alternative markets update end october 2021

Hedge funds have experienced a great third quarter and continue to do well in October 2021. Partially due to the surge in volatility, the hedge fund industry is close to reach a milestone of $4tn in AuM. Nevertheless, the strategy of hedge funds is of utmost importance when determining how well a hedge fund is doing. This is in particular true for 2021. Crypto and equity hedge funds tend to profit the most from the current market ecosystem, as their asset class is surging at a rapid pace. Global macro and fixed income-based strategies have a more challenging ecosystem. Figures 1 to 6 show the returns as of Q3 2021 of the different SMC Strategy Indices in comparison to other relevant benchmarks for the specific strategy. Cryptocurrency strategies unsurprisingly did the best this year with the average strategy being up 177%. All strategies in that area cover the best performing strategies of the year with Token Liquid and Token being the best among them with a performance of 316% and 260%. The SMC Equity Strategy Index achieved a lower return than some of its benchmarks in 2021 with 7% as of Q3 2021. The best performing equity strategy is Equities US Activist Event Driven which is 27% up in 2021. With regards to the less beneficial ecosystems for fixed income and global macro related strategies, the SMC Strategy Indices did well. The SMC Credit Strategy Index is up 4.49% an outperforms almost all benchmarks shown in Figure 2. The situation is even better for the SMC Global Macro Strategy Index that achieved a YTD of 37.40%, thereby outperforming any benchmark by a lot as shown in Figure 4.

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RESEARCH PERSPECTIVE VOL. 166 October 2021 Alternative Markets Update October 2021 Hedge funds have experienced a great third quarter and continue to do well in October 2021. Partially due to the surge in volatility, the hedge fund industry is close to reach a milestone of $4tn in AuM. Nevertheless, the strategy of hedge funds is of utmost importance when determining how well a hedge fund is doing. This is in particular true for 2021. Crypto and equity hedge funds tend to profit the most from the current market ecosystem, as their asset class is surging at a rapid pace. Global macro and fixed income-based strategies have a more challenging ecosystem. Figures 1 to 6 show the returns as of Q3 2021 of the different SMC Strategy Indices in comparison to other relevant benchmarks for the specific strategy. Cryptocurrency strategies unsurprisingly did the best this year with the average strategy being up 177%. All strategies in that area cover the best performing strategies of the year with Token Liquid and Token being the best among them with a performance of 316% and 260%.  The SMC Equity Strategy Index achieved a lower return than some of its benchmarks in 2021 with 7% as of Q3 2021. The best performing equity strategy is Equities US Activist Event Driven which is 27% up in 2021. With regards to the less beneficial ecosystems for fixed income and global macro related strategies, the SMC Strategy Indices did well. The SMC Credit Strategy Index is up 4.49% and outperforms almost all benchmarks shown in Figure 2. The situation is even better for the SMC Global Macro Strategy Index that achieved a YTD of 37.40%, thereby outperforming any benchmark by a lot as shown in Figure 4. Figure 1: Comparison of SMC Indices and Relevant Benchmarks as of Q3 2021, Source: Stone Mountain Capital Research, November 2021 Figure 2: Comparison of the SMC Credit Strategy Index and Relevant Benchmarks as of Q3 2021, Source: Stone Mountain Capital Research, November 2021 Figure 3: Comparison of the SMC Equity Strategy Index and Relevant Benchmarks as of Q3 2021, Source: Stone Mountain Capital Research, November 2021 Figure 4: Comparison of the SMC Global Macro Strategy Index and Relevant Benchmarks as of Q3 2021, Source: Stone Mountain Capital Research, November 2021 Figure 5: Comparison of the SMC Cryptocurrency Strategy Index and Relevant Benchmarks as of Q3 2021, Source: Stone Mountain Capital Research, November 2021 Figure 6: Comparison of the SMC FoHF Strategy and Cross-Asset Indices and Relevant Benchmarks as of Q3 2021, Source: Stone Mountain Capital Research, November 2021 The cryptocurrency market had a relatively quiet time with regards to volatility of the major tokens since Bitcoin (BTC) surpassed the $60k mark again. BTC peaked at $67k and has since then rallied between $58k and $64k. At the time of writing, a BTC trades at $63.5k, which means BTC’s market cap is almost $1.2tn. This represents a higher market share of the cryptocurrency market than over the recent few months with 44%. The total cryptocurrency market cap has reached a new record high of $2.7tn. Ethereum (ETH) has continuously risen ever since BTC has reached the $60k mark and has surpassed its previous record on the 2nd November 2021. At the time of writing, ETH trades close to its record high with $4,500. Its market capitalization has surpassed the $500bn mark with the latest surge. Despite the relatively quiet time of BTC and ETH, a lot happened in the crypto market. Shortly after the first listed BTC Futures ETF, which had the second-highest traded ETF in history, in the US, Nasdaq Dubai approved the listing of a Bitcoin Fund. Bakkt, the BTC Futures exchange that went public on 19th October 2021 and lost slightly during its entire debut week, surged more than 450% over the weekend and during the early days of last week. This was after the announcement of their arrangement with Mastercard and Fiserv to bring cryptocurrency payments to their customers. Ahead of the announcement, the stock was falling mostly due the company being a relatively small player in the market and optimistic growth numbers. However, those numbers now seem more realistic with the announcement of the collaboration with the two other companies. FTX, another cryptocurrency exchange, raised another $420m at a valuation of $25bn from Tiger Global among others, after having secured $900m in July 2021 at a valuation of $18bn. Figure 7: BTC Price over the Last Three Months, Source: CoinMarketCap, November 2021 Figure 8: ETH Price over the Last Three Months, Source: CoinMarketCap, November 2021 Equities had a very favourable year. This is in particular true for the US stock market, as the S&P 500 and Dow Jones have broken their previous record highs multiple times during October and November 2021. Major drivers were the earnings announcement of big tech companies as well as the strong surge of Tesla following the announcement of Hertz to buy 100,000 cars, although there is no signed contract. Furthermore, small cap stocks have had their best day at the end of October since August 2021. The fixed income market had substantial difficulties to face during the year with inflation and partly negative interest rates being at the forefront.  Aside from substantial concerns about inflation, there is further pressure from the US’s long-term rates as shown in Figure 9. For the first time since the financial crisis in 2008, the long end of the yield curve has inverted, which historically brought long-lasting recessions. Another asset that has lost some of its attractiveness is gold. The ecosystem for gold would suggest, it would be an attractive asset to hold. Despite this, the price of gold is declining slightly for months now. During Q3, gold’s price averaged $1,790, which is slightly below what is has been in Q2 2021. A major issue is the declining demand for gold, while the supply remains flat for the year. The decline in demand is largely due to lower interest from ETFs. In Q3 2020 for example, gold saw inflows of 274t solely from ETFs, while in Q3 2021, there was an outflow of 27t. This loss in demand is mostly offset by the higher demand from central banks and from jewellery, although the decline cannot be fully offset as shown in Figure 10. Figure 9: 20y / 30y Yield Curve of the US in Basis Points, Source: Guggenheim Investments, Federal Reserve & Haver Analytics, October 2021 Figure 10: Demand in Gold by Different Sectors, Source: GoldHub, Metals Focus & World Gold Council, October 2021 STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London with offices Pfaeffikon in Switzerland, Dubai and Umm Al Quwain in United Arab Emirates. We are advising 30+ best in class single hedge fund and multi-strategy managers across equity, credit, and tactical trading (global macro, CTAs and volatility). In private assets, we advise 10+ sponsors and general partners across private equity, venture capital, private credit, real estate, capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As of 16th February 2021, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 60.3 billion. 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