YieldX CEO Adam Green met cofounder Steve Gross when he brought a deal to him while Gross was on the Fintech Opportunities Committee at Franklin Templeton. Gross had spent years as a quantitative portfolio manager at some of the world’s leading hedge funds, eventually starting a quant portfolio construction analytics asset management firm called Alpha Parity. Prior to co-founding his first FinTech company, MoneyLion, Green had worked at various top-tier investment banks on Wall Street and his expertise was in fixed income.
Green and Gross both recognized the gigantic opportunity in the $200 trillion fixed income asset class. They also understood the massive challenge of creating a tool to bring automation and access to the diverse and difficult-to-access part of the market. “What we both felt very deeply is that there was a significant lack of automation and comprehensive technology infrastructure that could help drive users and investors towards a comprehensive solution in fixed-income and yield-driven investing,” Green says.
For that reason, the two set out to build YieldX, an end-to-end digital platform that powers sophisticated personalization within fixed-income investing. “There are so many different reasons why people ultimately invest in fixed income,” Green says. “Depending on where you're at in your investing lifecycle and what your risk tolerance is, you are going to have a meaningful percentage of exposure to fixed income. Or, at least, you should.”
At Unifimoney, our goal is to create the best investing tool on the market — an all-in-one saving, spending and investing app that allows for maximum wealth-building through automation and diversification. So, it was a no-brainer to partner with YieldX to bring target yield products to our users.
This week, we gave Adam a call to learn more about the yield market, how their product has allowed consumers to specify their targeted returns, and what it means to open up a $200 trillion market to a new class of investors.
There are really four key pillars of fixed income: Access – how do I find the securities I want to purchase for my portfolio. Can I get access to them? Is there liquidity? Can I easily see the whole market of yield-driven opportunities? So, what ended up happening typically, because there's so much complexity in fixed income and so many disparate markets for each sub-asset class within fixed income, is that just getting access to the data alone was a Herculean task. So that's pillar one.
Pillar two is the analytics layer. Okay, let's suppose that I found those securities. Now, what do I want to do? How should I construct my portfolio? Do I want to maximize my return? Do I want to minimize my risk? Do I want to solve for a tax implication? Do I need a certain a dollar distribution to supplement my income? Maybe I'm trending towards retirement and I want to have some sort of security, safety and transparency to the predictability of my future income. For all these different reasons, you need to look at different scenarios. So once you find those securities, then you have to put it into another system, download it in Excel, build a model, upload the model, etc. It's very inefficient and analog. There needed to be a better, more user-friendly way to analyze different scenarios that are right for me before making an investment decision.
The third pillar is the trading, execution and custody. So, let's say I got to that step and I'm interested in buying that portfolio. Before YieldX existed, portfolio construction was an academic exercise because I wouldn’t have access to real-time liquidity. We completely changed the paradigm by starting with a universe API that pulls in market liquidity and pricing before constructing and analyzing a portfolio. That way, investors know that the outcome they’ve solved for is achievable with a very high degree of certainty and accuracy. Layering-in digital custody, we’ve streamlined what would have been yet another clunky step in the investment process. True digital end-to-end capabilities.
The last pillar is the ongoing management — the core operating systems that link together your order management, position management, compliance, and post-trade rebalancing and analytics.
We said, 'There's got to be a better way to bring this all together on one single infrastructure.' Because when you're pulling different pieces from different places, a couple of things happen. Number one, you have a lot of inefficiency, in time, cost, and technology. You have all of these intermediaries each step of the way: you're paying this guy for access to Bloomberg, you're paying that guy for access to an analytics platform, the broker is making something on the trade. Finally, you find yourself far down the path and you don't even know if you got the best outcome and if you did, it wasn’t easy and it wasn’t built for you.
So, we had the idea of unifying all of those processes on the latest tech stack using an API-first approach, and using microservices to build workflows on top of an infrastructure that can execute all of that end-to-end. That was the core idea and it was a really massive undertaking.
You have so many considerations just to get out of the gate before you even put on a trade. Regulatory, compliance, operation, data, modeling, analytics, and, of course, all the technological frontend/backend testing. But, based on our knowledge, and being experts in fixed income, we knew we absolutely needed to build the infrastructure first rather than launching with a single use case app. Because I could come to you and say, 'Hey, what are your investment goals?' And you could say, 'I'm going to get married, and I want to pay for the wedding.' Or: 'I'm married, and I have kids, and I want to save for college.' Or I could be talking to a Baby Boomer and they say, 'I'm getting towards the end of my career, and I want to prepare for retirement.' Or I can be talking to a treasurer at a corporation, and they could say, 'We're sitting on $100 million of cash getting 20 basis points in our savings account, and I want to get a higher yield.'
You quickly start to see there's an infinite number of use cases and if you try to build an app to solve just one, you're taking this massive, almost incomprehensibly large opportunity, and you're limiting it to such an extent that the efficiency that you can get for the whole market goes away.
So, just so the readers understand, we have 3 key distribution paradigms to deliver value to customers. We have our YieldX Hub, which is a front-end SaaS platform where you can access our workflows that we've designed on a single platform. You can do all the things that I just described to you end-to-end very seamlessly, in a beautiful and engaging user interface that from a user experience perspective, is more akin to a Spotify or Amazon. It's simple, elegant, and engaging — we took this very complex ecosystem of securities in the largest capital market, and we put it all on one platform. But then we also created the YieldX API ecosystem which is really along the lines of the trends we're seeing in embedded finance and embedded Fintech. That API gives users like Unifimoney the ability to pull in our workflows within your own user experience. Lastly, we have a number of financial products that we can white-label to provide customized outcomes (i.e. yield, risk and distribution amounts) to end-users at very competitive prices.
We are an infrastructure-first company that provides platforms like Unifimoney the ability to build your brand, provide unique offerings, and add value, and lets you place it within your vision on how to cultivate and successfully execute.
We don't want to be in the way — we don't need to be on the front lines of how your users interact with fixed income. So, we took the API-first approach, in order to give Fintechs the ability to pull in all of that functionality, and to do it in a hyper-personalized way at scale. Whether your investor is a doctor, a lawyer, a teacher, whatever they may be, they can figure out what they're trying to accomplish and be able to achieve it in the most efficient way possible for the lowest cost and least risk. The YieldX API allows them options and solutions in an automated and customized way that speaks to their personal needs.
If you were to go to a broker and say, 'I want a 5% return', and you could even find a listing of all of the 5% current yielding funds out there, it's still very complicated to understand that if that 5% is super-subordinated high yield, securities that price risk differently because the issuer is in an emerging market, or something else. With YieldX, we deconstruct it and flip it. We say, 'You're trying to get a diversified 5% return over a period of time, not just what's out there today.' So, we take more of a quantitative, technology-based approach, which we are uniquely positioned to do given our highly sophisticated back end, along with an agnostic approach to the issuer of the security and the security type.
If you wanted to target a yield on YieldX, you would use our InPaaS product — which stands for Income-Portfolios-as-a-Service — and helps you build a diversified portfolio of liquid, very large ETFs and closed-end funds. By doing that, and by being both product- and issuer-agnostic, we have the ability to get you your target yield in a much more diversified way completely seamlessly. You give three inputs, and you click a button and you're done.
On top of that, we can do it for around half the risk that you would get by investing in that single 5% yielding fund. So, that's really the power of diversification. It's the power of being product- and issuer-agnostic. Because if you're saying, 'I want a 5% return,' are you saying, 'I really need a Citigroup 2027 Senior Secure Note'? No, you're saying, '5%. My kid wants to go to college. I don't care if it’s Citigroup, Morgan Stanley, or an ETF, or a closed-end fund.' You don't have a view on that, right? Most people who do it professionally don't! And so that's really the benefit of the automation and diversification that we provide.
There are a couple things I'll say to that. Number one, it's really you guys that are opening up the market. We're providing access, personalization and automation, but it's the Fintech ecosystem, and the robustness of how sophisticated folks like Unifimoney have gotten at providing a user experience and guiding the user through that path in a way that informs their financial journey towards a better financial life that's meaningful to them. As opposed to the way that it was done historically, where somebody that wanted to have access to a certain asset class would have to go to a large issuer and they would have to invest in one of their fund products. Those are very expensive, they're not targeted at all, and they have to be overly diversified to the point where you can't target a specific outcome.
What we do is we provide the ability to target an outcome for yield-driven investment in a way that had historically been exclusively the domain of the most sophisticated institutions and to ultra-high net worth investors.
So, by taking that personal approach, adding a technology layer through a seamless end-to-end architecture, and then giving a user experience that's simple and intuitive, we take all the guesswork out of the process. We use the latest tech stack, we have the best quant analysts in the markets, and we offer that all in a very tightly wrapped package via API to Fintechs to be able to offer to their users.
There are a few things that are happening simultaneously that will be really interesting to see play out. First is the fact that embedded Fintech is reaching a point of maturation. I would even argue that it's at a point of mass market validation, with folks like Walmart coming in and saying that they're going to essentially become a Fintech-enabled platform. They're going to partner with innovative Fintech companies, as opposed to the way that it's been done historically, where a large retailer like Sears would go to a large institution like a commercial bank to issue a credit card.
The way that the on-demand economy, the sharing economy, and single-click purchasing is used everywhere these days means that my parents use technology as seamlessly as millennials. The mass adoption means you're going to see a lot more options that are super personalized to the end user. That personalization through technology is really how we get YieldX to deliver the most value to the end consumer.
If you think about how people tend to mature from a financial perspective, they mature in their risk profile, they mature in their knowledge, and they mature in their sophistication. The thing that I would want people to leave this conversation understanding is that there is such an incredibly wide range of options in the yield markets globally. Before YieldX, the issue had been that those options were difficult to access. But with the YieldX API as part of a Fintech like Unifimoney, you can now truly target the outcome you're looking for. You don't need to necessarily have the broadest exposure to every asset class, but this evolving Fintech moment means the average investor can now have the opportunity to build a diversified portfolio that fits their needs.
When you look at the most innovative companies in investing — places like Drivewealth — they're doing fractionalization, which opens up the market to everyone. Now you can buy five dollars of a Tesla share. You obviously have a reason why you want to make that investment. It's partially financial — you think that's going to go up, obviously — but there's also an emotional angle to that. You align with the company’s mission.
So, one of the things we're working on at YieldX is thematic personalization and ESG investing in yield-driven products. A lot of the thematic trends that we're seeing on the equity side, we've put into yield portfolios and created preferences around those exposures that will really open up and appeal to the next generation of investors. Because, let's face it: everyone has different desires for their financial futures. Especially millennials and Gen Xers, they want different things than the previous generations.
Not only am I saying it, we've built it. So, when you guys use our APIs in Unifimoney, you're going to be launching the capability to take somebody in five steps through a process where they can create a single-name bond portfolio, completely customizable to their preferences, using all of the ESG considerations. They can toggle what's important to them within those constraints. They can say, 'I don't want to invest in a certain industry' or 'I don't want to build a portfolio that includes any issuers that fall in the bottom quartile.'
We've built all of this by creating a seamless and efficient process to get somebody exactly what they're looking for. And we're doing that in a way that is literally small fractions of the cost of doing it the old way.
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