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Alternatives Market Review 2018 and Outlook 2019

31/1/2019

 
Alternative Markets Review 2018
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2018 started as strongly as it finished in 2017, but spikes in volatility caught hedge funds unprepared and highlighted the weaknesses of the industry. The rest of the year continued in the same pattern with major political risks adding to the problem such as Brexit outcome, European elections, end of quantitative easing and trade war. The fourth quarter and equities sell-off since October ruined hedge funds hopes to rebound and sank them deeper into their losses.  Event-driven and equity hedge strategies were the worst performers among hedge funds, followed by systematic CTA and macro strategies. For our in-house strategies, the scenery was slightly altered as the worst performing asset class was tactical trading. Underperformance of cryptocurrency and CTAs are the main drivers of the underperformance compared to other indices, despite the strong performance of our global macro and market neutral strategies. Equities globally suffered severe losses, similar to the majority of our in-house strategies. Our niche equity strategies focusing on disruptive​ techno-
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logies and directors' dealing though posted strong returns and constitute our best two performing strategies for 2018, consequently leading to a relative outperformance of peer indices. ​ Direct lending and structured credit enjoyed a good year assisting in our credit index's outperformance. Only two out of eight strategies posted losses for a year, when equity and credit largely disappointed their investors. Overall, our cross-asset and single manager index posted losses for the year due to our tactical trading underperformance, but still performed better than the majority of the individual indices.
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European Direct Lending III: Opportunities In The Lower Middle Market

6/11/2018

 
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Oliver Fochler
Managing Partner, CEO
Tel.: +44 7922 436360
Alexandros Kyparissis
Analyst Hedge Funds
Tel.: +44 7843 144007
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stone_mountain_capital_research_perspective_vol.94_-_november_2018.pdf
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STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.94
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Lending has always been the core banking business over centuries until the great financial crisis hit in 2008, which gave birth to a new asset class: private debt. For years, private markets were dominated by funds focusing on equity and banks on debt. The regulations that came into force in the aftermath of 2008 financial crisis created a funding gap for a specific market segment. Large corporates can finance themselves via debt and equity public issuance or bank lending, but funding middle market and SME corporates remains a challenge. The rise of debt funds together with fintech firms’ efforts to revolutionise alternative credit are shaping the current private debt environment, which is still enjoying a strong fundraising momentum. The 2023 forecast shows an increase for private debt AuM to $1.4 trillion, while assets have doubled since 2008.
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Figure 1. Private Debt AuM, Forecast 2023, Source: Preqin
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Figure 2. Private Debt AuM, 2013-3Q18, Source: Preqin

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Alternatives Market Outlook H2 2018

16/8/2018

 
STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.88
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Figure 1. Stone Mountain Capital In-House Indices vs. Major Benchmark Indices Hedge Funds and Long Only in H1 2018, Stone Mountain Capital Research SMC strategy indices are not investable products but are used as indication of our managers’ performance and are calculated with the equally-weighted method.
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H1 2018 was rather disappointing for hedge funds, seeing outflows by end of the second quarter. According to data from Hedge Fund Research, investors invested more capital in equity hedge strategies, while they redeemed from event-driven, macro and relative value strategies. The shift in strategies was driven by the rising concerns over potential trade war, monetary policies from central banks, including interest rate decisions, and political uncertainty in major European countries. Performance was strong for strategies focusing on tech, and our equity long short manager sits on the top of our top-performing table. The divergence in central bank policies has favoured macro strategies focusing on traditional relative value bets and event-driven strategies that have catalyst elements. Our top performing strategies table consists of discretionary macro focusing on relative value trading and equity strategies that are engaged in activism and have a niche in US equities markets.
Our in-house strategies in credit, equity and fund of funds, as measured by our indices, have performed better in the first half of the year than their traditional and alternative peers. Tactical trading is still lagging due to the struggling performance of the actively managed altcoin strategy this year mainly driven by falling bitcoin prices. Equities are the top performing and the bucket that has the most representatives in the top-5 performing table, followed by credit/fixed income strategies.

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Fintech in Alternative Investments

9/8/2018

 
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Oliver Fochler
Managing Partner, CEO
Tel.: +44 7922 436360
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Alexandros Kyparissis
Analyst Hedge Funds
Tel.: +44 7843 144007
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STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.87

Fintech is spanning across asset classes and is dominating in most of them as the key theme. The industry is de facto growing, but investors should not ignore the risks. The majority of start-ups fail according to Forbes, a fact emphasizing the need for proper investment due diligence or manager selection depending on the desired exposure to the sector. The world is moving towards new technologies and innovations and investors need to adapt, without disregarding the essential discretionary/human element.
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Figure 1. Alternative Investments and Fintech, Source: Stone Mountain Capital Research
It is important to define the spectrum of fintech and the array of the solutions offered. In Stone Mountain Capital, we identified the following sectors and products that fintech companies apply their technology to: 
  • Insurance
  • Wealth Management/ Financial Planning
  • Investment/ Advisory/ Trading
  • Compliance/ Anti-Money Laundering (AML)/ Know Your Customer (KYC)
  • Debt Syndication
  • Trade Finance
  • Mortgages
  • Data Analytics
  • Banking and Payment Solutions
  • Distributed Ledger Technologies
  • Smart Contracts for execution
  • Cryptocurrencies
  • Cybersecurity
  • Direct Lending
  • Crowdfunding
  • Machine Learning/ Artificial Intelligence
stone_mountain_capital_research_perspective_vol.87_-_fintech_in_alternative_investments.pdf
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Elliot waves Principle and Cryptocurrencies

19/5/2018

 
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Oliver Fochler
Managing Partner, CEO
Tel.: +44 7922 436360
Alexandros Kyparissis
Analyst Hedge Funds
Tel.: +44 7843 144007
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STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.81
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Indubitably, the cryptocurrency market has caught the attention of investors and traders, who are engaging vigorously due to its volatile nature. The crypto market has reached a market capitalisation of ca. $400 billion, half of which is in Bitcoin ($140bn) and Ethereum ($70bn). Crypto markets are affected on a large scale by regulatory and sentiment factors, which makes technical analysis desirable, hence many CTAs that apply such techniques have added cryptocurrencies in their trading portfolios. One of the theories that could reveal patterns is the Elliott Wave Principle, developed in the late 1920s and believing that the swings of market psychology appear in similar repetitive patterns, which Elliot classified as waves. The waves were essentially the consistencies of investors’ reactions to external factors. Despite the principle’s popularity, its difficulty to be applied should be stressed out as investors attempt to analyse the patterns. The divergence in opinions about the Bitcoin’s price projection highlights the predicaments in applying theories and considering the unregulated nature of crypto markets all theories may lead to a worth of zero. The main and biggest issue that technical traders face is defining the duration and length of the first wave and then to apply the rules, therefore many traders that analyse the same horizon may end up with different signals. The other hurdle is the applicability of the principle in cryptocurrencies. This perspective will consider it applicable due to the sentiment driven Bitcoin, although this may change in the future with the inclusion of more computerised trading. For the purpose of this perspective, we will examine different time horizons and the most recent crashes and rallies of the Bitcoin price. 
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