alternative markets update mid december 2021

​Just before the holiday season, Omicron is spreading rapidly around the world and causes most countries to impose further restrictions. The Netherlands went furthest with a new lockdown over the Christmas holidays. Due to the high infection rate of Omicron, many countries are recommending booster vaccinations for their citizens and introducing requirements of being vaccinated and negatively tested in an attempt to slow down the spread of the virus. This is not the only issue at the moment, as inflation rates are surging around the world. It is also estimated that inflation will remain high for longer than just a few months. In the US, the CPI has reached 6.8% in November 2021, up from 5.3% in August 2021. In Europe, the CPI is 4.9% in November, up from only 3% in August 2021. The situation is similar in the UK with 4.6% in November 2021. Equity markets have strongly profited from the strong interventions of central banks, as shown in Figure 1. After October 2021, equity markets did not maintain their strong upward trend. When Omicron emerged, equity markets dipped. Nonetheless, after it was thought initially that Omicron can be handled to some degree, markets recovered. This recovery only persisted for a short time, as the further restrictions around the world quickly made the illusion of Omicron being handled perish quickly. This strong performance of the public equity market has fuelled the private market. In particular, technology, healthcare and fintech were of tremendous interest. Figure 2 shows a summary of the growth of fintech in 2021. M&A and SPACs achieved a transaction volume of $337bn and several notable IPOs or direct listings have taken place. This includes Coinbase, Robinhood and Nubank among others. Figure 3 shows the development of fundraising in private markets since 2008. In 2021, almost $1tn in capital was raised by private equity, private debt, real estate and infrastructure. This year’s fundraising is the second largest only after 2019. By far the largest contributor is private equity with more than $600bn raised in 2021. Figure 4 shows the increase in AuM of private markets. In 2021, private markets have surpassed the $10tn threshold. In 2021, a substantial increase in allocated capital took place, as dealmaking was difficult in 2020. The fundraising in 2021 also caused the dry powder to remain high despite large commitments. Most of the assets are managed by the private equity industry and other types of assets.

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RESEARCH PERSPECTIVE VOL. 169 December 2021 Alternative Markets Update December 2021 Just before the holiday season, Omicron is spreading rapidly around the world and causes most countries to impose further restrictions. The Netherlands went furthest with a new lockdown over the Christmas holidays. Due to the high infection rate of Omicron, many countries are recommending booster vaccinations for their citizens and introducing requirements of being vaccinated and negatively tested in an attempt to slow down the spread of the virus. This is not the only issue at the moment, as inflation rates are surging around the world. It is also estimated that inflation will remain high for longer than just a few months. In the US, the CPI has reached 6.8% in November 2021, up from 5.3% in August 2021. In Europe, the CPI is 4.9% in November, up from only 3% in August 2021. The situation is similar in the UK with 4.6% in November 2021. Equity markets have strongly profited from the strong interventions of central banks, as shown in Figure 1. After October 2021, equity markets did not maintain their strong upward trend. When Omicron emerged, equity markets dipped. Nonetheless, after it was thought initially that Omicron can be handled to some degree, markets recovered. This recovery only persisted for a short time, as the further restrictions around the world quickly made the illusion of Omicron being handled perish quickly. This strong performance of the public equity market has fuelled the private market. In particular, technology, healthcare and fintech were of tremendous interest. Figure 2 shows a summary of the growth of fintech in 2021. M&A and SPACs achieved a transaction volume of $337bn and several notable IPOs or direct listings have taken place. This includes Coinbase, Robinhood and Nubank among others. Figure 3 shows the development of fundraising in private markets since 2008. In 2021, almost $1tn in capital was raised by private equity, private debt, real estate and infrastructure. This year’s fundraising is the second largest only after 2019. By far the largest contributor is private equity with more than $600bn raised in 2021. Figure 4 shows the increase in AuM of private markets. In 2021, private markets have surpassed the $10tn threshold. In 2021, a substantial increase in allocated capital took place, as dealmaking was difficult in 2020. The fundraising in 2021 also caused the dry powder to remain high despite large commitments. Most of the assets are managed by the private equity industry and other types of assets. Figure 1: S&P 500 During 2021, Source: The Wall Street Journal, December 2021 Figure 2: Global Fintech Market in 2021, Source: Andreessen Horowitz, December 2021 Figure 3: Global Private Capital Fundraising by Asset Class in Trillion USD from 2008 to December 2021, Source: PEI Media & The Economist, December 2021 Figure 4: Global Private Assets Under Management by Allocated Capital and Dry Powder and by Asset Class in Trillion USD, Source: Pitchbook & The Economist, December 2021 Cryptocurrencies have experienced a slight drawdown since the start of December 2021. There is a relatively constant downward movement, at least for Bitcoin (BTC). BTC started the month at around $60k and fell below $46k. At the time of writing, BTC is trading at $48.7k with a market capitalization of $920bn. Ethereum (ETH) on the other hand started the month at $4,800 and fell to around $3,700. Nonetheless, ETH recovered quite well and is currently trading at $4,000. This leads to a market capitalization of $475bn. Figures 5 and 6 show the price development of BTC and ETH over the entire year. Solana (SOL) was the most recent breaking new cryptocurrency, which is also shown by its price development in 2021. This is shown in Figure 7. SOL started the year with a value $2 per coin, which surged to over $250 at its peak. The coin is now trading at $177 and a market capitalization of $55bn, which makes it the fifth largest cryptocurrency. SOL has gained massive traction in the crypto space, as it is the fastest programmable blockchain, which is highly attractive to build applications on it. Instead of using Proof-of-Work (as BTC and ETH) or Proof-of-Stake (as ETH2.0) as a way to validate transactions, SOL uses Proof-of-History which allows such a high number of transactions per second. It is frequently for projects in decentralized finance (DeFi), non-fungible tokens (NFTs) and other so-called Web 3.0 projects. The impressive upgrade SOL brings to the transaction speed is considerable, as SOL is able to process around 50,000 transactions per second, whereas ETH varies between 15 and 45 transactions per second and BTC is even slower than ETH. Figure 5: Bitcoin Price Development in 2021, Source: CoinMarketCap, December 2021 Figure 6: Ethereum Price Development in 2021, Source: CoinMarketCap, December 2021 Figure 7: Solana Price Development 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). 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