Stone Mountain Research Perspective Vol 45

March, 2017

February was another good month for financial and especially for equity markets, which find themselves on record levels. The series of elections in major European countries is about to begin and the rising gold and bitcoin prices may reflect the prevailing dread amongst investors. Bitcoin, which saw its price exceeding $1200 in February to a new all-time-high, constitutes the new safe haven for currency hedges and the answer to capital control actions. The new era of presidency in the U.S. is marked with significant changes, with the Treasury Secretary announcing tax reforms in the next six months and the FED ready to increase rates. Hedge funds have momentum and they extended their January gains into February, with CTAs posting the biggest returns according to HFRX index. Equity hedge, macro and event-driven strategies exhibited similar robust performance and proving that they overcame last year’s underperformance and they gaze into the future with confidence.

A Preqin survey evidence a large increase in the number of alternative investors and the performance of alternative asset classes is encouraging for the future of the industry. In debt markets, the risk retention regime leads to lower volumes in CLO issuance and fewer deals. There is an increasing appetite for private debt strategies and the economic outlook may suggest a growth in commitments over the next two years. There are more funds focussing on European credit, which is indicative of the opportunities in the space amid a relatively uncertain political scenery. Private equity fundraising continues in solid pace, while competition for deals is increasing rapidly alongside the number of funds in the market. Adding hedge funds, that compete for similar deals, makes the identification of opportunities even harder. Both private debt and equity strategies focus on the mid-market spectrum as the opportunities there are more attractive. The same scenery prevails in real estate industry with high prices and increased competition being the main feature. The investment activity slowed down and the macro outlook with interest rate growth expectations and political uncertainty are the most significant drivers behind the slowdown.

Stone Mountain Capital In-House Indices vs. Major Benchmark Indices Hedge Funds and Long Only as Per YTD January 2017, Stone Mountain Capital Research.