alternative markets update april 2021

​Hedge funds have had their best Q1 performance in more than two decades, despite the recently negative coverage caused by the Archegos collapse and the Gamestop short squeeze. Nevertheless, these negative events have not affected the performance numbers of hedge funds to a large degree. In particular, since hedge funds delivered a good performance in 2020, while mitigating the drawdown when Covid-19 emerged. As a result, hedge funds have seen increased inflows. Figure 1 shows the returns of hedge funds over the last year. Hedge funds lost less in Q1 2020, then they did not manage to keep up with the growth of the S&P 500 during Q2 and Q3 2020. However, since then, hedge funds performed equally or better compared to the S&P 500. Our equity strategy benchmark is down slightly in March 2021, largely driven by strategies focusing on tech and healthcare, which had a stellar 2020. Other strategies that struggled in 2020 are now the key drivers of the returns. The best equity strategy is up almost 17% in 2021.

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RESEARCH PERSPECTIVE VOL. 154 April 2021 Alternative Markets Update April 2021 Hedge funds have had their best Q1 performance in more than two decades, despite the recently negative coverage caused by the Archegos collapse and the Gamestop short squeeze. Nevertheless, these negative events have not affected the performance numbers of hedge funds to a large degree. In particular, since hedge funds delivered a good performance in 2020, while mitigating the drawdown when Covid-19 emerged. As a result, hedge funds have seen increased inflows. Figure 1 shows the returns of hedge funds over the last year. Hedge funds lost less in Q1 2020, then they did not manage to keep up with the growth of the S&P 500 during Q2 and Q3 2020. However, since then, hedge funds performed equally or better compared to the S&P 500. Our equity strategy benchmark is down slightly in March 2021, largely driven by strategies focusing on tech and healthcare, which had a stellar 2020. Other strategies that struggled in 2020 are now the key drivers of the returns. The best equity strategy is up almost 17% in 2021. Figure 1: Hedge Fund Performance vs. S&P 500, Source: Preqin Pro, April 2021 The big topic in 2021 so far are cryptocurrencies, which continued their steep upward trend from last year. Consequentially, many crypto hedge funds have been launched during the last year. The average crypto hedge fund is up 124% in Q1 2021, easily outperforming every other strategy. Our tactical trading strategy index, which largely consists of crypto related strategies, is up 162% in Q1 2021. The best crypto strategy, Digital Asset Discretionary/ Systematic Long Short, is up already 311% in 2021, while the worst crypto strategy is up 101%. Another tactical trading strategy, Discretionary Global Macro, also does very well and is up already 32%. For cryptocurrencies, a major event took place on 14th April 2021, when Coinbase (COIN) went public. It did so with a direct listing on Nasdaq with a reference price of $250 per share. The market opened at a price of $381 and surge to almost $430 per share. At the end of the day, COIN closed at 328$ per share, valuing the company at $85.5bn. Ahead of COIN’s direct listing, cryptocurrencies surged to all-time highs. Bitcoin (BTC) reached a price of $63.5k, while Ethereum (ETH) surged to almost $2.5k. Soon after, cryptocurrencies took a hit. BTC and ETH lost relatively little with slightly more than minus 10%, while other altcoins lost up to 30% over the subsequent days. Since this decline, cryptocurrencies are gradually recovering. As of the time of writing, BTC is trading at $56k, while ETH is almost back at its all-time high with $2,423. BTC’s market cap is slightly above $1tn, while ETH’s market cap is at $280bn. Figure 2 and 3 show the stellar price development of BTC and ETH in 2021 so far. The total market cap of cryptocurrencies remains just slightly above $2tn. Another important development was the approval of the first ETH ETF by the Canadian authorities. Additionally, it seems that China has changed its course on cryptocurrencies, as it calls BTC now an investment alternative. Figure 2: Price Development of Bitcoin in 2021, Source: CoinMarketCap, April 2021 Figure 3: Price Development of Ethereum in 2021, Source: CoinMarketCap, April 2021 Oil prices have risen continuously since Covid-19 hit in March 2020. Since early March 2021, when WTI crude hit its highest mark since Covid-19 with $65 per barrel, prices declined. Just recently, WTI crude hit the $60 per barrel mark again, which is shown in Figure 4. This is a response following the demand forecast of the OPEC+. Additionally, the amassed oil reserves during Covid-19 are almost used up. Therefore, it is very likely that oil production will increase again over the coming months. Politically, the EU has laid out a plan to fund its recovery measures from Covid-19 with a $1tn debt plan over the next five years. Figure 4: 1Y WTI Crude Oil Prices, Source: FRED & U.S. Energy Information Administration, April 2021 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 16th February 2021, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 60.3 billion. 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