Category: Private Equity

Alternative Markets update december 2020

21/12/2020

Alternative Markets Update December 2020
Unsurprisingly, BTC tops this chart with an annualized return of 206.4% and a great 2020 so far with 188%. The next most successful asset class are US stocks with an annualized return above 10%, as well as being up more 16% for 2020. Our equities rose on average 7.6%, with two strategies performing exceptionally well. The Long / Short US Equities Consumers, TMT, Healthcare strategy and the Long / Short US Equities Disruptive Technologies strategies are both up more than 57%. Gold that ranks third in this year’s return, despite a continued fall since reaching its peak in August, is the third worst performing asset class over the last ten years, even though it retuned 17.9% and 22.4% in 2019 and 2020. The worst performing asset class are other commodities with an annualized return of -6% over the last ten years.

Figure 1: Asset Class Total Returns over the Last 10 Years, Source: Compound & Charlie Bilello, December 2020

Commodities, aside from gold, mostly had a bad year. Figure 3 shows how commodities have developed in comparison to the US stock market. The essence is that commodities have never been worth so little in comparison to equities and after each crisis, there was a huge turning point. The worst start in 2020 certainly had oil, whose futures (WTI Crude) went negative when the crisis picked of steam in developed economies, which was thought to be impossible. It then recovered fairly quickly and stabilized at $40 for WTI Crude ever since, which was the case for most commodities. Towards the end of November, it started to surge again and continued to do so in December and is currently at $47 per barrel. A major driver for this development is certainly the start of vaccinations and the expectations of going back to normal relatively soon. Brent crude oil experienced a similar rally, although it started to soar earlier and thus gained a bit more than WTI. Brent Crude is now trading at $50 per barrel. Another commodity that has recovered very well is copper. It is trading at 7,068$/mt and has just slightly surpassed its highs from early 2018. During the crisis, it was trading at around 5,000$/mt. Furthermore, the price of copper is unlikely to decrease in the near future, as the stockpiles have not been as low since 2014

Figure 3: GSCITR Commodity Index / S&P 500 Ratio, Source: Andrews Gwynne & Incrementum, December 2020

Figure 4: Crude Futures Front Month Close, Source: Andrews Gwynne & IEA, December 2020

Alternative Markets Update December 2020 - Macro and Political Outlook December 2020 by Macro Eagle

6/12/2020

Alternative Markets Update December 2020
The following Figure shows the 30Y return of the best performing stocks in the S&P 500 during the last 30 years. According to Paul Tudor Jones, BTC can be viewed similarly as internet stocks back in 1999. He argues that these kinds of assets are similar, as there is or was no appropriate to measure their value, as it is currently the case for cryptocurrencies and has been in 1990 with internet-related stocks. Their returns also look similar, as they rose extremely quickly but had a major crash. For BTC that would 2018 and for the internet stocks it is known as the dot-com bubble in 2000. However, both assets have recovered quickly. Internet stocks are now the most valuable stocks like FAANG and ATM in China and it does not seem unlikely that a similar development could occur for cryptocurrencies. Therefore, the two major cryptocurrencies BTC and Ethereum (ETH) are compared to Figure 3. As a basis, the value of a cryptocurrency at inception is seen as its first trade. For BTC this would be a value of $0.000994. The first known sale of BTC in exchange for fiat occurred on Oct. 12 2009 when Finnish developer Martti Malmi sold 5,050 BTC for $5.02, with the fiat amount transferred via Paypal. For BTC, this leads to a staggering return since its inception of 1’919’430’484% over 11 years and easily tops the stock return list. For ETH this value is 204’962%, which would make the stock list on fourth place after Bitcoin, AMZN, MNST and JKHY within 6 years of the first traded price. ETH’s sale started on July 22 2014 at midnight in Switzerland. At the start of the sale and for fourteen days the price was set so that one BTC bought 2,000 ETH. At the end of the 14-day period the amount would decline linearly to a final rate of 1,337 ETH, which meant that one ether was worth 0.0007479 BTC or about $0.29 at BTC prices in September 2014. This would lead to annualized return for BTC of 459% and an annualized return for ETH of 356%. If looking at annualized return, these two cryptocurrencies take the first two positions easily.

Figure 3: Best Perfoming Stocks in the S&P 500 in the Last 30 Years, Source: Compound & YCharts, December 2020

Macro and Political Outlook December 2020 by Macro Eagle
THE YEAR AHEAD
After the sharpest global economic downturn since WW2 (-4%), next year the West will hope that the 2020-stimulus plus vaccine-rollout leads to an economic rebound without pushing yields higher (Debt Crisis? What debt crisis?). On the big themes, I think the “K-nature” of the Covid recovery has some serious political risks (more below). I do think the love for all digital will continue, but beware of BigTech valuations and regulatory Tech-lash. Climate change will continue to drive the agenda, but beware of the ESG bubble. And as for geopolitics with Biden – I expect him to be as tough with China as Trump, just more polite. Apart from the US transition (more below) and China’s next 5-Year-Plan (more below) the two countries to watch are: post-Brexit Britain (more below) and Merkel-Daemmerung Germany (more below).

Figure 9: Major Upcoming Events in December, Source: Macro Eagle, December 2020

Figure 10: Major Upcoming Events in 2021, Source: Macro Eagle, December 2020

Alternative Markets Update November 2020

26/11/2020

Alternative Markets Update November 2020
Since the presidential election, the market has got quieter, with equities raising again, after they had experienced volatile weeks and mostly declining stock prices. The DJIA reached the 30k mark several times since then but falling below it again multiple times. Figure 1 shows the YTD (as of October) of different asset classes over the last 25 years (the entire table is here). U.S. Large Cap Stocks have gained only 1.5%, which seems low, due to the tech stocks’ raise and the media coverage they have received. Nevertheless, other industries had more difficulties in dealing with the crisis. Gold has performed very well, topping 2020 by far with a YTD of 21.9%. Figure 2 shows the performance of different hedge fund strategies. Arbitrage strategies have done best in 2020 so far with an average return 6.44%, which are low number in comparison to most previous years. Unsurprisingly, the other two most successful strategies are Long / Short Equity and Macro strategies.

Our most successful global macro strategy, Discretionary Global Macro, has yielded 52.27% in 2020 so far. Event Driven strategies have suffered the most with a loss of 2.62%, which is a solid result, especially when considering Figure 1 and the returns of other asset classes.

Figure 1 and the returns of other asset classes.

Figure 2: Ranking of Hedge Fund Strategies from 2012 until October 2020, Source: EurekaHedge, November 2020

The rapidly increasing value of BTC is largely associated with the recent announcement of PayPal to accept BTC as currency, giving access to BTC to more than 300 million users, compared to only 100 million prior BTC users. According to Pantera Capital, this has had a major impact on BTC. Figure 4 below shows the increase in BTC purchases from itBit, the provider that PayPal uses for crypto transactions. Currently, Paypal and other providers are buying more than 100% of all newly issued bitcoins, creating additional demand with it. As highlighted in the figure below, the volume of transaction is shown, which remained stable during the year, but increased tremendously since PayPal enabled BTC transactions. Given the huge surge during the last two weeks, the demand is likely to increase even more, indicating that the current surge is not over yet. Moreover, if BTC surpasses its record high from 2017, it will cover the news even more, another indicator for an even higher price.

Figure 4: Implied PayPal Bitcoin Purchases, Source: Pantera Capital, November 2020

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

11/11/2020

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

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.

Figure 1: Economic Indicators by Country, Source: Andrews Gwynne, Haver Analytics, CEIC, IMF & Morgan Stanley Research, October 2020

Hedge Funds

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.

Figure 11: SMC Indices and a Comparison of Benchmark Indices, Source: Stone Mountain Capital Research, October 2020

Figure 12: Summary Table of SMC Indices and a Comparison of Benchmark Indices, Source: Stone Mountain Capital Research, October 2020

ALTERNATIVE MARKETS UPDATE - MACRO AND POLITICAL OUTLOOK OCTOBER 2020

9/10/2020

Alternative Markets Update October 2020
The Covid-19 crisis does not seem to stop, as many countries are facing a severe increase in cases, as the northern flu season is about to start. In Europe, where the spreading of Covid-19 has decreased during summer, has seen a huge resurgence of cases among most countries, some of them even topping the spreading back in March (such as Austria). In the US, where the situation with Covid-19 did not really improve during summer, the President was infected and hospitalized for two days, is now back in the office. The tension is increasing, as the election is less than a month away and due to the chaotic presidential debate. Figure 1 shows the US unemployment rate over a seventy-year period. Due to Covid, it spiked to an all-time high (not considering WWI and WWII). Nevertheless, the unemployment rate already halved again as of the last report in early October and is now 7.9%. In times of crises, real assets such as gold tend to do very well. Through this crisis we have seen the first time how cryptocurrencies do during such times, and they delivered what was expected.

Bitcoin (BTC) and Ethereum (ETH) are up 46% and 159% for the year. This boost in the main cryptocurrencies also affected the value of DeFi (decentralized finance). Figure 2 shows the value locked in DeFi, which has surpassed the $11bn mark compared to around $1bn at the beginning of 2020. Our crypto strategies have worked well in 2020 with YTDs between 62% up to 323% (see table above).

U.S. Employment Rate in Percentages, Source: Charlie Bilello & Compound, October 2020

Value Locked in Decentralized Finance, Source: Pantera Capital, October 2020

Macro and Political Outlook October 2020 by Macro Eagle
October PREVIEW
Packed calendar ahead. This week we get employment in the US, while China goes on holiday for week (mid-autumn festival). Next week we have the only VP debate, plus we will find out if Congress manages to pass another relief-package before the recess starts on Columbus Day (Oct 12th). Then, the Third Week promises fireworks with the EU Council meeting battling over the recovery fund, the EU budget and Brexit. We also get the 2nd Presidential debate, the start of Q3 Earnings and tons of economic data. After that, the Fourth Week brings us the 3rd Debate. Interestingly, on the same day, the FDA will hold a “vaccine update committee”, which makes me think that this could provide a platform for Trump to announce a tactical “huuuuge breakthrough – biggest ever”. Finally, the Fifth Week will feature the ECB (strategy review, PEPP, maybe AIT) while everybody else is counting the days to Election Day the week after. With the al-fresco days of summer now officially over, the start of the “normal” Northern flu season is upon us, so before we talk about the US election, let us quickly turn to Covid.

An Overview of Upcoming Events in October 2020, Source: Macro Eagle, 2020

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Alternative Markets update december 2020

Alternative Markets Update December 2020 - Macro and Political Outlook December 2020 by Macro Eagle

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ALTERNATIVE MARKETS UPDATE Q3 2020 - MACRO OUTLOOK BY AQUILA MARKETS

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Alternative Markets update december 2020

Alternative Markets Update December 2020 - Macro and Political Outlook December 2020 by Macro Eagle

Alternative Markets Update November 2020

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

ALTERNATIVE MARKETS UPDATE Q3 2020 - MACRO OUTLOOK BY AQUILA MARKETS

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