ALTERNATIVE MARKETS UPDATE – END SEPTEMBER 2025

​According to Hedge Fund Research (HFR), the global hedge fund industry’s assets under management (AuM) surged to a record $4.74 trillion at the end of Q2 2025, the highest level ever recorded. The quarter was marked by the strongest capital inflows in more than a decade, with $24.8 billion added in Q2 alone and $37.3 billion for the first half—making it the best H1 result since 2015. Performance-based gains contributed an additional $188 billion in Q2, the largest return-on-risk advance since early 2021, underscoring the sector’s strong rebound. By strategy, Equity Hedge and Event-Driven funds each surpassed $1.3 trillion in assets, while Relative Value Arbitrage climbed to $1.28 trillion, highlighting both broad investor demand and differentiated opportunity sets within the industry. As shown in Figure 1, hedge funds have return steady returns across nearly all strategies. Our Equity hedge funds returned above 10% compared to 6.8% of comparable benchmarks. Similarly, our Cryptocurrency hedge funds outperformed the benchmark by nearly 4% with YTD of 6.5%. Fixed Income strategies yielded steady 5-6% with comparable results for Fund of Hedge Funds. Only Tactical Trading strategies faced a difficult year with an ever-changing financial environment.

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RESEARCH PERSPECTIVE VOL. 260 September 2025 Alternative Markets Update According to Hedge Fund Research (HFR), the global hedge fund industry’s assets under management (AuM) surged to a record $4.74 trillion at the end of Q2 2025, the highest level ever recorded. The quarter was marked by the strongest capital inflows in more than a decade, with $24.8 billion added in Q2 alone and $37.3 billion for the first half—making it the best H1 result since 2015. Performance-based gains contributed an additional $188 billion in Q2, the largest return-on-risk advance since early 2021, underscoring the sector’s strong rebound. By strategy, Equity Hedge and Event-Driven funds each surpassed $1.3 trillion in assets, while Relative Value Arbitrage climbed to $1.28 trillion, highlighting both broad investor demand and differentiated opportunity sets within the industry. As shown in Figure 1, hedge funds have return steady returns across nearly all strategies. Our Equity hedge funds returned above 10% compared to 6.8% of comparable benchmarks. Similarly, our Cryptocurrency hedge funds outperformed the benchmark by nearly 4% with YTD of 6.5%. Fixed Income strategies yielded steady 5-6% with comparable results for Fund of Hedge Funds. Only Tactical Trading strategies faced a difficult year with an ever-changing financial environment. Figure 1: YTD of Hedge Fund Strategies as of August 2025, Sources: Stone Mountain Capital Research, HFR, September 2025 In 2025, central banks across the US, Eurozone, UK, and Switzerland have begun cutting rates as inflation cools from its post-pandemic peak. The Federal Reserve has taken a more cautious approach, signalling gradual easing, while the European Central Bank, Bank of England, and Swiss National Bank have delivered more decisive cuts. Although the pace differs, the broader direction marks a coordinated shift away from restrictive policy. Investors are now weighing how much easing is possible given persistent wage pressures and geopolitical uncertainty. With the recent cuts, the Federal Reserve and the Bank of England lowered their rates to 4%, while the ECB’s deposit facility rate is already at 2%. In Switzerland, its core interest rate was even lowered back to 0% since June 2025, as shown in Figure 2. Figure 2: Interest Rate & Inflation Rate in the US, UK, European Union, and Switzerland, Source: Trading Economics, September 2025 Cryptocurrencies have enjoyed a strong 2025, buoyed by rising institutional participation, clearer regulatory frameworks, and a revival in market activity, including several high-profile IPOs. Total market capitalization stood just below $3.4 trillion at the start of the year and has since surged to multiple near-record highs, peaking at $4.25 trillion in July and nearly retesting those levels again in September before easing back below $4 trillion. The rally accelerated after Trump’s “Liberation Day” tariff announcements, supported by regulatory clarity and renewed trading momentum. Among major tokens, Bitcoin is up 21% YTD, while Ethereum has recently overtaken it with a 24% gain, whereas Solana has lagged, advancing just 12% after being hit by the latest market pullback. Figure 3 provides more details into the YTD performance of the aforementioned cryptocurrencies. Figure 3: Cryptocurrency Market Capitalization & YTD Performance of Bitcoin, Ethereum, and Solana, Sources: CoinGecko & CoinMarketCap, September 2025 Precious metals have been standout performers in 2025, with gold up 43% and silver surging 56% YTD. Gold’s rally has been underpinned by a confluence of safe-haven demand amid escalating geopolitical tensions, recession fears in advanced economies, and lingering macroeconomic uncertainties. Central banks, particularly in emerging markets, have stepped up purchases to diversify reserves away from the US dollar, while the shift toward lower interest rates has reduced the opportunity cost of holding non-yielding assets. Silver, meanwhile, has outpaced gold thanks to its dual identity: like gold, it benefits from risk-hedging inflows, but it also carries strong industrial demand, particularly from the clean energy sector through applications in solar panels and advanced batteries. Tight supply dynamics have amplified these trends, leaving silver exceptionally well-positioned in both financial and industrial cycles. Together, gold and silver have cemented their roles in 2025 as critical hedges and diversifiers in institutional portfolios. Energy markets have told a very different story in 2025, marked by pronounced volatility and divergent returns. Crude oil is down 8% year-to-date, as uneven global demand, rising non-OPEC supply, and shifting trade flows have outweighed bouts of geopolitical risk premia. Prices have swung sharply in response to fluctuating inventory data and shifting expectations for Chinese growth, leaving investors grappling with short-lived rallies rather than sustained trends. Natural gas has fallen even further, down 11% on the year, pressured by abundant inventories in Europe, milder seasonal demand, and increased US LNG export capacity smoothing out supply shocks. Yet, volatility has remained high, with price spikes triggered by regional disruptions and ongoing uncertainty over pipeline flows and energy security. Uranium, by contrast, has advanced 13% YTD, benefiting from renewed policy momentum behind nuclear power as governments seek low-carbon, stable energy solutions. However, thin liquidity and concentrated supply chains have kept uranium prices prone to sharp swings, underscoring the sector’s higher risk profile compared to the steady gains seen in precious metals. Figure 4 compares the yearly returns of various commodities. Figure 4: YTD Performance of Gold, Silver, Crude Oil, Natural Gas, and Uranium, Sources: Investing, Sprott Asset Management, September 2025 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Tallinn in Estonia and Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 14th June 2025, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 62.9 billion. US$ 48.8 billion is mandated in hedge funds and US$ 14.1 billion in private assets and corporate finance (private equity, venture capital, private debt, real estate, fintech). Stone Mountain Capital has arranged new capital commitments of US$ 2.03 billion across more than 25 hedge fund, private asset and corporate finance mandates and has been awarded over 120 industry awards for research, structuring and placement of alternative investments. As a socially responsible group, Stone Mountain Capital is a signatory to the UN Principles for Responsible Investing (PRI). 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