
Founder & President
Yieldstreet
Gil Mandelzis
Founder & Chief Executive Officer
Capitolis
EPISODE TRANSCRIPT
John Darsie: (00:08)
Hello, everyone. Welcome back to SALT Talks. My name is John Darsie. I'm the managing director of SALT, which is a global thought leadership forum at the intersection of finance, technology and public policy. And this is a landmark SALT Talk today. I'm broadcasting live for the first time in 2020 from SkyBridge HQ here in Manhattan, contrary to popular belief. Manhattan is still here. It's not the wasteland that many people conveyed to me that it is. And it's great to be back in the office. We're going to start slowly getting back to normal here at SkyBridge and SALT. So it's great to be here. And obviously I have a new background here for those who have been recurring listeners.
John Darsie: (00:48)
But SALT Talks are a series of digital interviews we've been doing during this work from home period. That was some of the world's foremost investors, creators and thinkers. What we're really trying to do is replicate the experience that we provide at our global SALT conference series, which is to provide a window into the mind of subject matter experts, as well as provide a platform for what we think are big ideas that are shaping the future. And we're very excited today to welcome two FinTech entrepreneurs, who are definitely shaping the future of the financial industry, as well as the technology world.
John Darsie: (01:19)
That's Michael Weisz and Gil Mandelzis to SALT Talks. Michael is the founder and the president of Yieldstreet. He's responsible for Yieldstreet's investment strategy and originator network, and has overseen more than 900 million in transactions over the course of his career. He began his career at a $1.2 billion, New York based credit fund, working his way up to vice president before co-founding his own fund in 2013. During his 10 years on the institutional side of the business, he grew frustrated that access to superior wealth creation opportunities, it wasn't quite as accessible to the individual investor.
John Darsie: (01:57)
In 2015, with that in mind, he teamed up with Milind Mehere to create Yieldstreet, which democratizes access to the alternative investment world. Gil is the founder and CEO of Capitolis, which is a leading software as a service platform, driving financial resource optimization for capital markets. He's an award winning serial entrepreneur and industry executive in the FinTech space with a successful record of creating disruptive products and companies and leading them through global scaling. Prior to Capitolis, Gil was the CEO of EBS BrokerTec, which is NEX Group, formerly ICAP, it's the foreign exchange and fixed income electronic markets business.
John Darsie: (02:40)
He served as a member of ICAP'S global executive management group, and before EBS BrokerTec, he was the CEO of Traiana, which was a post-trade processing company he founded in 2000. Traiana was featured in a Kellogg Business School business case study that was written about Gil. He was also a member of the New York Federal Reserves Foreign Exchange Committee, the Bank of England's Joint Standing Committee and the Bank of Canada's Foreign Exchange Committee. Just a reminder, if you have any questions for Gil or Michael during today's SALT Talk, you can enter them in the Q&A box at the bottom of your video screen within the Zoom window. And hosting today's interview will be Anthony Scaramucci, who is the founder and managing partner of SkyBridge Capital, as well as the chairman of SALT. And with that, I'll turn it over to Anthony.
Antony Scaramucci: (03:28)
Okay, well, I just want to thank the Academy for giving me the room Raider award on this particular SALT Congress. Your three room Raiders look terrible. I think mine looks great. This is the first time that I actually beat John Darsie. So I just would like to thank my mom and dad and other members of the room Raider Academy. But Gil, let's go to you first. Okay, Gil well, you have this amazing career and how did you get it started? Tell us a little bit about the family you grew up in and how you took this trajectory with your life?
Gil Mandelzis: (04:02)
Yeah. Thank you. Thanks for having me. I grew up in Israel and I grew up to a very, I would say, culturally minded and socialist family. And my calling was actually to be a professor of sociology. I started thinking very early on about society structures and what is the right structure. And I started making myself all the way from Max, from Max all the way to capitalism, which is where ultimately I landed as a society structure that is very compelling. And therefore was very attracted to the capital of capitalism, which is the US. And came here and became a FinTech entrepreneur. That was way before FinTech was hot.
Gil Mandelzis: (05:00)
Actually FinTech in 2000 was, it wasn't a term, but financial technology was actually a really bad word. If you wanted to raise money from venture capital, especially in the Silicon Valley back then, financial technology was the last thing you wanted to say. But my focus was, and still is on, if capitalism is important, capital markets make capitalism available or possible. And the structure and the infrastructure for this market is something that is very near and dear to my heart. So I think a lot about global market infrastructure, global market structure, and how to make it more robust and how to introduce innovation that is going to push the agenda further.
Antony Scaramucci: (05:39)
Well, before I get to Michael and just a quick answer, give me a short answer to this. Our capitalist model is under siege. There's a lot of income disparity, and it seems like people that I grew up with, Michael, aren't doing as well as they used to. I grew up in this aspirational blue collar family. Most of those families now are economically desperational. Is that a byproduct of capitalism? Or is that something we can fix?
Gil Mandelzis: (06:06)
Well, I think it's both. I don't think capitalism is perfect by any means. And I think there are a lot of things that are broken and should be fixed, but I would also say that working from within capitalism on improving it, is probably a better solution than just throwing the baby.
Antony Scaramucci: (06:27)
[inaudible 00:06:27] you, and I agree on that. Michael let's turn over to you and the famous Yieldstreet. So what happened there? How'd you get this thing going? What did your parents think you were going to be when you were growing up and how did you end up here?
Michael Weisz: (06:43)
All right. I'm a native New Yorker, grew up on Long Island to a nice, quiet, nice area.
Antony Scaramucci: (06:52)
What town? We're going to do Italian, Jewish geography for people that don't live on Long Island. So good. What town?
Michael Weisz: (06:57)
Here we go. I grew up in a town called Lawrence, which is in the Five Towns.
Antony Scaramucci: (07:01)
You grew in the Five Towns? Okay. Sure. I used to hang out in oceanside at that Nathan's when I was a kid. My uncle owned that motorcycle shop in port Washington. We used to go down to Nathan's for those Tuesday night events.
Michael Weisz: (07:14)
That's like our backyard.
Antony Scaramucci: (07:16)
Which always brought the cops, but that's a whole other topic. Okay. Go ahead. So you're growing up in Lawrence, your parents think you're going to be what?
Michael Weisz: (07:24)
My parents think I'm going to probably be like a doctor or a lawyer, good Jewish family.
Antony Scaramucci: (07:29)
[crosstalk 00:07:29] good, of course.
Michael Weisz: (07:31)
Thank you. I appreciate it. The truth is-
Antony Scaramucci: (07:33)
Darsie's parents thought he was going to be a banker, trust me, they thought he was going to look like the guy in the Monopoly board, but you two were [crosstalk 00:07:42]-
Michael Weisz: (07:42)
We were both terrible disappointment.
Antony Scaramucci: (07:43)
The other one was a doctor. I was supposed to be landscaping your yards, just so everybody's clear. And look at us now, we're all here on this SALT Talk. All right. Go ahead, so what happened?
Michael Weisz: (07:55)
I got enamored by the financial markets, like trying to understand what risk means even as a young kid, and how investor appetite works and where people put their money and how markets change. I'll be honest and say that when I thought I was enamored by it, I had no idea what it actually meant, but it was interesting to me. And growing up as a kid that would spend some time in the city and cut school to jump on the LIRR and go hang out, the energy that was in New York City and seeing all these huge buildings in Wall Street, really had me very interested.
Michael Weisz: (08:28)
As I started my career, I started to think about, what really is the power of capital? How can you use capital to change the world? Is it by investing and helping create jobs? By supporting entrepreneurs to get ahead, you talk about wealth disparity, income disparity, those are topics that are always been incredibly interesting to me. And we should jump into that. And then on the other side of that is how do you help people achieve those financial ambitions? And how do you use your skillset, your ability, and the broader capital in the investment market to make a bigger difference? And that's really what got me into being excited about financial markets and investing overall.
Michael Weisz: (09:07)
Yieldstreet was the next generation. I started out doing some regular, I would say, run of the mill asset based lending, nothing too exciting, supply chain financing, receivable financing, et cetera. And what I quickly learned was that inefficiency in certain subsets of the market can often lead you to have more attractive yield. And what ultimately became front and center to me was that, the income disparity that's really going on is as a result of education, jobs and that lack of access. And leveraging data and technology to create access can really change the future and help people get to their financial ambitions. And that's really how YieldStreet got started. That's what I've gotten incredibly excited about. And that's what led me here today.
Antony Scaramucci: (09:59)
Well, first of all, congratulations, amazing career for both of you guys. But on Michael, I want to ask a little bit about the role of technology in the pre-COVID environment, and how does it look now in the post-COVID environment based on your commercial experience?
Michael Weisz: (10:18)
The front half of that question is pretty broad. I'm going to dig into it a little bit. I think that we could all agree that technology has brought our lives to a whole different place. And we see it evolving year over year. If you think about basic interactions with your financial wellbeing, whether it's your trading stock or your interactions with your retirement accounts, with your credit card, how you go about getting a mortgage, et cetera. We've seen a tremendous amount of advancements in technology. I think the question really is like, what real innovation have we seen? And as people talk about FinTech. So as I think about FinTech, it's really the partnership between traditional financial services and technology to enable something even better, a better experience, better access, better outcome.
Michael Weisz: (11:10)
When you really take the time to think about where has true innovation happened in financial services, it's not a whole lot. It's happened in the payments space and it's happened in the distribution space, but finding more websites to identify investors, to borrow money more, or to find a better credit card or a better mortgage supplier is not true innovation. I think that what you're seeing over the last number of years pre-COVID is this buildup and acceptance of technology, and how it's enabled banks and other financial companies to advance and to make progress and to streamline things, to make the business more efficient.
Michael Weisz: (11:51)
What you're seeing now, and what we'll talk about over the next couple of years is having real true innovation. And I think that COVID has systematically changed a lot of our behavior and it's impacted the financial services market as well. And I'm happy to comment on that whenever you're ready.
Antony Scaramucci: (12:11)
Yeah. Well, let me just fire Gil in here because we're creating a technological asset management salad. So let me just ask Gil to dovetail off of that. So the banks have obviously turned to technology to improve their relationship with the asset management community. Tell us how they've done that, and tell us where you think that trend's going? And then I have a question for both of you that will synthesize where you both are.
Gil Mandelzis: (12:36)
Yeah. If I just take a step back for a second, just to where we're coming from, basically, we're trying to bring and borrow a lot of the sharing economy, network economies, Allah, Uber, Airbnb, and otherwise into the capital markets world, with the basic premise that says that on the back of the financial crisis, A, we have fewer banks. B, these banks, they used to have basically unlimited amounts of capital, and that was the lowest cost of capital that is out there. The regulator is on the back of the financial crisis, changed the game. And to a certain extent rewrote the industrial logic of what is a bank. And very wisely have done that. Not through a hard and fast Volcker rule, but actually through the economics such actually the bigger you get, the more expensive your capital is you could do less things off balance sheet, et cetera, et cetera.
Gil Mandelzis: (13:36)
What happens is 10 years later, and it's only going to grow over time. We have fewer banks, global banks with massive infrastructures and capabilities, with more and more constraints on their capital and their cost of capital. And you have actually much more money out there looking for returns, many more asset managers that are managing significantly more capital and are looking for those services. And there you have a basic tension in the market. So the asset managers can no longer just come to the banks and say, "I want you to do this for me." And the banks are just going to say yes, because the equation has changed. So it has to become a much more collaborative model of understanding the supply and demand, the cost of capital. What does it cost for the bank to service me, et cetera?
Gil Mandelzis: (14:30)
Banks can no longer, obviously if you're a Blackstone or obviously if you're SkyBridge or if you're a PIMCO or BlackRock, you could get any service you want from the large banks. But when you're talking about asset manager number 10,000, without technology, and without scale. Without technology that would allow the scale, it's impossible to service those clients and to provide them what they need. It's a much more collaborative effort between them. Sometimes the banks are suppliers. Sometimes, actually the banks are going to be consumers of the asset managers, and you have to provide those platforms that are going to allow them to collaborate.
Antony Scaramucci: (15:08)
Makes total sense. It's obviously the intersection where everything's happening. So this is a question I have for both of you. I want you to envision where we are five years from now, in terms of technological efficiencies, and then in terms of product design. Let's start with you, Michael. You guys have laid out where we were and where we are now, but I guess the question is where are we going?
Michael Weisz: (15:37)
Sure. I think, let's zoom out for a second and just focus from a very practical perspective, what is the business? What do we do? And then what's happening around us in the industry? So very simply put Yieldstreet's mission is to help millions of people get a road to financial independence. And we do that by providing them access to what we believe are best in class institutional grade, alternative investments. Our customers are two sides. On one hand, you have the investors. So you have 200 plus 1,000 individual investors, high net worth, et cetera. On the other side, you have institutions, banks, hedge fund managers, lenders, et cetera, that are looking for a strategic capital partner.
Michael Weisz: (16:20)
What Yieldstreet essentially provides the supply side. So the deal side, the investment opportunity side is what I like to refer to as distribution infrastructure. And in what we will talk about that in what we provide to the retail side is a new wealth management tools, wealth creation tool. So very simply put, my partners and my team at Yieldstreet, are we just a special breed of genius? No, not at all, not even close, is we were able to recognize how it changed in a regulatory environment and a change in the capabilities of technology can create incredible efficiency, ease of use the digitally native solution. And you can leverage the masses to create financial equality.
Michael Weisz: (17:09)
When Yieldstreet takes on $100 million deal and makes that available fractionally to investors of all different sizes, it is now participating in the same type of deals that your founder, or your capital would, or banks or hedge funds or et cetera. So what we've been able to do is leverage-
Antony Scaramucci: (17:27)
Are you be worried about the risks though? I want you to keep going, but so I'm a retail investor. I may not understand the things that the institutional guys are. Are you worried about that democratization?
Michael Weisz: (17:40)
Yes and no. So currently our current user base is exclusively accredited investors with the exception of 140 act fund. That is a heavily diversified product. I think that, if you take a comparative analysis, Anthony, people who don't have access to the types of investments that you make or that we make are investing their money often in far more risky products. So think about penny stocks, biotech companies, whatever ticker they hear in a bar or on the train, as opposed to the types of investments that we're doing are secure debt. There's real estate backing it. There are other assets. Are there risks? Of course there are. Are there going to be challenges? Of course, there will be.
Michael Weisz: (18:24)
We all experience them as we get to a certain scale, but in the last six years, even less, Yieldstreet has funded a billion foreign loans paid out over 600 million bucks. We've had our fair share of setbacks like every other manager, but that's what we're here for. And that's what we get paid for, so you get paid for. So I think the key is, for YieldStreet to continue to deliver quality education, really trying to explain to people in our content, what are the risks, how to understand them and to explain to them what that process looks like. Will everybody always completely understand it? I don't know. I think they do. I think they're accredited. I think they're sophisticated people. They read it. Will people be upset when something doesn't go the way they want it to? They always are, but that's not going to be any different than your institutional investors or our investors.
Antony Scaramucci: (19:13)
What do you think, Gil? What's the future look like to you?
Gil Mandelzis: (19:17)
I think first of all, I totally buy into Michael's vision and mission and the great work that Yieldstreet's doing. From our perspective, we're doing very similar things, but only at the institutional level. So if you think about democratizing access to opportunities that did not exist before, at the core of our vision sits what we call the lean bank. So you think about the JP Morgan, Citi, a State Street, Bank of America, they will have to, they already have to, and will continue to have to be much leaner from a use of capital, efficiency of capital and financial resources, for their day-to-day operations.
Gil Mandelzis: (19:56)
What we're doing is two things. The first thing is we're identifying all kinds of unnecessary positions, offsetting positions that they have on their books, and we're helping to eliminate them. And that happens now in trillions of dollars every month. And the world is huge. Like every segment we're looking at is trillions of dollars of opportunities, basically almost like free money that can be eliminated and has huge impact on the capital efficiency of the trading relationship.
Gil Mandelzis: (20:25)
The next thing we do is where you cannot compress it, can you now outsource it or partner with participants just like at YieldStreet they will go to the accredited investor, we would go with a Citibank position and offer an asset manager. And it could be any asset manager, we're just dealing with institutional investors to now be the financing partner of the large bank. And obviously we're looking here, like in the first month that we've done the last issuance, we're getting close to a billion dollars and the numbers are ginormous in this space, but basically allowing the balance sheet of banks, and allowing the financing of banks in a large part to now be democratized to the asset managers on the planet that have plenty of cash, but are looking for yield. And will never have the infrastructure and the capabilities that at JP Morgan, Citi or others have.
Gil Mandelzis: (21:26)
The investment that exists in for an equity prime broker or for a foreign exchange platform, this is billions, if not tens of billions of dollars that was invested by the banks, you cannot replicate that. Their distribution, you cannot replicate that. By the way, from a compliance and regulatory perspective, you cannot replicate the capabilities that they have. What they're missing is capital or the cheapest source of capital that exists elsewhere in the world and is abundant. Bring those together and everybody wins. It's good for the banks. It's good for people with capital. It's good for the clients. And from a regulatory perspective and market structure perspective, this is exactly what the regulators want. Because it's a safe market, but also we're bringing more capital that is diversified into the market.
Antony Scaramucci: (22:14)
So Michael, you listening, this is a former socialist that speaks about capitalism with the appropriate zealotry of a converted person. So mazel talk on that.
Michael Weisz: (22:26)
[crosstalk 00:22:26] tastes, but Anthony, if you don't mind, I was thinking about as Gil was talking about two things that you were saying. So one, we start off earlier, you made a passionate commentary about the wealth disconnect in America. And that is a real issue. And then talk all about-
Antony Scaramucci: (22:47)
It's fueling all of this anger, and nationalism, and tribalism and everything, but yes, go ahead.
Michael Weisz: (22:52)
There's obviously different levels of that. Poverty is a separate story. And then there's the blue collar, which is where you started. And I know that story all too well. And the problem is that if people don't have the ability to get ahead and to make more money and have their money work for them, then they're all going to end up at that same place. And that's really, what's causing this disparity. People who can afford to get above their expenses and to have their money work for them, have way more opportunities that's ahead of them. And everyone else falls below the line. And so when you take that and you take the question about the risk to retail. I was thinking about two things.
Michael Weisz: (23:29)
Number one, if you look at... and I was looking for it if I had my slide, but I think it's just going to be too cumbersome to find it and projected. But we used to talk about this slide in the earlier days of YieldStreet, where if you look at the general population of Americans with the ages of 1880, and you look at their financial path, their journey over that, over that period of years, what you find is in the first set of years, call it 18 to late 20s, most people have a ton of debt. They have a lot of student debt, all that other stuff. In their 30s, they start to make a little money. They hit some stability, they have less debt. They have more appropriate debt, whether it's a mortgage, et cetera. And then as they get older and older, they start to invest be it their IRA stocks, bonds, et cetera.
Michael Weisz: (24:13)
The average entrance for an individual into alternatives was 65 years old. 65 years old. That doesn't give you a tremendous amount of time to build that up. Because of the technology and our capabilities Yieldstreet's average customer age is 42. That's a huge, huge number of years to get people to have that earnings working for them. The second thing I would say is, I think it's important that we ask ourselves like, hey, why hasn't alternatives been appropriately distributed to retail in the right way at the right field level? And the answer isn't that it's not, of course it is. All these banks, all these guys are packaging up and distributing it through FAAs, the Edward Jones of the world, the Charles Schwabs of the world. They're getting the same paper. They're just getting a three to 500 basis points, three to 600 basis, point less because of every partner in the middle who has to be paid a fee for that distribution. So there's the wrap fee, the distribution fee, the banker's fee, et cetera.
Michael Weisz: (25:09)
What we're able to see now, is disintermediating some of those costs, some of that process is delivering that value net to the investor. I think the question is over time, how will product design, so the actual investment product design evolve to make it better, safer, less risky, et cetera, for investors? Or at least give them the choice to select different risk barometers. So are they going to pick binary investments? Are they going to pick fund level investments? Are they going to pick something with liquidity? Are they going to pick something without liquidity? I think that's really what we have to think about more and less so about, hey, if it's a $500 million deal and you're getting $100 million allocation and delivering that same trade to retail, isn't that potentially a better risk reward opportunity than some of the other alternatives where they have?
Gil Mandelzis: (26:02)
Yeah. If I may, I just follow up on structure. First of all, I'm a glass 95% full kind of a guy. I just want a couple of optimistic points here that I'd like to highlight. First of all, 12 years ago, the entire global financial system almost collapsed, like we're on the verge of a collapse. And I do think that all the regulators that were part of and governments that were part of saving the system, they should all get medals for the work that they've done. And in truly saving the system, and by the way, all of the taxpayers, all the world had to, in many places in the world, had to bail out the banks.
Gil Mandelzis: (26:47)
And I think that 10 to 12 years later, first of all, we need to acknowledge that we're in a completely different place, and look at what just happened in COVID with all of this horrific, totally unexpected, not just human suffering, but everything was happening to the economy. We are not talking about any bank or any meaningful financial institution that's anywhere near a problem. And the system was operating in full throttle. And I think that that is an amazing achievement that we should all feel good about. And we should make sure that we're continuously, every improvement, YieldStreet and Capitolis and others, we're basically all standing on the shoulders of giants. And those giants are providing this infrastructure that operates, it works. And I think that we're in much better place and we need to make sure that that system continues to operate.
Gil Mandelzis: (27:46)
So that's the first thing. I think there's a lot to celebrate, but obviously on the back of those changes, structural changes will have to happen. If you think about the big changes that have occurred in the past, deregulation of the telecom industry, if you think about the invention of the internet, if you think about the invention of the iPhone or GPS for that matter, those things led to massive changes and those massive changes will come in the financial system as well, especially in the capital markets in the B2B world in the years to come.
Gil Mandelzis: (28:17)
The last thing I just want to say is, I'm a very proud citizen of Israel. I'm also very proud citizen of the US, and that has been very good to me. And I just want to caution us that while the system is not perfect here, I have to say as an immigrant and as somebody who lives here all day long, but I travel abroad, I think there's still a lot to be proud of. And there's a lot of good things in the system, and what you're doing, Michael is amazing and there's a lot of work to do to improve. But I think our starting point is fantastic. And this is still the place where, most nations will be looking up to and will want to come here. With all the criticism and everything that we have to improve, I'd still rather have this conversation out of my office in New York city than elsewhere.
Antony Scaramucci: (29:09)
Well, you and I totally agree with that. I think there's an amazing future for the country, but if we can calm down some of the emotional unrest and some of the racial tension by creating a fair system-
Gil Mandelzis: (29:23)
100%.
Antony Scaramucci: (29:24)
For me, I'm all about uneven outcomes. I loved seeing the wealth that you guys have created and the value that it's in society, but I am really for equal opportunity because we didn't control our parents or location of our birth or anything about our lives until we got here. And if we could just create a better platform of equal opportunity, it'll dial down some of this tension, but you don't need to hear all my politics. We have to turn it over to John Darsie, John moneybags Dorsil, who's got a ton of questions for you from the audience and has a very terrible background in the SkyBridge offices, getting a zero out of 10-
John Darsie: (30:05)
It's your company, Anthony.
Antony Scaramucci: (30:08)
The room Raider judges are piping in, zero out of 10. Why don't you put a printer behind you or something like that, just to spruce things up a little bit.
John Darsie: (30:16)
I'll bring a stapler in next time. I think it'll add a little ambience.
Antony Scaramucci: (30:19)
Go ahead, John. I know you got questions, your audience.
John Darsie: (30:22)
Yeah. The first question we have is around regulation and about... and we'll start with Gil, the sociologist. This is how the question was framed. Do you think financial institutional regulators have in tandem kept up with FinTech's growth in terms of understanding its risks, its applications, its benefits, and how has that impacted the growth of the industry and how will it continue to impact the growth of the industry?
Gil Mandelzis: (30:49)
Yeah, I think it's tricky. Look, when you're innovating is a very easy thing. I come up with an idea and I just going to do it. But if you're a regulator, there is much more to think about, and I had the honor and the pleasure of dealing with many of the regulators globally, they're thoughtful, they're trying to stay up to speed, but they're just, the regulators there's so much that's happening and until it reaches their radar screen and they really understand, and they understand all the implications, et cetera. So the short answer is, for the important things, I think that the answer is absolutely. Yes. If you were to talk about and if you look at the reaction of regulators over time, for instance, to cryptocurrencies, they definitely have had a very thoughtful and have a very thoughtful approach and they're keeping a close eye on it.
Gil Mandelzis: (31:43)
And at the time when there was a lot of noise around high frequency trading and flash boys and all of that. And so big movements and big things that are happening from a FinTech perspective, the regulators are definitely getting educated. They're thinking about these things and I have not observed them stifling innovation by any means. But in the end of the day, FinTech is very important and it's very different not to minimize other industries, but it's very different to hailing a cab or staying in somebody's hotel. We're talking about the trust in the system. We're talking about sovereignty of nations, this is what we're talking about. You could talk about fairness and society, but for this, one of the things that you absolutely have to have is a trustworthy financial system.
Gil Mandelzis: (32:41)
So we want the regulators to be thoughtful. We want to work in tandem and responsibly with them. And I think that for the big thing so far, they have not been stifling innovation, but they have been thoughtful and where necessary, they have been also proactive in their approach. So overall, I think that they've been very good in the various branches of the regulators.
John Darsie: (33:10)
Michael, I want to go to you with a different question. Another audience question. Obviously the pandemic has put a strain on a lot of different financial assets. Do you think that there is any sort of private capital bubble that exists? And how do you build products within the YieldStreet ecosystem to factor in your views on financial markets and areas that might be overheated?
Michael Weisz: (33:35)
Great question. I think that in many ways, even more applicable pre-COVID, so leading into COVID, there's just a tremendous amount of money available in the system and yields were being compressed across the board. You see it in the leverage loan market, you see it in the private capital markets, you see it venture, you're seeing it now in the SPAC market. There's definitely a lot of money out there to be invested. I would say a few things. One is, we talk about investments and the investment ecosystem as like, a specific area it's not, it's enormous. So you've got to think about an asset class level at an industry level and a sizing level. So for example, when you look at, let's look at the public markets for a second, just because they can give us a better analysis with leverage loan market.
Michael Weisz: (34:27)
The top 100 names have all rebounded significantly from where they were in March, but the SMEs in the leveraged loan market, because there's less efficiency of capital, there's far more opportunity there with technically dislocated pricing. You have the same thing in the capital markets. You have a significant number of players that are licking their wounds to some extent, and working through their portfolios and understanding what's going on and how COVID it's impacting. I was on a call this morning with our investment heads and the guy who runs a real estate business, Mitch Rosen was telling me about some of the feedback he had from some of the real estate bridge lenders out in the market.
Michael Weisz: (35:04)
He quoted five names that haven't written a deal since February. They have a tremendous amount of dry powder. They have other areas to focus on whether it's faults or other credits in their book. So there is always going to be opportunity. I actually think contrary to the notion of a bubble that right now, non-bank lenders are really in an amazing seat. There is still concern around the market as to how much credit to extend to small and medium sized businesses to your 200, $501 billion shop. And that means that non-bank lenders and platforms like Yieldstreet can access better quality risks at better pricing.
Michael Weisz: (35:43)
I see daily now that when you think back to early March and late February, where we were pricing transactions, you're 100, close to even sometimes 150 or 200 basis points above that. We just launched a deal as part of roughly $100 million syndicate to a two plus billion dollar revenue business. It's a six month trade with a 10% annualized yield investors. B minus B3 company. Candidly, we wouldn't have seen that deal six months ago or eight months ago. There would have been way too many players doing that same deal at 6%. So do I think there's a bubble in certain asset classes? Yes. Do I think that it's affecting opportunity? No, I think there's better opportunity now.
Michael Weisz: (36:25)
The risks are going to be different across the board, depending on what asset class you're looking to invest in and where you sit in the capital structure and what the underlying collateral is. But I think the time to invest in debt and technically dislocated distress, meaning in areas where there's a lack of efficiency in capital is now, is what we saw in 2009 and 10, I think it's going to be fantastic timing.
Gil Mandelzis: (36:48)
I would say John, on same questions just on the institutional side from our perspective, definitely. I don't know that there's a bubble, but there is basically infinite amounts of capital in the world just looking desperately for yield. And you're looking at, issuances in Europe, in negative yield. We've issued and we've seen our clients issue it unbelievably low rates historically, and even through COVID and where it moved a little bit. It basically bounced back and plus some over a very short period of time. So that's why we're so excited because we know that the origination capacity of the large banks to such investors, is basically infinite. We're talking about trillions of dollars of new investment opportunities.
Gil Mandelzis: (37:43)
We know that the capital is there looking for returns and ideally we'll be able to make those meet. So, hence we don't think it's a bubble because there are true destinations. You don't need something to artificially inflate in value because there is real value there. And there's effectively infinite supply if you're able to structure it right. And to present the right opportunities. But there is, we see it everywhere. We see it in venture capital. We see in every institutional asset class, there is just tons of capital looking for you.
John Darsie: (38:16)
I want to leave you guys both with a question about just the future of the financial industry. You talked Michael about the value of disintermediation and how that cost savings is passed along to the end investor. And that's obviously a positive thing for the investor themselves, but it's also going to lead probably to job losses on Wall Street, and the wealth management industry potentially shrinking as technology enables investors to have more direct access to these products that have typically lived in a more opaque environment, behind a wall of a bank or a wealth management shop, what do you think ultimately happens to the wealth management industry, the financial industry from a banking perspective? Gil, you can comment on that.
John Darsie: (38:59)
Where do we ultimately end up? It feels like now you have these FinTech companies that are disrupting. You also have banks that are trying to use technology to make themselves more efficient. What's the ultimate destination for the banking industry?, for the wealth management industry, and the financial industry as a whole when Fintech becomes mature? We'll start with Michael on that one.
Michael Weisz: (39:21)
A loaded question, I'm just trying to synthesize it a bit. So I think, a lot of people talk about job loss as a result of innovation technology. I challenge that, I think you look back in history, especially right before COVID we were at our lowest unemployment rate in decades, if not ever. And we have more innovation and more technology than we've had before. So I think that jobs shift, profession shifts, things change, society adapts, people do different things. So I wouldn't go right away and say that, hey, just because Tesla's out there, Ford's no longer can exist. All of a sudden Tesla's got enormous employee base. So people still need human output and human productivity to help us move forward.
Michael Weisz: (40:07)
Yieldstreet is growing rapidly. We have over 100 people now and we're going to keep growing. I would argue with that respectfully for a moment, more broadly, I think the notion that FinTech companies are going to pound their chest and Goldman Sachs and Citibank and JP Morgan are going to disappear is ridiculous. Frankly. I think the bigger question is to understand what is the consumer journey today and where does it have to go? And what I mean by that is, if I was in my office now I would pull out of my drawer. I always keep, two cell phones in my office. And I ask people, 15, 20 years ago, what was your favorite phone? And it's either a Nokia or StarTec. And when you look back then, I remember like what we were striving for every time a new Nokia came out was a smaller phone, as long as my fingers could play snake.
Michael Weisz: (41:00)
We went from a Startec to a V-phone tab, even smaller, and now our iPhones are getting bigger and bigger. So there's something more behind that. What is that? I think as a consumer, we were seeking task based efficiency. We wanted each thing in our life to perform as efficiently as possible. So my phone is just going to make phone calls and have text messages. My Palm pilot is going to have my contact thing and whatever else I had in there, my Blackberry is going to handle my emails and my BBM messenger. And today we don't seek task-based efficiency. We seek utility as consumers. We want to do as many things as possible with as few things as possible. And so when you think about the way you experience other areas in your life, shopping, Amazon, et cetera, we look to do as much as we can in one place.
Michael Weisz: (41:47)
If I asked most of the people on this call, how do you track your PA? It would be, "I have one to three banks. I trade in this many places. I have this many managers, I do this, this, that, and the other." That is not an efficient way than 2020 and 2021, we should be managing your money. So the consumer journey has to become much more inclusive, much more efficient, digitally native. And I, as a consumer, have to feel that I'm getting the best options available to me at my fingertips. So if I want to invest in bonds, I want to be able to get them direct and cheap or the best way possible. If I want to invest in alts, in venture and PE, why can't I just, because I don't have $10 million. I can't come into your fund? That doesn't make sense anymore because technology is an equalizer.
Michael Weisz: (42:32)
So what I think ultimately happens is like any other industry, you're going to go through a phase and that phase is going to be now. Okay. When we started at the top of the call, I said, there wasn't a tremendous amount of innovation in FinTech. So if you look at 2000, so our 2010 to 2020, and you look at the number of IPOs, unicorn IPOs for tech companies. There are only two in the financial services world. Two, none are in wealth management. They're both in like debt creation. So when you think about where our world is going, for those of you who track our industry, CB Insights has this list of the top two 50 FinTechs. There are many companies there that are now coming to the cost of a unicorn status are real scale. So I believe that 2020 to 2030 is a golden age of FinTech in 2010 to 2020 was the golden age of tech.
Michael Weisz: (43:26)
But we're going to see a tremendous amount of change now, you're going to have the survival of the fittest, especially as it relates to COVID, a lot of people are going to have run out of cash and not going to be able to keep growing and building. And so what you'll see here are a couple of guys who can come out and really build incredible businesses that are going to be your equivalent of your Facebooks and your Teslas and your Uber's. You're going to see a lot of acquisitions where banks are really going to partner with different players and start to utilize that technology and partner with and appreciate distribution infrastructure.
Michael Weisz: (43:53)
In my world, that's going to be appreciating a new investor dynamic that they've been chasing for a long time, getting closer to retail, getting more diversification, cheaper cost of capital, longer duration capital, and Gil's world, it's going to be, how do we connect deposit wealthy and deposit poor banks? How do we make capital markets more efficient? How do players at all levels able to get access much more efficiently? That's what I think the future holds, sorry, if it was a little long, but it was pretty loaded question.
John Darsie: (44:20)
That's great. The future is long. Gil, how about you?
Gil Mandelzis: (44:24)
Yeah. Look, I think the one thing that existed pre COVID and was accelerated on the back of COVID is software indeed is eating the world. And you will have more technology, you'll have more automation and that technology will enable further democraticization and collaboration and so on and so forth. Which means not the banks are going to disappear. They won't disappear. And I would never bet against JP Morgan, Citi or State Street or Morgan Stanley or others, but I do think that in their current form, they will have to, and they have been evolving. And look at Morgan Stanley's acquisition of E-Trade and look at State Street acquisition of Charles River development and so on and so forth, banks are becoming technology themselves. And by the way, we talk a lot about the disruptive nature of FinTech plaid, obviously amazing innovation. Where is it now? It's part of visa.
Gil Mandelzis: (45:24)
I think that if we think long term, what's happening is further digitization and transformation of the market to a much more open, connected, collaborative technology driven markets all over the world, it's a good thing that ultimately is going to make the markets better, it's going to create jobs, but certain jobs definitely will go away and others are going to grow. I think that overall, that's the big thing. Banks are going to be a huge part of it. There's going to be room for many other companies that will collaborate with the banks that are going to be acquired by the banks. But in the B2B space, I think you're going to find less that are going to compete with the banks because servicing the large asset managers, the largest corporates in the world, the level of regulation, technology, connectivity, global presence that you need to have, membership in exchanges and so on and so forth. That is too complex, I think and too expensive for FinTech to buy.
Gil Mandelzis: (46:25)
This is where you do need the global banks. They have a huge and very important role to play, they'll be there forever, but they're going to be different. And I think that they themselves are basically going to become more and more technology companies. They will become FinTechs themselves more and more than have been already, but we're going to see that more and more. Together with a much broader and collaborative ecosystem of FinTechs and independent companies that work with them, work in collaboration with them, et cetera. So the banks themselves are becoming platforms and FinTechs themselves.
John Darsie: (47:01)
Well, fantastic. Thank you both so much for joining us. We hope to have you in person at one of our future SALT conferences. I know Michael was in Las Vegas last year. We were talking about [crosstalk 00:47:11] maybe we'll have you in Abu Dhabi. You guys are both, you are from Israel and I know Michael visits Israel. Maybe it's a great time to get you guys to Abu Dhabi given the recent Israel UAP [crosstalk 00:47:24] fosters some great innovation cross border.
Michael Weisz: (47:27)
I was there not too long ago. It's a beautiful place. I'll tell you this. You won't have to twist my arm.
John Darsie: (47:31)
All right. I agree with you. Anthony, you got a final word.
Antony Scaramucci: (47:35)
Just, it was a great conversation, guys. Thank you. And we'll definitely get out there and hopefully back to Vegas and we'll see you guys soon. And since you're both in the city, we'll give you a tour of our office, to our better parts of our office. Not necessarily the spot where John's sitting, but I'll show you the good stuff.
John Darsie: (47:54)
Anthony didn't want me to infect his beautiful corner office. So he put me in the broom closet [crosstalk 00:47:59] SALT Talk.
Antony Scaramucci: (47:59)
Stay out of my office. I'm going to spray you with mace. You're going to look like Joe Pesci at Home Alone, if you open the door to my office. Okay. Stay out of my office. Guys thank you again.
Michael Weisz: (48:11)
Thank you. Take care.