Alternative Markets Update Q1 2019
Bad performance, pressure for lower fees and redemption constituted the environment that hedge funds faced as they were entering 2019. Despite the negativity in the industry, hedge funds proved themselves resilient and posted their best quarterly performance in a decade. Rally in equity markets was the main driver of the strong performance, but their reluctance to take full long positions in equities led to relative underperformance. Equity strategies are the biggest winners across the different strategies according to data from Preqin with CTAs starting to perform in March after a very disappointing start.
Although investors continued redeeming from the asset class, the assets under management in the industry rose mainly from capital gains and according to HFR, they reached to almost $3.2 trillion globally. Investors are trying to diversify their hedge fund portfolio exposure by region, sector and strategy.
Our in-house strategies followed a same pattern during the first quarter of the year, with three out of our top five managers being US Equity focused funds. The manager that invests in high conviction ideas of carefully selected hedge fund managers is enjoying a very strong quarter followed by a US equity strategy focussed on TMT, helthcare and consumer sectors with specific interest in innovation and disruptive technologies. The recent rally in cryptocurrencies led our active altcoin manager to strong performance during February and March, bringing the strategy in our top five table for the first time since 2017. Our activist strategy suffered in March, despite a really strong performance on its underlying portfolio during January and February. Finally, our discretionary global macro strategy had one of its best months ever since inception posting an astonishing +15.27%, mainly from running long duration positions in the US, Australia and New Zealand and mixed duration positioning in Europe, complemented by bond auction trading gains.
Macro and Political Outlook April 2019 MacroEagle
STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.94
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.
STONE MOUNTAIN CAPITAL RESEARCH PERSPECTIVE VOL.88
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.
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.
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: