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alternative markets review 2021

30/1/2022

 
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Hedge Funds
Hedge funds had a great 2021 and managed to set a record high in its AuM. As of the third quarter in 2021, the AuM of the industry is expected to be between $4.3tn and $4.6tn depending on the sources. According to BarclayHedge, the industry’s AuM just surpassed the $4.5tn mark at the end of the third quarter. This is a steep increase from just $3.8tn in 2020, as shown in Figure 6. This is a gain of more than 18% in less than a year. It is expected that the number will rise slightly, once the Q4 2021 numbers are out, as October and November 2021 were rather positive. Nonetheless, December 2021 will have dampened the results of Q4 2021. Generally, the industry has gained substantially over the past ten years, despite a rather inferior view from market participants during most of that period. The AuM soared thanks to two reasons. Firstly, the industry saw substantial capital net inflows. During the first three quarters, the industry received $41bn in fresh capital after having received another $19bn in the second half of 2020. Since then, the industry saw net inflows in every quarter, which is stark break from previous years when the industry experienced net outflows in most quarters. In Q4 2021, net inflows rose to $81bn in 2021, according to Eurekahedge. Figure 7 also shows the severe initial impact of Covid-19 in 2020, when accounting for the significantly positive inflows in the latter half of the year. The second reason for the steep increase in AuM is due to the performance of the hedge fund industry in 2021. Hedge funds in 2021 returned slightly more than 10%, making it the third best year in history after 2020 and 2009 according to HFR. This is remarkable, as the year has not been easy with the constant uncertainty and high volatility in the market. In particular event-driven, equity and commodity strategies have performed very well and the high beta strategies within their respective sector. Figure 8 summarizes the performances of several strategies during 2021 by Eurekahedge. Distressed debt and event-driven strategies performed best with barely any negative performances during the year. Macro and fixed income strategies struggled the most throughout the year, due to the harsh economic conditions. When looking at the highlighted percentiles, it is evident that the high volatility in the market also caused high volatility in hedge fund returns, independent of the strategy. This is most relevant for long short equity strategies whose returns vary between +30% (upper percentile) and -10% (lower percentile) in 2021. Figures 9 to 13 highlight the SMC Strategy Indices in 2021 compared to their benchmarks. The SMC Credit Strategy Index gained slightly more than 5% in 2021, although the variation across strategies is substantial. Two strategies, Trade Finance Crypto and European High Yield L/S Credit did very well in the economic environment, as they reached returns above 12% and 19% in 2021. The Trade Finance Strategy is in particular remarkable, as the strategy has not experienced a negative month since its inception in 2017. The SMC Equity Strategy Index gained closely less than 10%, which is around as much as the average equity strategy in 2021. Within the sector, there was also considerable volatility, due to the sub-strategies. Unsurprisingly, the Equities US Activist Event-Driven performed best with a return exceeding 33%. More tech-focused strategies faced more issues but returned closely below 10% after an extremely successful 2020. Global macro strategies had a tough year and closed only slightly positive for the year. The SMC Global Macro Strategy Index is up almost 37% in 2021, which is largely due to the Discretionary Global Macro Strategy achieving a return of almost 70%. To nobody’s surprise, cryptocurrency strategies performed best in 2021. The SMC Cryptocurrency Strategy Index gained more than 212% in 2021. In the space, it was most important to hold a diversified account of cryptocurrencies to achieve such a great return, as Bitcoin (BTC) gained only 60%. The most successful strategies in the space focused on riskier tokens. The Token and Token Liquid strategies gained 295% and 385% respectively. Despite the great results of 2021, the gains are still inferior to the 342% in 2020. The developments in the crypto space will be discussed in a further paragraph. Lastly, another indicator that the industry is in a healthy state is the fact that the number of launches substantially exceed the liquidations and the number of active funds has reached an all-time high of 22,081.

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alternative markets Review 2020 & 2021 Crypto predictions

8/2/2021

 
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​Alternative Markets Review 2020
2020 will be certainly a year nobody will not forget very fast. The most notable event was certainly Covid-19 and its tremendous impact on the everybody in the entire world. From a financial perspective, there were so many exceptional phenomena that occurred as a consequence of Covid-19. Firstly, national banks have intervened in the market to an extent that was unprecedented, the FED above all. The huge interventions of the FED through quantitative easing in GFC in 2008 were next to nothing to the interventions following Covid-19. The common measures of national banks in particular adjusting interest rates was exerted quickly, which led to the interventions through other channels as described previously. Almost all industrialized countries are now facing interest rates that are negative or very close around 0%, including a yield curve inversion in the US during the pandemic. Governments have also provided huge sums of financial aids for the economy to fight Covid-19, which led to record level of governmental debt. In the US, the debt level is almost as high as during WW2, which says a lot. Low interest rates fuelled the rally of safe haven asset such as gold further, which had a great year, despite having gained already a lot in 2019 from the trade war between the US and China.
Hedge Funds
Hedge funds had a great 2020, despite the severe drawdowns in March and April. Preqin reports that the average hedge fund achieved a YTD in 2020 of 16.69%. Figure 4 shows an overview of the returns of our hedge funds across fixed income, equity, tactical trading and fund of hedge funds (FoHF) strategies. Over all categories, our average hedge fund is up 68% in 2020, largely driven by crypto hedge funds which posted stellar returns as cryptocurrencies, which will be discussed in the part. Our tactical trading strategies are up 279% in 2020, as of most of those strategies are crypto-related. The equity-based hedge funds achieved a YTD of 23.8% in 2020, which a substantial variance across the hedge funds, largest based on the strategy pursued. Fixed income-based hedge funds struggled longer in 2020, as both equity and tactical trading strategies recovered very fast. Fixed income strategies are up 6.7% in 2020. Figures 5 to 8 show the performance of the strategies compared to respective benchmarks.
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ALTERNATIVE MARKETS UPDATE Q3 2020 - MACRO OUTLOOK BY AQUILA MARKETS

23/10/2020

 
Alternatives Market Update October 2020

The coronavirus has hit the world severely in 2020. Europe, which had the virus under control in summer, has seen a huge surge in daily cases among almost countries. Some countries, such as Ireland, have already reacted with measures that are close to a lockdown which many countries have experienced in March and April 2020. Stock prices, especially in the US, have risen to record levels, due to the money printing of central banks, all above the Fed. However, at the end of Q3 2020, stocks have not continued their bull run after the crash and have started to decline. Especially tech stocks, which were undeniably the winners of the crisis, have experienced a decline. Nevertheless, the drawdowns now are in no comparison of the gains realized throughout the crisis. The developments observed in the stock market also apply partly to the macroeconomic indicators of recovery, as shown in Figure 1. It shows that the economy globally as well as the US are recovering, whereas Europe and Japan are moving flat. ​
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Figure 1: Economic Indicators by Country, Source: Andrews Gwynne, Haver Analytics, CEIC, IMF & Morgan Stanley Research, October 2020
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Hedge Funds
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Figure 11 and 12 show our internal strategies compared to appropriate benchmarks. Our SMC Credit Strategy Index is up 2.11% as of September 2020. The SMC Equity Strategy Index has recovered quite well over the year and is up 13.90% with the most successful individual strategies being the Long/Short US Equities Disruptive Technologies strategy with a YTD of 48.20% and the Long/Short US Equity Consumer, TMT, Healthcare strategy with a YTD of 50.08%. Our SMC Tactical Trading Strategy Index is up 104.28% as of September, large based on various cryptocurrency-based strategies. These are further elaborated in the cryptocurrency section. Regarding individual strategies, the Discretionary Global Macro strategy did very well in 2020 with a YTD of 60.75%. The AuM of the hedge fund industry is at $3.22tn as of August 2020, according to Figure 13. The industry recovered quite well, as the AuM dropped way below $3tn during the year 2020, and it is now almost back at the level of $3.29tn, where it was at the end of 2019. The most common strategy (by AuM) is long/short equity, which accounts for 34% of the industry’s AuM. The next most common strategies are multi-strategy and CTA/managed futures but these strategies already account for a substantially lower percentage of the industry’s AuM. A further breakdown of strategy volume by AuM is shown in Figure 14.
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Figure 11: SMC Indices and a Comparison of Benchmark Indices, Source: Stone Mountain Capital Research, October 2020
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Figure 12: Summary Table of SMC Indices and a Comparison of Benchmark Indices, Source: Stone Mountain Capital Research, October 2020

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ALTERNATIVE MARKETS UPDATE - MACRO AND POLITICAL OUTLOOK SEPTEMBER 2020

10/9/2020

 
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Alternative Markets Update September 2020
Last week, tech stocks have experienced the first major loss since the start of the pandemic, after which they recovered enormously fast and reached new record levels. The recovery was mostly caused by the financial stimuli of central banks and the shift from companies to home office and similar reactions to the pandemic. Figure 1 shows the debt-to-GDP levels in 2020 and a projection of 2030. It is expected that all those will fall going towards 2030, except for the US. UK and France will likely remain at the level they are currently. Japan is currently by far at the highest level with also reaching a level of 250. One of the big topics is inflation, due to unprecedented money printing around the world, but especially in the US. Figure 2 shows the historical inflation since the global financial crisis in the US. The average during this time of the headline and core CPI are 1.6% and 1.8%, while they are currently 1.0% and 1.6% after their substantial fall when the crisis emerged.
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Debt-to-GDP Levels, Source: Andrews Gwynne, International Monetary Fund & Oxford Economics, September 2020
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US Inflation Since the Global Financial Crisis, Source: Andrews Gwynne & U.S. Bureau of Labor Statistics, September 2020
September PREVIEW by Macro Eagle
Famously, September is the cruellest month for equity markets, with the Dow down 41/70 times since 1950. Apart from the ongoing issues mentioned above the key events in the month ahead are: Treasury issuance and unemployment figures this week. ECB and Russian regional elections next week. New Japanese PM, TikTok deadline and FOMC during the 3rd week. Italian election during the fourth week. And the first US presidential debate in the last week. All while capital markets get hit by an avalanche of IPOs (Airbnb, Ant Financial, DoorDash, etc.). And don’t forget NATURE. In August we got fires and blackouts in California, hurricanes hitting the Gulf (Laura and Marco), the last ice shelf in Canada’s Artic breaking up and China/North Korea being hit by floods. But it is September when the hurricane season normally peaks.​
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September Preview, Source: Macro Eagle, September 2020

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ALTERNATIVE MARKETS UPDATE AUGUST 2020 - FED WANTS OPTIONALITY - AND THAT IS BULLISH FOR VOL

27/8/2020

 
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​Alternative Markets Update August 2020
Covid-19 has caused a tremendous impact on central banks and leading to steep sovereign debt increases in the whole world. Figure 1 shows the global sovereign debt to GDP. It is currently at the second highest level it has ever been only behind WW2. As the level of 89.5% shown in the graph is just as of Q1 2020, it is likely that the level will surpass its previous high during WW2, as the most severe impact has been during Q2 2020. Furthermore, central banks had to use huge fiscal support, as shown in Figure 2. The means necessary outclass every economic crisis by far, except for wars. The differences are especially shocking when comparing it with the Great Depression starting in 1929 and the Global Financial Crisis starting in 2007.
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Global Sovereign Debt/GDP Levels from 1851 to Q1 2020, Source: BofA Global Research, IIF, IMF and Maddisson Database, August 2020
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Fiscal Support of the FED from 1901 until now, Source: BofA Research Investment Committee, Global Financial Data, White House Budget, August 2020
Fed Wants Optionality - and that Is Bullish for Vol! by Aquila Markets
*Fed creates optionality around Yield Curve Control and its “now in doubt” September review – which by definition creates volatility
*We are watching with interest to see if USD higher / risk lower persists, but we do not think the “highs” are in
*We believe the market is yet to begin considering a potential sweep by the Dems – this is a core theme on the radar for the Autumn
Despite having been quite sanguine about the Fed, the golden rule of the Fed “creates” volatility worked once again. There is clearly pushback within the FOMC itself to Yield Curve Control, recognising the upside of entering into a policy that the market is defacto already following is limited. Instead, the Fed has created optionality for itself. Additionally, the market started to question whether the results of the Fed’s policy review would indeed be presented in September, where average inflation targeting – ie letting inflation run Hot – would be a core part.
The timing of such a big announcement is creating an issue for the Fed, given the election, the recovery and the situation with the virus. September we believe will be entering a period of max uncertainty on the those three issues, which makes commitment to long term plans hard to justify, and it may be the Fed it trying to – again – create optionality for itself by delaying until, let's say, December.
​But given the correlations we have been highlighting between rates, equities, commodities (Gold is correlating strongly with TLT, for instance) and realised volatility, any sense that rates COULD go higher caused the spill lower in stocks, especially given the horrendous breadth in US equity leadership, weakness in Asian stocks and a stalling in European markets.

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ALternative Market Outlook h2 2020

13/8/2020

 
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YTD Price Development in US Equities, US 10Y Yields, USD and Gold, Source: MacroEagle, August 2020
AUGUST PREVIEW. The most exciting week this month is clearly the first. We get to know Biden’s pick for VP (more below); I do expect the ECJ’s answer to the German Constitutional Court and we will see the next tranche of the US relief package agreed before Congress breaks for its summer recess. In the second week, as usual, we get a lot of economic and sentiment data – the rate of change being more important than the number itself. As for the last two weeks, the main calendar focus will be the virtual Central Bank symposium at Jackson Hole. Spoiler alert: August has a real bad reputation for nasty equity sell-offs. Increased US-China tension (on the back of the US presidential campaign) is probably my No1 pick for “possible trigger” (more below).
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Important Events in August 2020, Source: MacroEagle, August 2020

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