ALTERNATIVE MARKET UPDATE - END SEPTEMBER 2022

Central banks continue to be in the spotlight. Over the past months, it is hard to find a central bank that has not raised interest rates at least once. Inflation remains at four-decade highs in most countries, despite the measures taken by central banks so far. The Fed raised interest rates by another 75bps this month and maintains its stance to aggressively combat inflation. This led the 2-year Treasuries to surge above 4%, for the first time since before the global financial crisis, and increases the likelihood of a recession as well as potentially sharply declining equities. The latest hike increased the federal fund rate to 3% - 3.25%. The ECB also raised its interest rate by 75bps in September, while the Bank of England increased its rate by 50bps. The ECB’s rate is now at 1.25% and the UK’s is at 2.25%. Switzerland also raised its rate by 75bps which brings it into positive territory as the last country in Europe. In the middle East, Saudi Arabia, the UAE, and Qatar follow the Fed with their 75bps hikes as well. Across the developed countries, Japan remains the last country with currently negative rates at -0.10%. September 2022 has also been highly relevant for the currency market. The dollar has strengthened substantially over the year. Compared to the Euro, it appreciated from around 0.9$/€ in 2020 to 1.03$/€. The British Pound declined strongly. The latest tax cut in the UK is threatening even higher inflation and will force the BoE to act more aggressively in tightening. After the announcement, the Pound dropped below 1.1$/£, and some speculate that the Pound could fall below parity to the USD. The Japanese Yen also experienced substantial movements, as the country is buying Yen again for the first time in nearly a quarter century. In spite of the negative developments of equities in 2022 and their even more grim prospect, equities are doing great on a historical scale. Figure 1 shows the growth of global equities with the impact of several crises

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RESEARCH PERSPECTIVE VOL. 188 September 2022 Alternative Markets Update September 2022 Central banks continue to be in the spotlight. Over the past months, it is hard to find a central bank that has not raised interest rates at least once. Inflation remains at four-decade highs in most countries, despite the measures taken by central banks so far. The Fed raised interest rates by another 75bps this month and maintains its stance to aggressively combat inflation. This led the 2-year Treasuries to surge above 4%, for the first time since before the global financial crisis, and increases the likelihood of a recession as well as potentially sharply declining equities. The latest hike increased the federal fund rate to 3% - 3.25%. The ECB also raised its interest rate by 75bps in September, while the Bank of England increased its rate by 50bps. The ECB’s rate is now at 1.25% and the UK’s is at 2.25%. Switzerland also raised its rate by 75bps which brings it into positive territory as the last country in Europe. In the middle East, Saudi Arabia, the UAE, and Qatar follow the Fed with their 75bps hikes as well. Across the developed countries, Japan remains the last country with currently negative rates at -0.10%. September 2022 has also been highly relevant for the currency market. The dollar has strengthened substantially over the year. Compared to the Euro, it appreciated from around 0.9$/€ in 2020 to 1.03$/€. The British Pound declined strongly. The latest tax cut in the UK is threatening even higher inflation and will force the BoE to act more aggressively in tightening. After the announcement, the Pound dropped below 1.1$/£, and some speculate that the Pound could fall below parity to the USD. The Japanese Yen also experienced substantial movements, as the country is buying Yen again for the first time in nearly a quarter century. In spite of the negative developments of equities in 2022 and their even more grim prospect, equities are doing great on a historical scale. Figure 1 shows the growth of global equities with the impact of several crises. In an ecosystem with high interest rates and uncertainty, alternative assets offer diversification from common asset classes and can even profit from such an environment. Hedge funds can mitigate drawdowns, as they successfully did in March 2020 and to a less successful degree currently. In 2022, especially global macro strategies were hugely profitable. Private debt is one of the most obvious profiteers, as higher interest rates increase yields on loans. Furthermore, more uncertainty in markets makes it more difficult for companies to obtain conventional loans; thus, enabling private debt more opportunities. Private equity is likely to face a difficult time ahead, as these markets tend to lag behind public equity markets. Nonetheless, their drawdowns tend to be less severe, and crisis years tend to be the most successful afterward, as low valuations have higher growth potential. The tech industry attracts a lot of interest in the industry, even during the current crash. Figures 2 and 3 show the interest in early-stage (information technology) IT and blockchain-based investments. IT companies have raised a record $500m in early-stage investments, substantially more than ever since Covid-19. Crypto-investments have slowed down but still mostly exceed multiple billion a month. Real estate investments are attractive due to their stable income in a high-volatility ecosystem. Raising interest rates also makes building houses more expensive, which also raises the value of existing buildings. Although this is largely beneficial, a substantial crisis could make housing prices plummet. Figure 1: MSCI All Country World Index over the Past 35 Years and Substantial Events, Source: MSCI, September 2022 Figure 2: Early-Stage Funding of IT Companies in the US and Canada from Q1 2020 to Q2 2022, Source: S&P Global Market Intelligence, September 2022 Figure 3: Blockchain/Crypto Venture Funding from September 2021 to August 2022, Source: The Block Research, September 2022 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, 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. 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