alternative markets update may 2021

​Hedge funds are doing great in 2021. Hedge funds’ AuM has surpassed the $3.8tn mark in March 2021, which is backed by several reasons. The more negative view on hedge funds over the last five years have subsided, since they have mitigated the financial impact of Covid-19 and posted strong performances afterwards. This boosted the AuM through the performance as well as additional inflows caused by the good results. This is very likely to continue, since hedge funds have had their best Q1 return for more than two decades. Alternative investments in general did very well. Private equity was slowed down initially by Covid-19, but their recovery returns were extremely strong. The high valuations on the stock market certainly helped to achieve this return. Private debt did well too, although their initial recovery was slower. But due to the favorable interest rates, private debt seems attractive compared to public debt. Commodities are doing well too, especially considering their relatively bad performance over the last decade. Gold gained significantly since 2019, which was further boosted by the money printing following Covid-19 and surged to a record of $2k per ounce, but since then, it lost again and has been very stable at around $1.7k over the last months. Oil, which was hit very hard during the initial Covid-19 reactions, has reached its level prior to the crisis and continues to reach higher prices. Just in the last month, WTI crude oil gained more than 10% and is currently at $66 per barrel. Industry metals also have gained substantially in 2021 and due to their demand, it is likely that this will continue. Cryptocurrencies have gained again over the last two weeks. Bitcoin (BTC) was not that specular, as remains between $50k and $60k, despite dropping quickly below the $50k mark. Nevertheless, BTC is still up 91% in 2021 and its market cap remains above $1tn. The big mover was Ethereum (ETH), which was around $2,500 before its surge starting in early May. It peaked above $3,400 and is currently at $3,350. ETH is up 349% in 2021 and almost has a market cap of $400bn. Figure 5 shows the ETH price (in green) from 2020 onwards and its value in BTC (yellow line). During 2020, the two coins moved similar, but since 2021, ETH is outperforming BTC substantially. At the end of 2020, ETH was worth less 0.03 BTC, whereas now it is worth more than 0.06 BTC per coin. Other altcoins followed ETH, but not to same extent. Thus, the crypto market, of which 70% was BTC in 2020, known as “Bitcoin dominance” is shrinking. Currently, BTC only accounts for 45% of the market capitalization of the crypto market.

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RESEARCH PERSPECTIVE VOL. 155 May 2021 Alternative Markets Update May 2021 Covid-19 has had a major impact on 2020 and 2021. The reactions of central banks and governments had a huge impact. Global debt has risen to more than 365% of GDP in 2020, as shown in Figure 1. This has certainly helped to fight the immediate impact of Covid-19, but measured in GDP, the global economy has not yet reclaimed the previous high in 2019. This shows how misleading the this can be, when looking at the stock market, which has surpassed its previous highs by a lot already. The S&P 500, for example, had its previous high in February 2020 with 3,380 and dropped to 2,300. However, its recovery was extremely strong and is at an all-time high of around 4,200. Figure 2 shows the recovery, measured in GDP, for emerging markets, the world and China. Emerging markets, excluding China, have moved similarly to the world, but gained significantly more since the beginning of 2021. As of April 2020, the world is at around 80% of its previous values in 2019. China’s development looks vastly different, since the crisis started there, and they were affected earlier. The drop was similar, but the initial recovery was faster and held on for longer. When Covid-19 hit again in autumn 2020, China had more or less defeated the virus and surged strongly, even exceeding its previous values, but most of its gains during this time were lost again since 2021 and it currently resides as well at around the 80% recovery level. Inflation, another topic of high interest, is perceived somewhat differently over time. In 2020, it was not a concern at all, despite the money printing, mostly likely due to the more immediate impact of Covid-19 itself and the restriction imposed by governments. In 2021, it was discussed a lot for some time and since the initial spike in interest, its relevance has somewhat declined again. However, the topic should be highly relevant given the current economic ecosystem and several inflation indicators showing the largest dispersions in the last two decades. Figure 3 shows a comparison of non-farm unit labor costs and the core CPI. Almost always, they were moving alongside each other. But since Covid-19, there is a massive dispersion. During Covid-19, due to the uncertainty about the future and less opportunities to spend the money, households have significantly increased their savings in comparison to prior years, which contributed to a lower GDP. Figure 4 shows what proportion of the income is saved. All countries that were looked at have increased their savings, compared to prior years. Figure 1: Global Debt in Percentage of Global GDP, Source: Andrews Gwynne, IIF, BIS, IMF & National Sources, May 2021 Figure 2: Global Recovery from Covid-19 Measured in GDP, Source: Andrews Gwynne, Bloomberg, Google & Moovitapp, May 2021 Figure 3: US Inflation Indicators: Comparison of Non-Farm Unit Labor Costs and Core CPI, Source: Andrews Gwynne, Nordea & Macrobond, May 2021 Figure 4: Accumulated Savings from Households over the Last Year Compared to the Previous Two Decades, Source: Andrews Gwynne, OECD, Refinitiv & Financial Times, May 2021 Hedge funds are doing great in 2021. Hedge funds’ AuM has surpassed the $3.8tn mark in March 2021, which is backed by several reasons. The more negative view on hedge funds over the last five years have subsided, since they have mitigated the financial impact of Covid-19 and posted strong performances afterwards. This boosted the AuM through the performance as well as additional inflows caused by the good results. This is very likely to continue, since hedge funds have had their best Q1 return for more than two decades. Alternative investments in general did very well. Private equity was slowed down initially by Covid-19, but their recovery returns were extremely strong. The high valuations on the stock market certainly helped to achieve this return. Private debt did well too, although their initial recovery was slower. But due to the favorable interest rates, private debt seems attractive compared to public debt. Commodities are doing well too, especially considering their relatively bad performance over the last decade. Gold gained significantly since 2019, which was further boosted by the money printing following Covid-19 and surged to a record of $2k per ounce, but since then, it lost again and has been very stable at around $1.7k over the last months. Oil, which was hit very hard during the initial Covid-19 reactions, has reached its level prior to the crisis and continues to reach higher prices. Just in the last month, WTI crude oil gained more than 10% and is currently at $66 per barrel. Industry metals also have gained substantially in 2021 and due to their demand, it is likely that this will continue. Cryptocurrencies have gained again over the last two weeks. Bitcoin (BTC) was not that specular, as remains between $50k and $60k, despite dropping quickly below the $50k mark. Nevertheless, BTC is still up 91% in 2021 and its market cap remains above $1tn. The big mover was Ethereum (ETH), which was around $2,500 before its surge starting in early May. It peaked above $3,400 and is currently at $3,350. ETH is up 349% in 2021 and almost has a market cap of $400bn. Figure 5 shows the ETH price (in green) from 2020 onwards and its value in BTC (yellow line). During 2020, the two coins moved similar, but since 2021, ETH is outperforming BTC substantially. At the end of 2020, ETH was worth less 0.03 BTC, whereas now it is worth more than 0.06 BTC per coin. Other altcoins followed ETH, but not to same extent. Thus, the crypto market, of which 70% was BTC in 2020, known as “Bitcoin dominance” is shrinking. Currently, BTC only accounts for 45% of the market capitalization of the crypto market. Figure 5: ETH’s Price from January 2020 until May 2021 in Comparison to Its Value in BTC, Source: CoinMarketCap, May 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). 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