Alternative Markets Update II Q1 2019

*|MC_PREVIEW_TEXT|*

RESEARCH PERSPECTIVE VOL.106 APRIL 2019 Alternative Markets Update 1Q2019  Hedge Funds Bad performance, pressure for lower fees and redemption constituted the environment that hedge funds faced as they were entering 2019. Despite the negativity in the industry, hedge funds proved themselves resilient and posted their best quarterly performance in a decade. Rally in equity markets was the main driver of the strong performance, but their reluctance to take full long positions in equities led to relative underperformance. Equity strategies are the biggest winners across the different strategies according to data from Preqin with CTAs starting to perform in March after a very disappointing start. Figure 1. Hedge Fund Strategies Performance 1Q2019, Source: Preqin   Although investors continued redeeming from the asset class, the assets under management in the industry rose mainly from capital gains and according to HFR, they reached to almost $3.2 trillion globally. Investors are trying to diversify their hedge fund portfolio exposure by region, sector and strategy.   Figure 2. Hedge Fund Launches and Closures since 2008, Source: Eurekahedge   Our in-house strategies followed a same pattern during the first quarter of the year, with three out of our top five managers being US Equity focused funds. The manager that invests in high conviction ideas of carefully selected hedge fund managers is enjoying a very strong quarter followed by a US equity strategy focussed on TMT, helthcare and consumer sectors with specific interest in innovation and disruptive technologies. The recent rally in cryptocurrencies led our active altcoin manager to strong performance during February and March, bringing the strategy in our top five table for the first time since 2017. Our activist strategy suffered in March, despite a really strong performance on its underlying portfolio during January and February. Finally, our discretionary global macro strategy had one of its best months ever since inception posting an astonishing +15.27%, mainly from running long duration positions in the US, Australia and New Zealand and mixed duration positioning in Europe, complemented by bond auction trading gains.   Credit/Fixed Income Strategies 1Q2019 Annualised Return Annualised Volatility Sharpe Ratio Sortino Ratio SMC Credit Strategy Index 1.69% 9.51% 4.55% 4.04 0.62 Credit Suisse Fixed Income Index 2.19% 5.07% 4.99% 0.62 -0.29 HFRX Credit/Fixed Income Index 1.30% 5.08% 5.05% 0.61 -0.38 Eurekahedge Fixed Income (UCITS) 2.87% 2.75% 3.41% 0.22 0.29 BofA ML US Corporate Master Index 4.10% 7.35% 6.29% 0.85 -0.16 Equity Strategies 1Q2019 Annualised Return Annualised Volatility Sharpe Ratio Sortino Ratio SMC Equity Strategy Index 8.81% 11.73% 13.68% 0.73 0.25 Credit Suisse L/S Equity Hedge Index 5.35% 8.61% 8.89% 0.74 -0.06 HFRX Equity Hedge Index 5.95% 4.95% 7.82% 0.37 -0.22 Eurekahedge L/S Equity (UCITS) 3.39% 3.70% 5.52% 0.31 0.43 S&P 500 12.63% 7.43% 14.32% 0.38 -0.09 Tactical Trading Strategies  1Q2019 Annualised Return Annualised Volatility Sharpe Ratio Sortino Ratio SMC Tactical Trading Strategy Index 1.52% 22.78% 25.56% 1.04 0.26 Credit Suisse Global Macro Index 2.61% 9.46% 8.58% 0.87 -0.02 HFRX CTA Index -0.52% 3.29% 9.33% 0.13 -0.31 HFRX RV Volatility Index 5.75% 4.08% 4.96% 0.41 -0.34 CBOE Eurekahedge RV Volatility Index 0.61% 8.02% 3.70% 1.62 -0.20 Eurekahedge CTA (UCITS) 5.55% 2.39% 8.14% 0.05 0.07 Fund of Hedge Funds Strategies 1Q2019 Annualised Return Annualised Volatility Sharpe Ratio Sortino Ratio SMC FoHF Strategy Index 4.47% 5.93% 6.86% 0.59 -0.20 HFRI FoHF Index 4.59% 6.43% 5.44% 0.81 -0.35 Eurekahedge Multi-Strategy (UCITS) 2.96% 2.56% 3.76% 0.15 0.21 SMC Single Manager Cross-Asset Index 3.58% 14.34% 13.72% 2.18 0.42 SMC Cross-Asset Index 3.65% 114% 13.33% 2.13 0.38 Table 1. In-House Strategies Performance 1Q2019, Source: Stone Mountain Capital Research Private Debt Private debt has become an established asset class since after the GFC, mainly driven by the need for uncorrelated sources of returns for investors and by the demand for debt financing for corporate activity. Direct lending is considered the most attractive segment of private debt, attracting the majority of institutional capital according to Preqin data during the first quarter despite a relative slowdown across the board. Surprisingly enough given the status of equity markets, distressed managers didn’t attract a lot of attention with only one fund closing this quarter. Dry powder remains elevated and the pace of deployment remains slow as deals were affected by volatility in the markets and uncertainty due to geopolitical reasons. Figure 3. Private Debt Fundraising 1Q2019, Source: Preqin   Private Equity According to data from White & Case, global private equity deal value increased during the first quarter of 2019 despite a slowdown in the volume of M&A deals and exit activity. With $2 trillion of dry powder and large geopolitical issues such as Brexit and trade war, competition for quality deals is expected to increase radically and drive valuations higher. Investors made their preferences clear when it comes to the size of the manager they allocate to, creating a rather consolidated industry with few large players. Figure 4. Global Private Equity Deal Value, Source: White & Case   Real Estate Real Estate is finding itself in a similar situation with private equity with large managers accumulating the majority of institutional capital. Fundraising accelerated as investors are looking for diversified income, in an environment where Brexit has spread concerns among investors and valuation remains extremely high, especially in Europe. Figure 5. Global Real Estate Fundraising, Source: Preqin     STONE MOUNTAIN CAPITAL Stone Mountain Capital is an advisory boutique established in 2012 and headquartered in London and Swiss representative office. We are advising 30+ best in class single hedge fund and fund of fund managers across equity, credit, and tactical trading (global macro and CTAs). In private equity and private debt, we advise 10+ general partners across the sectors real estate, infrastructure / real assets and capital relief trades (CRT) by structuring funding vehicles, rating advisory and private placements. As per 26th April 2019, Stone Mountain Capital has total alternative Assets under Advisory (AuA) of US$ 53.8 billion in hedge funds and private assets. Stone Mountain Capital has arranged new capital commitments of US$ 1.54 billion across hedge fund, private asset and corporate finance mandates and has been awarded over 25 industry awards for research, structuring and placement of alternative investments.   Our Team   Our Solutions   Our Mandates   Our Research   Our News     Contact We are able to source any specific alternative investment search and maintain relationships with dozens of best-in-class hedge fund managers, private equity and private debt general partners (GPs) and real estate and infrastructure developers. We don’t pass any costs on to our investors, since our compensation comes from our mandated managers, GPs and developers. Please contact us, should you require further information about our solutions.   We have updated our privacy policy to take into account the new requirements of the GDPR. Please take some time to read the policy, which explains what personal data we collect, why we collect it, how we use it and other relevant information. You can review our privacy policy here, our anti-bribery policy here and our commitment to the UK stewardship code here. No action is required if you wish to remain in contact, however please reply if you want your details removed by contacting us at info@stonemountain-capital.com or by using the unsubscribe button below. In case this newsletter has been forwarded to you and you want to subscribe, please click here. Stone Mountain Capital is a limited company (LTD) registered in England & Wales with registered number 8763463. The registered address is: 31 Compayne Gardens, London NW6 3DD, England, United Kingdom. Stone Mountain Capital LTD is registered (FRN: 729609) as Appointed Representative with the Financial Conduct Authority (‘FCA’) in the United Kingdom. Stone Mountain Capital LTD is the Distributor of foreign collective investment schemes distributed to qualified investors in Switzerland. Certain of those foreign collective investment schemes are represented by First Independent Fund Services LTD, which is authorised and regulated by the Swiss Financial Market Supervisory Authority (‘FINMA') as Swiss Representative of foreign collective investment schemes pursuant to Art 13 para 2 let. h in the Federal Act on Collective Investment Schemes (CISA). Stone Mountain Capital LTD conducts securities related activities in the U.S. pursuant to a Securities and Exchange Commission ('SEC') Rule 15a-6 Agreement with Crito Capital LLC, a U.S. SEC registered broker-dealer, and member of Financial Industry Regulatory Authority (‘FINRA’), Securities Investor Protection Corporation (‘SIPC’) and Municipal Securities Rulemaking Board (‘MSRB'). All information in this perspective including research is classified as minor acceptable non-monetary benefits ('MNMB') in accordance with article 11(5)(a) of the MiFID Delegated Directive (EU) 2017/593 and FCA COBS 2.3A.19. Copyright © 2019 Stone Mountain Capital LTD. All rights reserved.   Any business communication, sent by or on behalf of Stone Mountain Capital LTD or one of its affiliated firms or other entities (together "Stone Mountain"), is confidential and may be privileged or otherwise protected. This e-mail message is for information purposes only, it is not a recommendation, advice, offer or solicitation to buy or sell a product or service nor an official confirmation of any transaction. It is directed at persons who are professionals and is not intended for retail customer use. This e-mail message and any attachments are for the sole use of the intended recipient(s). Our LTD accepts no liability for the content of this email, or for the consequences of any actions taken on the basis of the information provided, unless that information is subsequently confirmed in writing. Any views or opinions presented in this email are solely those of the author and do not necessarily represent those of the limited company. Any unauthorised review, use, disclosure or distribution is prohibited. If you are not the intended recipient, please notify the sender by reply e-mail and destroy all copies of the original message and any attachments. By replying to this e-mail, you consent to Stone Mountain monitoring the content of any e-mails you send to or receive from Stone Mountain. Stone Mountain is not liable for any opinions expressed by the sender where this is a non-business e-mail. Emails are not secure and cannot be guaranteed to be error free. Anyone who communicates with us by email is taken to accept these risks. This message is subject to our terms at our Disclaimer.