ALTERNATIVE MARKETS UPDATE – END MAY 2025

​Tariffs remain a central issue in the current economic and political landscape, with the potential to reshape global trade dynamics. Their broad impact on inflation and supply chain stability cannot be overstated, as businesses brace for rising costs and logistical delays. However, it remains uncertain to what extent the proposed tariffs will ultimately be enforced. Many observers believe they are a strategic lever aimed at securing new trade agreements, though the coming month will be critical in determining whether actual progress materialises. The volatility of this approach is seen in President Trump’s latest high-profile announcement of 50% tariffs on EU goods, which was swiftly postponed. Adding further complexity, US courts recently ruled the administration’s reciprocal tariffs to be unlawful, raising questions about the legal limits of executive authority. The verdict has also already been appealed. Nevertheless, most market participants anticipate that, if politically necessary, tariffs will be implemented regardless of legal setbacks, and alternate legal routes are likely being explored. This legal and policy ambiguity has added a fresh layer of uncertainty to financial markets, contributing to heightened volatility and risk aversion. This significant uncertainty and potential impact have already had a significant impact on global growth expectations. These recent developments have led the IMF to adjust their growth forecast downward significantly, causing the world growth to slow down by 50 basis points. The US’ expectations are hit hardest with a downward adjustment of nearly 1%, as shown in Figure 1.

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RESEARCH PERSPECTIVE VOL. 252 May 2025 Alternative Markets Update Tariffs remain a central issue in the current economic and political landscape, with the potential to reshape global trade dynamics. Their broad impact on inflation and supply chain stability cannot be overstated, as businesses brace for rising costs and logistical delays. However, it remains uncertain to what extent the proposed tariffs will ultimately be enforced. Many observers believe they are a strategic lever aimed at securing new trade agreements, though the coming month will be critical in determining whether actual progress materialises. The volatility of this approach is seen in President Trump’s latest high-profile announcement of 50% tariffs on EU goods, which was swiftly postponed. Adding further complexity, US courts recently ruled the administration’s reciprocal tariffs to be unlawful, raising questions about the legal limits of executive authority. The verdict has also already been appealed. Nevertheless, most market participants anticipate that, if politically necessary, tariffs will be implemented regardless of legal setbacks, and alternate legal routes are likely being explored. This legal and policy ambiguity has added a fresh layer of uncertainty to financial markets, contributing to heightened volatility and risk aversion. This significant uncertainty and potential impact have already had a significant impact on global growth expectations. These recent developments have led the IMF to adjust their growth forecast downward significantly, causing the world growth to slow down by 50 basis points. The US’ expectations are hit hardest with a downward adjustment of nearly 1%, as shown in Figure 1. Figure 1: IMF April 2025 Growth Forecast and Change from January’s Forecast, Source: IMF The recent surge in market volatility underscores the critical importance of diversification. This is in particular true for family offices, which prioritise long-term wealth preservation alongside capital growth. This approach is clearly reflected in their strategic asset allocation, which is broadly diversified, with less than half of their portfolios allocated to traditional asset classes (excluding cash). Notably, 44% of total assets are directed toward alternative investments. The largest share is in private equity, with roughly half of that exposure split between direct deals and fund investments. Real estate accounts for 11%, while hedge funds and private debt each represent 4%. Especially, private debt has gained increasing traction due to its resilience and its attractive risk-adjusted returns in the current environment. A detailed overview of the strategic asset allocation of global family offices is provided in Figure 2. Figure 2: Strategic Asset Allocation of Global Family Office, Source: UBS, May 2025 This global uncertainty has also resulted in a substantial movement of wealthy individuals. The outflow of millionaires from the UK is well-documented, driven by changes in tax laws and the challenges the country has faced since Brexit and the pandemic. In China, a combination of strict capital controls, regulatory crackdowns on private industries, political uncertainty, state intervention, and a real estate crisis has prompted many wealthy individuals to seek opportunities elsewhere. Additionally, the pursuit of better educational opportunities abroad has been a significant factor in their decision to relocate. Similarly, in India, high tax rates, concerns over the quality of life, such as pollution, and the desire to access global business networks and superior educational systems have led many millionaires to consider moving abroad. The United Arab Emirates has emerged as a top destination for these individuals, offering strong business growth prospects and attractive tax incentives. The country's favourable tax regime, strategic location, and high quality of life make it an appealing choice for wealthy migrants. The United States and Canada have also seen significant inflows of millionaires, alongside countries in South and Central Europe, as well as Singapore and Australia. These destinations offer a combination of economic stability, favourable tax policies, and high living standards, thereby attracting wealthy individuals seeking new opportunities. Figure 3 shows the global net movement of millionaires in 2024. Figure 3: Net Migration of Millionaires in 2024, Source: Visual Capitalist, May 2025 Unsurprisingly, with the current uncertainty in geopolitics and volatility in the financial markets, gold provides a valuable form of diversification. Gold prices have been hitting new records and are expected to continue climbing, with Goldman Sachs forecasting a rise to $3,700 per troy ounce by the end of 2025. This upward trend is driven by renewed investor interest amid economic uncertainty, particularly stemming from Trump administration’s tariffs, and by a structural shift in demand from central banks, especially those in emerging markets. Since Russia’s invasion of Ukraine and the freezing of Russian reserves, emerging market central banks have rapidly increased gold purchases, viewing it as a safer reserve asset compared to foreign currencies. While developed countries already hold a large share of their reserves in gold, emerging markets are still far below the global average of 20%, providing room for further accumulation. Additionally, ETFs are beginning to play a larger role in gold demand. Although ETF holdings usually correlate with interest rates, they tend to surge when recession fears rise. While the risk of a US recession has recently decreased, a downturn could push gold as high as $3,880, as noted by Goldman Sachs. With both central banks and ETFs competing for the same supply, gold prices are likely to continue their recent surge. As shown in Figure 4, gold has had an impressive run over the past five years. Figure 4: Spot Gold Price per Ounce in USD from January 2020 to May 2025, Source: Investing, May 2025 Although Bitcoin has been heralded as digital gold, this notion is increasingly questionable nowadays. Additionally, as a high-risk asset, its surge is somewhat surprising given the current uncertainty across the world. Despite this seemingly suboptimal environment, Bitcoin has surged significantly and reached a new record high of nearly $112k at the end of May 2025, as shown in Figure 5. This rally has been driven by several key developments. Notably, institutional interest has intensified, with over $4 billion flowing into Bitcoin ETFs in May alone, signalling growing mainstream adoption. Regulatory clarity has also improved, particularly with the advancement of the bipartisan GENIUS Act in the US Senate, which proposes a comprehensive framework for stablecoins. Additionally, the pro-crypto stance of the Trump administration, including proposals for a national Bitcoin reserve and eased regulatory pressure, has further boosted investor sentiment. Macroeconomic concerns, such as a recent US credit rating downgrade and rising Treasury yields, have led investors to increasingly view Bitcoin as a hedge against economic instability. Together, these factors have fuelled the latest surge and reinforced Bitcoin’s role in global financial markets. Figure 5: Bitcoin Price in 1,000 USD from January 2020 to May 2025, Source: CoinMarketCap, May 2025 As previously mentioned, the US Senate passed a procedural vote (66-32) to advance the GENIUS Act (Guiding and Establishing National Innovation for U.S. Stablecoins) on 19th May 2025. This bipartisan bill represents the first comprehensive federal framework for regulating payment stablecoins in the US, addressing growing demand and usage in a $230 billion market, as shown in Figure 6. To date, more than 98% of stablecoins are fiat-backed, with the remainder being either crypto-backed or mixed. Unsurprisingly, algorithmic stablecoins have lost their appeal after the high-profile stablecoin collapse of Terra (LUNA) in 2022. Figure 6: Market Capitalization of Stablecoins by Type, Source: CoinGecko & Pantera Capital, May 2025 The act defines Payment Stablecoins as digital assets pegged to a fixed monetary value, meant for payments and settlements, and backed 1:1 by reserves such as USD, short-term Treasury bills, and central bank deposits. It outlines who can issue them, ranging from federally qualified issuers to state-level institutions, opening the door for both large banks and smaller entities. Transparency measures include monthly disclosure of reserves and outstanding stablecoins. The bill is seen as a strategic move to support US dollar dominance against foreign-backed stablecoins. Currently, of the fiat-backed stablecoins, the USD is used in 98% of those stablecoins. Regulatory clarity is required for this to maintain the US Dollar’s dominance in the stablecoin ecosystem. Stablecoins are also significant holders of US Treasuries. As shown in Figure 7, USD-backed stablecoins are already the 17th largest holder of US Treasuries. With the coming regulatory clarity and its focus on payments rather than as a store of value, holdings of US Treasuries are expected to increase drastically. Figure 7: International Holdings of US Treasuries in Billions and the Role of Stablecoins, Source: Pantera Capital, May 2025 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 and Tallinn in Estonia. 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). 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