As time passes and countries look to find ways to emerge from the Covid-19 lockdown, investors also have access to new data to reveal the impact of the virus on our industry. As one statistic - 59% of the financial statements reviewed by Castle Hall so far in 2020, where the audit opinion is dated post lockdown, were "late". However, on average, that delay was only 6.3 days. This suggests that Covid has caused problems, but not catastrophe - which is probably a pretty good summary of the situation across asset management as a whole.
The review of annual audited financial statements ("AFS") is a very busy period for Castle Hall's team, as we work with our clients to review several thousands sets of accounts. (And yes, please don't hesitate to contact us if you would like to learn more about our financial statement review service and related portfolio and peer group analytics!)
For our data, we were able to check 820 funds (a mixture of public market hedge funds and a range of private market vehicles, including private equity, VC, real estate and infrastructure, together with various long only funds.) Of these, 502 had audit opinions dated on or after March 15, 2020. As above, 59% were delayed when compared to the date of issuance of the accounts last year.
We were also able to check outcomes by location: on average, funds domiciled in the Cayman Islands have done better (54% delayed) so far as compared to audits signed off in New York (68% delayed). However, when Cayman is late, the delay is slightly longer (7.5 days on average) than NYC.
In terms of audit firm, all of the Big 4 are pretty similar, with PwC slightly better at 55% delayed, as compared to EY at 59%. While smaller sample sizes, we have seen higher percentages of delays amongst non Big 4 audit firms.
This data is, of course, preliminary - we have several thousand more sets of accounts still flowing in from our clients, which will increase the sample size over time. And, of course, significantly delayed audits are likely not yet issued at all - so the average delay may increase as individual outliers are finally completed.
As the industry considers the impact of Covid, it is always strongly preferable to evaluate evidenced data as compared to using intuition or qualitative information. Castle Hall's data analytics for December 31, 2019 AFS supports the view that, while Covid has had an impact on deliverables and outcomes, the impact is not overly material.
This evidence likely reflects the pre-epidemic business continuity planning by asset managers, administrators and audit firms (although we don't think anyone wrote their BCP with a multi-month pandemic lockdown in mind!) The outcomes also surely represent what must be huge effort by asset managers, administrators and auditors to keep the industry moving since March.
We continue to monitor other analytics: as part of our Quarter 1 OpsMonitor outreach, Castle Hall is gathering data on the percentage of (open-ended) funds which had a delay in issuance of the March 31 NAV. More information to come, but preliminary data suggests a similar story - some delays, but not universal and not catastrophic.
Again, Castle Hall (and I'm sure other diligence teams) know how much work is involved in keeping the operations of our industry on track. Our appreciation to everyone who has burnt the midnight oil (from home!) in recent weeks.