Socializing Structured Products for Greater Adoption
Through Nasdaq Fund Network, in partnership with Luma Financial Technologies, structured products are becoming increasingly transparent and, as a result, an attractive investment vehicle that can benefit a wide range of investor portfolios.
On Tuesday, June 14, the Nasdaq Fund Network (NFN), Luma Financial Technologies, and Morningstar hosted a series of in-person panels to discuss how recent innovations in technical and analytical platforms will create the right environment to ignite this industry trend into a true revolution. For the third panel of the conference, Donald Pogan, Chief Strategy Officer from Luma Financial Technologies, served as moderator for the discussion on socializing structured products for adoption and delivering downstream value that changes investment behavior. The panelists include Guillaume Goussault, Head of Market Data for Yahoo! Finance, Peter Kerr, Senior Director of Product Marketing at Yieldstreet, as well as Todd Dilatush, Director of National Sales at Luma Financial Technologies.
The following is a transcript of the panel discussion, which has been lightly edited for clarity.
Donald Pogan: As Luma started to explore some of these strategic partnerships with Morningstar and Nasdaq, was pulling in new participants to this ecosystem that we've all been a part of on the structure product side, that's been relatively the same for a long period of time. And so, we wanted to get this panel together to maybe introduce some folks that the people in the room haven't seen at a conference or haven't talked to outside of Todd. So, we have Guillaume Goussault, who's the product manager at Yahoo Finance. He's going to talk a little bit about that business and then how they had products and the value they deliver. Next to him is Peter Kerr. So, he is product marketing at Yieldstreet, which is actually a really interesting firm. A lot of different products Peter will get into, and they have actually launched structured notes over the past year. And then Todd Dilatush, who's serving as the issuer and industry ombudsman up here today. So, he'll be able to hopefully pull some of the industry standards back into the conversation as we get some new perspectives as well. So, with that said, Guillaume, if you don't mind going first if you could just maybe give people here a little bit of background. I'm sure everybody is familiar with Yahoo! Finance, but what is the business model? What do you guys look at from a data perspective? What are you looking at for user value and things like that?
Guillaume Goussault: Yahoo! Finance, I don't think it needs any introduction, but just to put it in context, we run what is the number one business and finance site in the U.S., according to Comscore. We drive about 100 million monthly active users to our site. We have a tremendous reach, especially in the retail investing community. We support about 80 markets, and we cover equities, mutual funds, ETFs, FX, cryptos, options and futures. And we constantly look for ways to expand the platform, both geographically but also across asset classes. And your question about the business model as it stands today, Yahoo! Finance is still very much an ad revenue business. So, we do well when we get a lot of page views. However, a couple of years back, we launched a subscription model, Yahoo Finance Plus, which is a $35 a month subscription package that gives you access to a bunch of research and utilities and additional insights and stuff like that. We have a long-standing relationship with Nasdaq Fund Network, and in fact, we carry everything that's on the Fund Network today, including mutual funds. We recently added CITs. We have some of the 529s, so we have a pretty wide breadth of the pool of investment vehicles. And so, the part of this conversation is to really continue down the path, to really bring to the retail investor on a free website that's very easily accessible on desktop, on the mobile app. We have a mobile app, and we are also present on every iOS device in the world through the stocks app that we power. So, we have a lot of reach, and so it makes sense for us to be that vehicle for democratization, if you will, of asset classes such as structured products.
Donald Pogan: Excellent. That's really helpful. And I'll come back to you in a moment, too, because I want to talk a little bit more about some of the geographical expansion in some of those pieces. But maybe, Pete, a good time for you to give everybody a background on Yieldstreet, the mission of the company, products that you guys offer and how you've gotten into structured notes over the past year.
Peter Kerr: Yieldstreet is a direct-to-consumer brand that primarily seeks to provide access to private market alternatives at much more accessible minimums and also access to products for which they may not normally get access to unless they go through a wealth management platform or have a lot of wealth that they can meet some of the significantly high minimums across some private fund investing. So, these asset classes actually range from quite a bit. We do things like art-backed lending or even diversified art funds where you hopefully own a very valuable piece of art. We do things like private credit, venture capital and private equity, and we also do things like structure notes and also real estate. So, we're really trying to find ways to bring regular investors institutional-quality investments, but again, with a key caveat being at much more accessible minimums than they might find on other platforms or through other channels.
Donald Pogan: And I know you guys had a press release earlier this week or last week. You mentioned in the press release there was a $100 million threshold that you cleared. What's been the trajectory of the business on the structured note side, and how is that growing? What's changing? What are you seeing?
Peter Kerr: Structured Treasury notes are a very interesting product for Yieldstreet. We offer a lot of things that typically have much longer terms, particularly when you think about venture capital investing. You're not really looking at opportunities that you have tremendous amounts of liquidity. And so, what are some of the other products that we could do that also help people express a view on the markets, but also doing so in a way that we can structure with some shorter terms. One idea that we came up with was what we call income notes, which are debt-oriented structure notes. So, we launched these in May of last year, and to date, across about 50 vehicles or so, we've done about $100 million or so with expectations to grow that a couple of multiples over the course of the coming months and years. Certainly, the market backdrop right now, we believe, is fairly conducive to structure products, particularly because, again, you don't have to have a massively bullish or bearish view on the markets in order to potentially take a security and generate some form of return in. And one of the unique things that we do about structured products or income products or income notes, rather, is we take three individual single name notes, and we actually package that in an SPV or into an individual offering. And we manage some of the reinvestment, some of the other issues that a lot of folks, especially on the retail side, become very frustrated with when investing in an individual structure note, particularly how quickly their note might get called on, how quickly they have to reinvest and again perform all their typical due diligence. So overall, we've seen tremendous take-up, and our expectations are that structure notes, in particular, continue to grow.
Donald Pogan: Awesome. Thanks for that. And definitely want to come back and dig into a little bit more about some of the products that you guys build. But Todd, I know you've been front and center on the Luma side developing some of these partnerships and maybe speaking as someone who's been in this structure product ecosystem for 15, 16 years, what are some of the exciting things that that you see in the immediate and then maybe longer term?
Todd Dilatush: Sure. Going last, you have the disadvantage of all the good stuff already been talked about. To be somewhat creative on what to focus on, I always like to look at it through a sales lens, look at it through the issuer's lens, and look at it through the program manager's lens. And I wish we were more program managers in the audience. In the 15 or so years on the issuers' side, before joining Luma for the past three or so years, I've been talking to all the same folks, primarily program managers, running structured product businesses and the BDs, IBDs, etc. Interestingly, five years ago, if you asked what the penetration for this product set was on a per advisor basis, it always landed around 10% to 15%. I have conversations with those same people today, and they still land at 10% to 15% penetration. So, if I were in my old seat as an issuer or a program manager, they both have a very simple task to solve: They want to continue to do more sales and think about more resources on how you can potentially accomplish that. So, if you take a step back and you think about what Morningstar is bringing to the table and what Nasdaq is bringing to the table, the hope is broader adoption of this product set. So, if I were a program manager in an issuer, I would be excited about this. This is a way to bring more focus on the product because now sitting next to ETFs, etc. It also gives the ability for this element of transparency in the retail market. Keep in mind that this is also global in scope. So, I think this will lead to more sales over time, and I think it's just another resource. If applied properly, you could see broader adoption in that 80% to 85% group of advisors that aren't using structured products today.
Donald Pogan: There were some comments earlier around the volume growth of structured products and how maybe some of these advancements will help there. I think it's really encouraging to see the new participants as well as reinforcing that we need to add these products into this ecosystem. So, Guillaume, if you don't mind, going through a little bit of the geographical reach and how Yahoo's customized for different areas and what you all offer around the globe.
Guillaume Goussault: We have 15 different localized versions of our site and apps around the globe with language and content localization. But we cover a lot more markets than that; we are actually present in probably 80 or so exchanges around the world. And I'm not going to figure out exactly the number of countries that is, but that's a lot of countries. And also, our reach through the iOS app that I mentioned before means that we're pretty much practically everywhere. But we want to continue to expand that. And we do get approached by a lot of smaller markets who want to be on our platform, quite frankly, in order to be discoverable and to be able to be accessible through all these access points. We're also interested in expanding, as I said before, the asset class reach, if you will. And we recently onboarded a new sort of emerging asset class, which is around actually collectible assets. Peter, you mentioned that earlier. We partnered with a company called Price in Culture. What they do is they create index products based on collectible assets that are securitized under RegA, and we're going to continue to do that with NFTs and other asset classes as they come up. So, this is really very much in keeping with what we what we're already doing.
Donald Pogan: That's really helpful. And I think so with the global reach and obviously, everyone's awareness of whether it's Yahoo! Finance or maybe some competitors or Google Finance or Bloomberg or otherwise. Now there's going to be information out there when someone types in this identifier. So today—I think everybody in the room is aware—you type in a CUSIP, maybe you get the Edgar link potentially, or you get nothing. And so now, with the data in the Nasdaq Fund Network that's going to be distributed to the end consumer, the client on their statement or as they're looking at their personal holdings, they'll see an identifier similar to a mutual fund ticker that they can paste into a search browser and pull up a page that actually will have meaningful information about what this whole thing is. So, I think it's going to be a really powerful advancement. The Luma team is working with the Nasdaq group to get all of the data pieces in place so that way this data transmission can start to occur—working on that over the summer and starting to target a late Q3, early Q4 launch. We'll obviously keep everyone in this group in the industry updated on what's going on and when things start to go live. But I just wanted to reiterate some of the reach that's going to come out of this with platforms like Yahoo! Finance. Pete, I want to jump back over to you for a second. I think it may be worthwhile to just take a second and talk about the growth of the business and any headwinds you guys have run into operationally to scale to get to this next leg of growth, and how are technology and partners helping with that?
Peter Kerr: We're a growing company. We did a series C last year, so we've got about 400,000 members on the platform, and we've done about $2.8 billion in sales and currently have AUM that's well over $1 billion. So, as we all of a sudden went and tripled our growth last year, we consider and think about how we triple and do large multiples this year. There are a lot of operational efficiencies that can be created from here. And as you can imagine, something like income notes for us that we launch on an SPV basis, but maybe launch three to four of them a month, but we typically do them themed by different GICS sector, so maybe financials exposure, maybe it's energy or any other. In some of our previous offerings, we might be able to offer a single investment and maybe get $10 million to $15 million in that one offering. But when we think about income notes and how regularly we want to launch them to make sure that people are investing at or near their strike prices, making sure it's not too much of a deviation of information that creates a lot of scale and operational challenges for us. So that was one area where we partnered with Luma, particularly to help us figure out how to manage the lifecycle, whether those are distributions that are made on a note basis or on an investment offering basis, and how do we also track and monitor the performance and also most importantly, how do we share some of those analytics with our customers and our clients? So, for the most part, in the private markets, for those of you that do invest, information is scarce, updates are very irregular, and liquidity obviously doesn't really help on many fronts. So, what we were tasked with to start the year was to find ways that we could provide more insights and better analytics to our customers. And that's where Luma really stepped in and helped us out overall.
Donald Pogan: Great. Thank you. And Todd, putting your issuer hat back on in your old role—a day in the Life Bloomberg Terminal—how are some of these data initiatives going to help that day-to-day workflow?
Todd Dilatush: Well, sitting on a desk as an issuer, visualize the corporate description page on Bloomberg. This Nasdaq identifier will also be on that on that screen. If you think about client statements at a clearing or custodian level, one really interesting piece of the partnership with Nasdaq is that we will have the ability to clean up the description of that bond in that client statement. In the majority of statements that hold structured notes today, you see a description of it's a corporate bond, zero-coupon bond, so the issuers name the maturity date, etc. This will clean up all of that where you would actually have granular detail on what that actual note is. I think up to 150 characters or something to that extent. Operationally, I don't foresee any slippage whatsoever on how trading, etc., would take place today. One comment on Peter's business. Yeah, I think back to all the different clients that I've been involved with in my career, and I've never seen an organization that is launching SPVs on a basket of notes and gaining critical mass. That's pretty cool. Take that product and add an identifier to that and be able to track the performance of that basket of notes. That's powerful. So, the whole theme of this event has been the revolution, I would say, is a little bit more of an evolution as well. I don't think a lot of this would have been possible without the evolution of these platforms in general. And what we have set up today it's bigger than Luma; it's bigger than all of us. So, we have to set them up in a way to be able to consume data from all structured product participants in the market to potentially benefit from these resources.
Donald Pogan: Awesome. Thanks. So, we'll make some closing remarks from some different perspectives—if you have any thoughts on your industry over the next 18 to 36 months as well—and Guillaume, I want to start with you.
Guillaume Goussault: I think one thing that I didn't mention, which is a big part of this conversation, is Yahoo! Finance has 48 million active portfolios that are essentially tracked on our platform. I think that's a critical part of what the idea of this is to allow not only the discovery on a pre-trade basis, but the tracking on a post-trade basis, which brings me to where I see us potentially evolving is to fill that gap between the two to become potentially a trading venue or if nothing else, an entry into execution capabilities across the various asset classes that we cover. We're also a very attractive lead-gen opportunity. We present a very attractive lead-gen opportunity for a lot of these types of distribution models. So, there are other things in other spaces that are less relevant to this conversation, but we are privately owned. We were sold off by Verizon last year and to Apollo Funds. We have very aggressive growth targets, so that encompasses a lot of different strategies to try to turn Yahoo! Finance into a powerhouse. So, this is just another building block.
Donald Pogan: Very exciting. I think everybody's looking forward to having more information available to the consumers of this product. And so, Pete, what does Yieldstreet have in store for the industry and the next couple of years?
Peter Kerr: The biggest thing for us is to really work on, to reiterate some things I've already said, but a little bit of access and a lot about education, which we haven't yet touched on. So yeah, one of the things to us that stands out as a glaring information gap is people's understanding of how structured notes work and what they can do, both within the context of their portfolio and some of the underlying basic fundamental fundamentals of the mechanics. And that's one area where we see a tremendous amount of need and growth both on our platform and in the industry overall. Certainly, Yieldstreet is not the only one that is trying to offer retail investors structured notes. We're aware of that. So, where we think we have to have a bit of a competitive edge and also really help to fill that gap is going to be education because, to many folks, these are more complicated products than they need to be. There is also a little bit of a black box nature where they don't really understand what's going on a daily basis. And they're so used to relying on their mutual funds, their ETFs and their individual stocks just to track their portfolios on a daily basis and just feel like things are going if nothing else. Okay. So, for us is trying to make sure that we can bring that experience to them and also really help to fill some of the education gaps that we think are out there.
Donald Pogan: Excellent. Looking forward to the growth. So, Todd, if you want to close this out with what's going to happen in the next two years.
Todd Dilatush: A couple of different things. With the velocity of what we've accomplished at Luma and what our competitors have accomplished as well, I think the platforms will continue to evolve very quickly. You are going to see broader adoption of structured products because now, through technology partnerships, you can make decisions from a portfolio context. One thing I would really like to see happen, maybe a stretch of the imagination, but Brady was hitting on our creation hub tool earlier. Why not take that to like DCN and take it to a portfolio manager, an institutional firm that has relationships with corporate issuers? How cool would it be for Google to launch a note on the S&P? But they have the ability to run this auction through this tool, assuming they have everything in place. So maybe, over time, technology could bring a new type of issuer into this marketplace.
Donald Pogan: Very exciting. All right. Any questions for the panel? Keith.
Audience Member: I guess a question for Pete was [INAUDIBLE]
Peter Kerr: To date, we've launched a couple of products. One of the products we launched was if anyone knows Pantera Capital, a hedge fund style fund, an early-stage token investing fund. So, we launched that in February. We upped our amount a little bit more due to demand and have plans to open that back up at some point in the coming months. But obviously, we're waiting to see a little more information about how the market evolves. And beyond that, we launch what we call the enhanced crypto fund, which is effectively a smart beta index replication style strategy, where we take the top five to 10 crypto coins, but we screen out for certain stablecoins, meme coins and other ones that don't have viable business cases, and we cap the weightings of the largest ones to make sure you get some exposure on a market-cap-weighted basis to some lower coin market-cap-weighted names. Such things as Polkadot, Solana and Cardano. And then again, it's an area of focus for the firm. Certainly, we're all watching to see how this plays out. Our long-term thesis remains the same, but certainly, it's rather challenging. And I don't think anyone thinks it's necessarily wise to try to oversell in a market like this.
Donald Pogan: Thank you to our panelists.
Devin: Thank you to our panelists. I just wanted to thank everyone for coming out today to be a part of the structured products revolution that we're discussing here today. In order for us to be able to really mainstream structure products, it's going to come down to really making sure that we're providing investors with educational tools to be able to understand these products better. So that work is going to be starting. It's already begun, and it's going to be going full bore over the course of the next several months and several years. So, we're excited about bringing more education and growing the space. On behalf of Nasdaq, Luma and Morningstar, we just want to thank you for coming out today.
Have additional questions?
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About Nasdaq Fund Network (NFN):
Nasdaq Fund Network (NFN) offers fund data services that deliver transparency to investable products to help ensure professionals and non-professionals can make more informed decisions with their assets. NFN facilitates the collection and dissemination of performance, Net Asset Value (NAV), valuation, and strategy-level reference data for over 35,000 products to 100 million+ investors.
Read more on NFN and Luma’s partnership here.
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