Alternative Markets Update October 2020 - Macro and Political Outlook November 2020 by Macro Eagle

Alternative Markets Update October 2020
With the whole economic environment and the high volatility in the public market, alternatives seem like a good alternative. However, Covid-19 shocked the industry, forcing a quick adaptation. The alternative industry had a great decade so far with an annualized CAGR (continuously compounded annual growth) in AuM of 10.2%, as shown in Figure 7. It is expected that 2020 will be the first year, the AuM declined on a YoY-basis. However, the alternative industry is notoriously famous for exploiting crises, in particular private equity, which will lead to substantial growth in AuM going forward. Nevertheless, the future growth will probably not exceed the last ten years the industry has experienced. It is expected that the AuM of alternatives will reach $17.2tn in 2025, with currently being at $10.7tn. Figure 8 shows which sectors of the industry will most likely be the beneficiaries. It shows that there is a huge LP interest in private equity with 25% saying that they will substantially increase their allocation towards private equity and 56% says they will increase their allocation and only 4% are saying that they will decrease their allocation. Other sectors of high interest are private debt and infrastructure, which will experience growth in AuM by more allocations from around 67%. The remaining sectors are likely to increase slightly, whereas only hedge fund will see only 40% of people tending to increase allocation.

Figure 7: Alternative Assets AuM and Forecast from 2010 to 2025, Source: Preqin

Cryptocurrencies / Blockchain

Figure 13: Total Value Locked (USD) in DeFi in the last Year, Source: DeFi Pulse, November 2020

Figure 14: Current DeFi Ecosystem, Source: Pantera Capital, October 2020

​DeFi is probably the topic in the crypto space in 2020 and its steep rise during the summer. DeFi started with a total value locked in the area of millions in the year and is (as of November) at around $12.5bn. This development is also not expected to fade away towards the end of 2020, although it seems possible that there will be a decrease in growth compared to the summer. Figure 14 shows the DeFi ecosystem separated in sub-categories.

Macro and Political Outlook November 2020 by Macro Eagle
Should we get a Blue Wave, then the “consensus trades” are rotation from Growth into Value (on stimulus), overweight infrastructure/green-energy, short Treasuries (rising yields), short US Dollar and long selected Emerging Markets (like Mexico). The biggest risk in the short-term would be a sell-off due to fear of change in tax policy (wealthy Americans locking in “Stepped-Up Basis”, capital gains rate and/or Tax Loss Harvesting). The medium-term risk are higher US yields/curve steepening on the back of stimulus.  For a quick overview of the other scenarios (already amply covered elsewhere) see short summary below. Also important to keep the portfolio on the right side of what won’t change, whatever the outcome: (1) More stimulus and hence higher yields; (2) China bashing; (3) Big Tech under political pressure and (4) the green-energy transition. The latter obviously turbo-charged if Biden comes in.

Figure 19: An Overview of Upcoming Events in November 2020, Source: Macro Eagle, November 2020

Figure 24: Market Position with Regards to US-Election, Source: MacroEagle, November 2020

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