Alternative Markets Update – Mid AUGUST 2026

The hedge fund industry recorded its strongest first half in five years. The HFRI Fund Weighted Composite gained 7.6% over H1 2026, having advanced 6.55% in Q2, the best quarter for the industry since Q4 2020. Industry capital reached a record $5.6tn at the end of June following a $409.3bn increase over the second quarter, the largest quarterly rise on record and the fifteenth consecutive quarterly expansion. Our mandated funds returned 0.37% across the SMC Cross-Asset Index over the same period, with assets across our mandates at $48.8bn at the end of June. Dispersion across strategies was wide. As shown in Graph 1, our equity composite returned 9.79% against 8.67% for its benchmark, credit 3.75% against 2.64% and multi-strategy 9.80% against 8.94%, while tactical trading returned -10.15% against 7.06% and cryptocurrency -26.12% against -18.44%. Three of the five composites finished ahead of benchmark, with the Cross-Asset return held back by tactical trading and cryptocurrency rather than by the core equity and credit books. The same pattern is visible across the industry. Equity hedge led the major groups with a 9.6% gain over H1 and technology- focused managers returned 19%, outperforming the Nasdaq by around 600bps. Macro gave back ground in June, with the HFRI Macro Index down 1.5% and systematic diversified CTAs off 1.4%, as the retreat in energy prices removed the directional tailwind that had supported the strategy earlier in the year. Strategy selection rather than broad industry exposure accounted for most of the return outcome over the first half, and the unresolved geopolitical and rates backdrop suggests that continues into H2.

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RESEARCH PERSPECTIVE VOL. 281 August 2026 Alternative Markets Update Hedge Fund Strategies The hedge fund industry recorded its strongest first half in five years. The HFRI Fund Weighted Composite gained 7.6% over H1 2026, having advanced 6.55% in Q2, the best quarter for the industry since Q4 2020. Industry capital reached a record $5.6tn at the end of June following a $409.3bn increase over the second quarter, the largest quarterly rise on record and the fifteenth consecutive quarterly expansion. Our mandated funds returned 0.37% across the SMC Cross-Asset Index over the same period, with assets across our mandates at $48.8bn at the end of June. Dispersion across strategies was wide. As shown in Graph 1, our equity composite returned 9.79% against 8.67% for its benchmark, credit 3.75% against 2.64% and multi-strategy 9.80% against 8.94%, while tactical trading returned -10.15% against 7.06% and cryptocurrency -26.12% against -18.44%. Three of the five composites finished ahead of benchmark, with the Cross-Asset return held back by tactical trading and cryptocurrency rather than by the core equity and credit books. The same pattern is visible across the industry. Equity hedge led the major groups with a 9.6% gain over H1 and technology-focused managers returned 19%, outperforming the Nasdaq by around 600bps. Macro gave back ground in June, with the HFRI Macro Index down 1.5% and systematic diversified CTAs off 1.4%, as the retreat in energy prices removed the directional tailwind that had supported the strategy earlier in the year. Strategy selection rather than broad industry exposure accounted for most of the return outcome over the first half, and the unresolved geopolitical and rates backdrop suggests that continues into H2.   Figure 1: SMC Strategy Indices versus benchmarks, YTD 2026 (Source: Stone Mountain Capital, HFR) Macro Eagle: Views for August by Bobby Vedral I – July RECAP It was a very tiring month: (1) on the “surface” the S&P was flat; (2) but heavy storms brew underneath, with sharp reversals in “momentum” and “carry” trades; (3) leading to one prominent hedge fund, Situational Awareness, being taken to the Citadel Cleaners; (4) once that forced seller was removed, everybody rushing back in; (5) Trump flip-flopping on Iran; (6) Warsh taking a credibility hit after the Fed presser, with long-term bonds selling off; (7) first coordinated US-Japan currency intervention since 2011; (8) stellar corporate Q2 earnings; (9) OpenAI disclosing a rogue AI agent; and last but not least (10) Spain winning the World Cup, with spectacular performances by Cape Verde and Norway. II – July TOP 10 (1) Spain won the FIFA World Cup. England had its best finish since 1966 beating France 6-4, the highest world cup score since 1982. (2) US 30y yields reached 5.27% - their highest since 2007. (3) Japan 10y reached 2.9% - their highest since 1996. (4) On July 30th, Microsoft recorded the biggest 1-day- market cap gain ever: +15% = $450bn. (5) At $26.5bn, SK Hynix became the largest foreign IPO ever on July 10th, followed by a 17% drop in its share price on July 13th, its biggest 1-day move ever. (6) IBM shares dropped 25% on July 14th – their largest 1-day move since 1968. (7) The Yen crossed 163, a 40 year high, before the first coordinated US-Japan intervention since 2011. (8) China grew by 4.3% yoy in Q2– the country’s slowest growth rate since the early 1990s when its GDP statistics were standardised. (9) SpaceX lost $1.2trn since their peak on June 16 - one of the largest market cap wipeouts in history. (10) For the first time ever, due to low water levels, Hungary and Romania had to shut down atomic reactors normally cooled by the Danube. III – August PREVIEW Unusually busy August ahead: (1) key NVDA earnings and Jackson Hole at the end of the month. (2) Fed Minutes; start of landmark federal multi-district trial against Meta; new Canada tariffs and start of the Premier League next week. (3) Inflationdata, Clacton by election fun in the UK with Farage vs Count Binface; and possible Iran MOU this week. (4) Unfortunately, with Ukraine’s Independence Day on August 24th, one has to expect Mad Vlad to hit it hard.  IV – War-Gaming into YEAR-END August is always a good time to mentally prepare for the run into year-end. Rocky September: (1) Crucial state elections in Germany, with likely significant wins for the AfD, putting an already weakened Merz under severe pressure – in fact, I think his days are numbered: “Kanzlertausch” is coming. (2) Xi to visit to the US with AI and trade high on the agenda. (3) All three major Central Banks, US/EU/JAP, likely to hike rates. (4) Duma election in Russia. Not that the result is in doubt – but I have the odd feel that a decision to mobilize is coming.   Political October: (1) Key elections in Brazil – with Lula trying to survive the “right-shift” taking the rest of Latam by storm. (2) historical elections in Israel, with deep implications for the whole region if Bibi remains; (3) China’s key 5th plenum – the most important gathering ahead of the 21st National Congress next year; (4) UK Burnham’s first “autumn budget” exactly on the 100th day of his premiership – funny that.  Finally, November and the all-important US mid-terms (more below) and then December closing the year with the G20 summit in Florida. V – The DEBT addiction What struck me in July was the amount of DEBT (aka leverage) related incidents: (1) 30y US DEBT at 20-year highs due to fiscal worries. (2) 10y Japanese DEBT at 30 year highs due to the same. (3) Yen intervention, financed through Japan borrowing from the Fed’s FIMA facility, to avoid them selling USD debt. (4) Leopold Aschenbrenner’s hedge fund, Situational Awareness taken to the Citadel Cleaners due to too much leverage/DEBT. (5) More than a million retail accounts in Koreaaffected by margin calls/DEBT, caused and driven by a market rout. (6) Vibe shift on the AI narrative partially due to massive corporate DEBT issuance. (7) Record 1-day market moves, think IBM -25%, SK Hynix -17%, MSFT +15% - amplified by trading strategies based on leverage.  If I didn’t know better, I would think our current financial market structure has a severe DEBT (leverage/margin) addiction problem. And because the Top ten companies now represent an unprecedented share of the markets’ value, the index is no longer a diversified basket but a concentrated volatility trap … VI – Watching AI When it comes to AI, I follow the advise of Mark Twain: “It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” Which means – I’m involved in the theme (macro), but have no idea who will ultimately win (micro), and therefore have scaled and spread my involvement accordingly and remain highly suspicious of anybody who thinks he knows better (usually a “he” with American accent).  What I found most interesting in July, apart from the cyclical ROIC/Capex worrieshitting the market is the sudden interest by the AI-stocracy in government regulation: (1) Demis calling for FINRA style regulation on July 14th; (2) Samwriting an FT op-ed calling for government, not AI labs, to set the rules – on July 1st; (3) thousand of AI employees signing an open letter asking the US government to “pace” frontier development on July 28th. Only a cynic would think this is a blatant attempt to build a regulatory moat against oversea open model competition, with OpenRouter reporting that Chinese “open” AI models have now overtaken American ones in usage and after the Kimi K3 “shock” at Shanghai’s World AI Conference on July 17th. Note to self: Europe nowhere to be seen. Irrelevant. VII – The US mid-terms They are now less than 100 days away – so worth paying attention to. A few observations: (1) Trump’s job approval ratings are dismal, but so were Joe’s – left graph. Nothing new here. (2) Therefore, like with Joe in 2022, the consensus believes the House will fall to the Dems – middle graph; (3) while the Senate probably remains Republican given Democrats recent primary choices (Michigan) or ineptitude (Maine).  The Dems move leftward (see NY and Michigan primaries) means they are less likely to take the Senate, but more likely to become “radical” in the House. Implications: (1) flood of investigations into Trump’s family business dealings – although, like Biden, he will very likely pre-emptively pardon his family first; (2) at industry level financial regulation, prediction markets, M&A, AI and healthcare will face heightened scrutiny; (3) Israel has a problem.  VIII – My BRO (= Binocular of Risks and Opportunities) In the short-term, the main short term risk/opportunity is (1) “Kanzlertausch” in Germany and (2) Trump-vote-buying into the mid-term, like stimulus, deal with Iran or anything Cuba related (Hispanic vote).  Also, unusually high news-flow from the South China Sea/Pacific in July: announcement of persistent Chinese Coast Guard east of Taiwan (July 4); launch of first ever Chinese ballistic missile from submarine (July 6); Australia signed defence treaty with Fiji (July 6).  IX – PORTFOLIO As for the implosion of “Situational Awareness” – Charlie Munger used to say there are only three ways a smart person can go broke: “liquor, ladies, leverage”. Warren Buffet said he only added the first two, because “they start with “L”. Personally, as mentioned many times, it’s all about risk management, hence I believe in (1) max liquidity; (2) min leverage and (3) reasonable concentration. Especially in times with low visibility – like now. No major changes from previous months: (1) long cash-flow positive compounders; (2) avoiding US Tech; (3) did well cutting Japan/Korea early; (4) long/adding Latam/Andean exposure; (5) avoiding duration and credit; (6) long cash and bills.   Favourite “tail hedge”: US rate payers – because a sneeze in the Treasury market will means severe flu for everybody else.    I wish you all a great AUGUST and as always: MAY THE MARKET BE WITH YOU! Bobby   The views expressed in this article are those of the author and do not necessarily represent the views of, and should not be attributed to, Stone Mountain Capital LTD. Readers should refer to the Disclaimer.  Bobby Vedral  MacroEagle  E : [email protected]  M : +447899996595    Bobby is a macro-political analyst who runs his own fund MacroEagle. He is also the UK representative of the German Economic Council (Wirtschaftsrat Deutschland) focused on the German-British relationship post-Brexit. Bobby left Goldman Sachs in March 2018, where he was a Partner and Global Head of Market Strats. His previous responsibilities included Systematic Trading Strategies, eProduct and FX/EM Structuring. In his external functions he was Member of the ECB's FX Consulting Group. Before Goldman Sachs, Bobby worked at Deutsche Bank and UniCredit/HVB.  This perspective is neither an offer to sell nor a solicitation of an offer to buy an interest in any investment or advisory service by Stone Mountain Capital LTD. 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