alternative markets update end november 2021

After an exciting time in early November 2021, the enthusiasm in markets faded quickly. The newly found strain of Covid-19, called Omicron, caused a minor shock to markets. Apparently, it seems to be milder than for example the delta variant, but it spreads even faster. Nevertheless, any conclusions on the virus strain are too early to be reliable. Omicron further worries European countries, as their number of cases has been surging regardless of the high vaccination rates. Many countries are imposing further restrictions, after some travel bans have been initiated. Those have not proven to be effective, as Omicron has been detected in most countries already. Among the strictest countries is Austria that has announced that the vaccination is mandatory as of early next year. Despite this rather grim outlook before Christmas, equity markets only took a slight hit. Figure 1 shows the value of the S&P 500 over the past three months. Even though Covid-19 is again a major topic, the drop was only minimal. Equity markets still had a stellar year. The S&P 500, for example, is up 23.4% as of the time of writing. The SMC Equity Strategy Index is up 10.7% in 2021 and gained remarkable 4.16% in October 2021. Major contributors were the strategies Long/Short US Equity Consumer, TMT, Healthcare and Long/Short US Equities Disruptive Technologies with 9.33% and 9.50% in October 2021. The situation looks a lot worse for oil. WTI crude oil lost almost all gains from the past three months, as shown in Figure 2. Oil prices fell from almost $85 per barrel to $66 per barrel. This strong decline stems from the fear of excess supply, if Omicron should lead to more severe restrictions, such as lockdowns. Regardless, oil still has come a long way from its negative value back in March 2020 when Covid-19 became problematic. At the current price of $66 per barrel, oil is up 33.5%, which is still remarkably lower than its previous peak of 67.0%.

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RESEARCH PERSPECTIVE VOL. 168 November 2021 Alternative Markets Update November 2021 After an exciting time in early November 2021, the enthusiasm in markets faded quickly. The newly found strain of Covid-19, called Omicron, caused a minor shock to markets. Apparently, it seems to be milder than for example the delta variant, but it spreads even faster. Nevertheless, any conclusions on the virus strain are too early to be reliable. Omicron further worries European countries, as their number of cases has been surging regardless of the high vaccination rates. Many countries are imposing further restrictions, after some travel bans have been initiated. Those have not proven to be effective, as Omicron has been detected in most countries already. Among the strictest countries is Austria that has announced that the vaccination is mandatory as of early next year. Despite this rather grim outlook before Christmas, equity markets only took a slight hit. Figure 1 shows the value of the S&P 500 over the past three months. Even though Covid-19 is again a major topic, the drop was only minimal. Equity markets still had a stellar year. The S&P 500, for example, is up 23.4% as of the time of writing. The SMC Equity Strategy Index is up 10.7% in 2021 and gained remarkable 4.16% in October 2021. Major contributors were the strategies Long/Short US Equity Consumer, TMT, Healthcare and Long/Short US Equities Disruptive Technologies with 9.33% and 9.50% in October 2021. The situation looks a lot worse for oil. WTI crude oil lost almost all gains from the past three months, as shown in Figure 2. Oil prices fell from almost $85 per barrel to $66 per barrel. This strong decline stems from the fear of excess supply, if Omicron should lead to more severe restrictions, such as lockdowns. Regardless, oil still has come a long way from its negative value back in March 2020 when Covid-19 became problematic. At the current price of $66 per barrel, oil is up 33.5%, which is still remarkably lower than its previous peak of 67.0%. Figure 1: Value of S&P 500 in the Last Three Months, Source: WSJ Markets, December 2021 Figure 2: Crude Oil WTI (USD per Barrel) in 2021, Source: Trading Economics, December 2021 The outlook of the financial system is not improving when considering the rising inflation. In the US, the CPI has risen to 6.2% in October 2021, after having been constantly around 5.5% since May 2021. At least, the jobless claims have sunken to a record level since 1969. In Europe, the CPI is steadily rising. In November 2021, it reached 4.9% after being only 2.2% in July 2021. U.S. treasury yields are around the same level as at the start of month, while being slightly higher during the month. The SMC Credit Strategy Index is up 4.34% YTD and slightly down in October 2021 with -0.13%. The most successful strategy in 2021 is European High Yield L/S Credit, which is up 17.2% in 2021. Global macro strategies had a year with many opportunities, which is emphasized by the stellar return of the SMC Tactical Trading Strategy Index, which is up 43.2% YTD. The most profitable strategy in that segment is Discretionary Global Macro, which returned 81.3% in 2021 so far, after a very strong October and September with 6.5% and 26.4%. Due to the strong public equity markets, it became less attractive to commit a huge amount of capital in this market, due to the downside risk. On the other hand, private markets are also very competitive, as fundraising continued during Covid-19, although at a lesser degree, while nearly no capital was committed, at least in the beginning. Since then, the private market, in particular the venture capital space is highly active. Figure 3 to 5 summarize the activity in the venture capital space. Major contributors were non-traditional or partly non-traditional venture capitalists. VC in the U.S. increased the most in absolute terms, while Europe gained the most interest in relative terms. Unsurprisingly, based on the companies that profited from Covid-19, the majority of VC flew into software and healthcare to a lesser degree. Figure 3: Global Venture Capital Activity in $Bn by Type of Investor, Source: The Economist & Pitchbook, November 2021 Figure 4: Global Venture Capital Activity in $Bn by Location, Source: The Economist & Pitchbook, November 2021 Figure 5: Global Venture Capital Activity in $Bn by Industry, Source: The Economist & Pitchbook, November 2021 Equities had a great October and November and were only outclassed by cryptocurrencies that surged to new record levels. Bitcoin (BTC) peaked at a record high of $68.7k and is currently trading at $57.8k. This equal a YTD of 99% for 2021, which is relatively low compared to other cryptocurrencies, even other large currencies. A major reason for this stems from the fact that in 2020, BTC was higher in relative terms than any other cryptocurrency, especially in comparison to previous record highs. Ethereum (ETH) has aged very well. In contrast to BTC, ETH is up 537% in 2021. Unlike BTC, ETH is very close its record high of $4,890, while BTC is still a substantial amount away from its record. Figures 6 and 7 summarize the development of BTC and ETH in 2021. The hottest topics in the industry are the metaverse triggered by the rebranding of Facebook to Meta. Decentraland (MANA) is the largest token in the metaverse space. Almost immediately after the announcement of the rebranding the token surged. Figure 8 shows the price development of MANA in 2021 and the incredible surge after the announcement. The subsequent three days, MANA increased by more than 400% and has risen since then. The metaverse is a topic of enormous interest, as shown by million USD investments in virtual land. Figure 6: Bitcoin Price in 2021, Source: CoinMarketCap, December 2021 Figure 7: Ethereum Price in 2021, Source: CoinMarketCap, December 2021 Figure 8: Decentraland Price in 2021, Source: CoinMarketCap, December 2021 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 16th February 2021, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 60.3 billion. 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