3rd Quarter 2020

Markets have staged a remarkable recovery from the depths of March. Equity markets overall are now approaching flat for the year with the S&P500 exiting the shortest bear market in history. Beneath the surface however, there has been a lot of dispersion and disruption with companies facilitating a “work from home” environment, primarily technology companies, vastly outperforming and driving markets.

Q3 was in some ways a holding quarter. There was important information gained on the leading questions driving the economic and political environment; the timing of a vaccine for COVID-19, the infection and mortality rate of a second wave of the virus and the path of the US presidential elections. However, none of these questions were fully answered and we await an eventful Q4 when many, if not all, should be.

In August, management completed the 100% buy-back of Stenham from Peregrine. We wish Peregrine well following their acquisition by Capitalworks; they have been a valued majority shareholder since 2008.

We are very excited to be entering the next chapter for Stenham. We are in an environment where prospective returns from traditional investments are, at the very least, lower than they have been. Yields on high quality bonds, especially sovereign, offer minimal returns and potentially losses in real-terms. Equity returns are likely to be very specific with winners and losers arising from structural changes in individual and corporate behaviour following the COVID-19 pandemic. We feel that hedge funds are a compelling investment in a variety of strategies; relative value to generate traditional bond-like returns with limited beta to markets, equity focused managers identifying the winners and losers in a rapidly changing landscape or private credit to take advantage of stress and over-leverage within corporate structures as business models are challenged. Stenham, with our experienced and stable investment team, is very well positioned to help clients take advantage of these opportunities.

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