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Covid-19 Diligence Briefing

Our briefing for Thursday, April 14, 2022:

  • In the United States, the mandate that requires masks to be worn in airplanes, trains and other transit hubs has been extended for 15 days as officials assess the recent rise in Covid-19 cases across the country. Several industry groups and Republican lawmakers are calling for an immediate end to the mandate that has been in place for 14 months. The mandate which was originally set to end on April 18th is now scheduled to end May 3rd due to increasing cases caused by the Omicron variant BA.2. The Transportation Security Administration (TSA) originally called on the CDC to enforce the mandate in February of 2021, and now CDC officials are suggesting that it may be too early to remove mask requirements. The CDC says it needs “time to assess the potential impact of the rise of cases on severe disease, including hospitalizations and deaths, and healthcare system capacity.” White House press secretary Jen Psaki said the decision to end the mandate ultimately lies with the CDC and “at the end of that two weeks they can determine what’s next.”

  • A study published in the Canadian Medical Association Journal found that after the first person in a household tested positive for Covid-19, 49.1 per cent of people in the house would later also test positive. The study analyzed 180 homes in the Ottawa area between September 2020 and October 2021, and found that in all, 239 of the 487 people in the same house as someone with Covid-19 would later test positive for the virus. The study’s lead author, Dr. Maala Bhatt, an associate professor of Pediatrics at the University of Ottawa, says the results show a need for Canadians to remain vigilant and continue Covid-safe practices.  “I know many want to ‘live with COVID’ and abandon the layers of protection that were previously mandated, but it’s important to be aware of the high transmissibility of this virus in closed, indoor settings, such as schools,” she said. She highlighted the need to for people who are immunocompromised or who have young children to be especially cautious as vaccines are not yet available for certain groups. “While we’re lucky hospitals aren’t currently overloaded, emergency departments are and positivity rates are on the rise, even amongst children,” Bhatt said.

  • Britain’s health regulator on Thursday approved an Austrian-French Covid-19 vaccine from manufacturer Valneva for use in the United Kingdom. “An approval has been granted after the Valneva Covid-19 vaccine was found to meet the required safety, quality and effectiveness standards,” the Medicines and Healthcare products Regulatory Agency said in a statement. Valneva uses the traditional technology of inactivated virus to prevent further infection and had first been authorized for emergency use in Bahrain last month. Valneva has also signed an agreement with the European Commission to provide 60 million doses of its VLA2001 vaccine in 2022 and 2023.  “The independent Commission on Human Medicines and its Covid-19 Expert Working Group has carefully considered the available evidence (and) the benefit risk balance is positive,” the commission’s president, Munir Pirmohamed, said in the statement. The Valneva vaccine is the 6th vaccine to be approved in the U.K. after AstraZeneca, Pfizer, Moderna, Janssen (Johnson & Johnson), and Novavax. The vaccine is approved for use in people aged 15-50 and is taken in two doses, no less than 28 days apart.
     
  • Four individuals were arrested in Germany for anti-government extremism as police raids were held at 20 properties across the country on Wednesday. State police seized weapons from suspected anti-government extremists who were allegedly plotting a nationwide blackout and intended to capture well known figures including the country’s health minister. Authorities said on Thursday that the suspects were members of a chat group called "United Patriots" on the Telegram messaging service. The government said the accused were associated with the protest movement against Covid-19 restrictions. In all, 12 people are under investigation for ties to the Reich Citizens group which disputes the post-World War II German constitution. According to authorities, the group planned to kidnap Health Minister Karl Lauterbach and dismantle the electricity supply facilities with a goal of producing “conditions similar to civil war.” Police seized 22 firearms, including a Kalashnikov rifle, thousands of euros in cash and found forged Covid-19 vaccination and test certificates. Lauterbach was “appalled” by the news and said, “the whole thing shows that corona protests have not just become more radical, but that it is now about more than corona – there is an attempt here to destabilize the state.”

  • Authorities in Shanghai are warning that anyone who violates Covid-19 lockdown rules will be dealt with strictly. The city’s police department announced the lockdown rules and pleaded with citizens to “fight the epidemic with one heart ... and work together for an early victory.” Fearing that the outbreaks in Shanghai could quickly get even further out of control, the police department provided a stern warning to anyone considering breaking the rules. “Those who violate the provisions of this notice will be dealt with in strict accordance with the law by public security organs ... If it constitutes a crime, they will be investigated according to law,” the department said in a statement. The city is under immense pressure from the central government to contain the largest outbreak the country has seen since the virus originated in Wuhan in 2019 and have now banned vehicles from the roads apart from those who are doing virus-prevention work or are transporting people in need of medical attention. Police are warning residents, most of whom are stuck in their homes, to avoid spreading false information on the pandemic or forge transportation passes. Shanghai is averaging just under 25,000 new cases a day as the outbreak worsens. 

Covid-19 – Due Diligence And Asset Management

Opening up: PE backs leisure's post-pandemic recovery

Brief: A potential bidding war for UK holiday resort group Parkdean that could include offers from Apollo Global Management and Blackstone underscores a revived appetite for hospitality and leisure—an industry that was on its knees just two years ago, but is now offering marked post-pandemic opportunities. Apollo, which is reportedly eyeing Parkdean at a £2 billion (about $2.6 billion) valuation, isn't the group's only suitor. Bourne Leisure, a rival holiday business that Blackstone bought for around £2.7 billion at the start of 2021, is also said to be mulling a bid. Like Blackstone before it, Apollo is trying to capitalize on the "staycation" trend in the UK, where more tourists are favoring domestic vacations, which has accelerated over the course of the pandemic. Last year saw a significant rebound in hospitality and leisure globally, with $55.14 billion transacted across 342 deals, according to PitchBook data. Blackstone's Bourne Leisure deal was the biggest, as lockdown measures were eased or disappeared altogether both in the UK and around the world.

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Why Income-Generating Real Estate Is The Best Hedge Against Inflation

Brief: Everyone is talking about inflation these days. Knowing that products and services you buy are going to cost more can be frightening, especially if you’re locked into an income that doesn’t keep pace with inflation. Paying more for toothpaste may be the least of your worries, as retirement accounts take the biggest hit when the value of the dollar decreases. If you’re concerned about what inflation can do to your retirement dollars, it may be time to consider inflation-hedging investments. Unlike stocks, bonds and mutual funds, investing in real estate can make inflation actually work for you, increasing your income as inflation rises. While real estate investing is a proven wealth-building tool, most busy professionals don’t have time to be DIY landlords dealing with tenants, toilets and trash. However, it is possible to achieve the same inflation-hedging advantages without the headaches by investing passively through private-equity-firm-sponsored real estate syndications.

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Regeneron's bid for COVID-19 drug's full approval hits snag as FDA extends review

Brief: Just as Regeneron’s COVID-19 antibody combination, REGEN-COV, is sidelined in the U.S. thanks to omicron, the drug has hit a hiccup on its quest for a full FDA nod. The FDA has extended the review of REGEN-COV by three months to July 13, Regeneron said Thursday. The agency wants to take the time to review additional data on how well the therapy could prevent COVID before exposure to the SARS-CoV-2 virus, the company said. An FDA nod in what’s known as the pre-exposure prophylaxis setting would be an expansion from REGEN-COV’s existing emergency use authorization, which currently only covers treatment of mild-to-moderate non-hospitalized patients and COVID prevention after exposure to the coronavirus. Regeneron is currently seeking full approval for all three uses. The FDA appears to have some questions about the pre-exposure prophylaxis use. The extension comes after Regeneron submitted additional data on that use from a prophylaxis trial during “ongoing discussions” with the FDA. The agency hasn’t requested any new studies at this point, the company added.

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UN: “Great finance divide” amid COVID-19 poses major setback for sustainable development

Brief: The crippling cost of debt financing for many developing countries has hamstrung their recovery from the COVID-19 pandemic, forced cutbacks in development spending, and constrained their ability to respond to further shocks, according to a new report launched by the United Nations today.  The 2022 Financing for Sustainable Development Report: Bridging the Finance Divide finds that while rich countries were able to support their pandemic recovery with record sums borrowed at ultra-low interest rates, the poorest countries spent billions servicing debt, preventing them from investing in sustainable development. The pandemic shock plunged 77 million more people into extreme poverty in 2021, and by the end of the year many economies remained below pre-2019 levels. The report estimates that in 1 in 5 developing countries’ GDP per capita would not return to 2019 levels by the end of 2023, even before absorbing the impacts of the Ukraine war. “As we are coming up to the halfway point of financing the world’s Sustainable Development Goals, the findings are alarming,” UN Deputy Secretary-General Amina Mohammed said. “There is no excuse for inaction at this defining moment of collective responsibility, to ensure hundreds of millions of people are lifted out of hunger and poverty. We must invest in access for decent and green jobs, social protection, healthcare and education leaving no one behind.”

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Goldman Sachs' Q1 profit beats on strength in wealth management, trading

Brief: Goldman Sachs Group Inc reported a 43% drop in profit but beat Wall Street expectations on Friday, as strong performances in its wealth management and trading businesses partly offset a slump in equity underwriting as stock market listings dried up. Wall Street banks have come under pressure amid a slump in dealmaking globally, but volatility fueled by concerns around interest rate hikes and the economic fallout of the Ukraine war helped Goldman's trading desks smash expectations. The bank's global markets segment reported net revenue of $7.87 billion, a 4% jump from last year when accommodative monetary policy from the U.S. Federal Reserve led to bumper levels of trading activity. The robust performance was driven by a 21% rise in fixed income revenue, the bank said. The Wall Street bank has also been taking measures under Chief Executive David Solomon to diversify its revenue stream and earn more from predictable sources like consumer banking, wealth and asset management

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday, April 13, 2022:

  • In the United States, new White House Coronavirus Response Coordinator Dr. Ashish Jha says he is not “excessively concerned” about the country’s Covid situation, despite the recent rise in case numbers. Dr. Jha called for calm on Monday, explaining that the BA.2 subvariant is responsible for the uptick in cases. “The thing that we care most about, people getting really sick, hospitalisations, deaths, they remain really low. We have fewer people in the hospital right now than at any point in the pandemic,” Dr Jha said. According to the Centers for Disease Control and Prevention, the BA.2 subvariant made up 86% of new Covid-19 cases nationwide last week.
  • In Canada, health experts have criticized the country’s leadership, saying the messaging around Covid-19 has given the impression that the pandemic is no longer important. Julie Lajoie, a research associate in medical microbiology at the University of Manitoba with a PhD in virology and immunology, told CTV news on Monday that too many places in Canada are making it sound like the virus is in an endemic phase. Colin Furness, an epidemiologist with the University of Toronto’s Institute of Health Policy, Management, and Evaluation, also said the government is downplaying the impacts of the virus. “The government narrative – which is, ’there isn't much COVID, there is no pandemic, there is no wave, everything's fine’ – this is a dreadful, really, really dreadful way to mislead the public into dropping their guard and becoming ill. That's a huge problem,” Furness told CTV News last week.
  • In the United Kingdom, Prime Minister Boris Johnson has dismissed calls from the National Health Service (NHS) to reinstate Covid-19 restrictions, saying the hospital data doesn’t justify a shift from ‘living with the virus.” Over the weekend, at the NHS Confederation, health officials accused Johnson’s government of abandoning any interest in Covid, and ignoring the threat is poses because of ideological reasons. Right now, in the U.K. there are more than 20,000 patients in the hospital with Covid-19, the highest number since February 2021, meaning a strain on the NHS. “There is no change to our guidance and our living with Covid plan still stands,” a government spokesperson said.  “Thanks to a combination of vaccination and treatment and our better understanding of the virus, we are now able to manage it as we do with other respiratory infections, so that remains the case with our approach.”
  • In Spain, a nurse discovered a mosquito in a vial containing the Moderna vaccine, causing a recall of 760,000 doses.  The nurse in Malaga reported the discovery to the regional health authority, who in turn reported it to the Spanish Medicine Agency. This particular serum is produced in Spain by the Rovi pharmaceutical company, and some doses from the same batch had already been distributed to members of the public. The pharmaceutical company explained that there are no risks to those that may have received doses from the same batch, so no further treatment would be necessary. The Spanish Medicine Agency has also carried out an investigation to make sure the laboratory is using safe procedures. 
  • In Italy, a new study shows vaccine protection halved the country’s Covid-19 death toll. The National Health Institute (ISS) estimated on Wednesday that vaccines prevented about 150,000 deaths and 8 million cases last year. The ISS study, which ran from the beginning of 2021 to the end of January this of this year, also estimated that the vaccination campaign prevented 500,000 hospitalizations and 55,000 admissions to intensive care. Italy’s death toll currently rests at 161,032, the second highest in Europe and the eighth highest in the world. The country on Tuesday began offering second boosters to people over 80, those living in long-term care homes and those over 60 who are considered at most risk from the virus.
  • Western Australia Premier Mark McGowan says the state will relax more coronavirus restrictions at midnight, including the close contact isolation rules. Under the new rules, only household or intimate contacts will be considered close contacts and need to isolate. This brings Western Australia’s definition of a close contact in line with the rest of the nation’s. Beginning on Thursday all gathering limits, both indoor and outdoor, will be lifted. According to McGowan, the changes are being introduced because of low hospitalization and intensive care admission rates. As of Tuesday, there were 215 West Australians in the hospital with Covid-19, and four in intensive care.

Covid-19 – Due Diligence And Asset Management

JPMorgan's Dimon downbeat as profit drops 42%

Brief: JPMorgan Chase & Co's Chief Executive Jamie Dimon warned of economic uncertainties arising from Russia's invasion of Ukraine and soaring inflation, after first-quarter profits at the largest U.S. bank slumped 42%. JPMorgan had reported record profit during the first quarter last year, benefiting from a dealmaking boom after the Federal Reserve pumped liquidity into capital markets to mitigate the economic impact of the COVID-19 pandemic. This year, however, investment banking revenues declined as companies delayed takeovers and stock market listings amid a surge of volatility in equity markets. The bank also set aside $902 million to cover potential loan losses. JPMorgan is seen as a bellwether for the U.S. economy and its lackluster results set the tone for first-quarter earnings from Wall Street banks as the Fed looks to rein in inflation and the trading bonanza banks enjoyed during the pandemic tapers off.

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Investors flee COVID pill drugmaker on report tying treatment to birth defects

Brief: Shionogi & Co. slumped the most in more than a decade after the drugmaker said studies on animals showed its experimental COVID drug disturbed fetal development, triggering concerns about its approval. The stock fell as much as 16% in Tokyo trading Wednesday, the biggest intraday decline since March 2011. Shionogi shares are down 8.4% this year through yesterday. The drug likely won’t be recommended for pregnant women, Kyodo News reported Tuesday, without giving attribution. The animal data, which showed harm when it was given at high doses, was submitted to Japanese regulators in February when the company sought a priority review required for conditional approval, a Shionogi spokesman said. The pill’s chance of commercial success fell to 5% from 50% after the report tying it to birth defects, which may make it less competitive, said Stephen Baker, an equities analyst at Jefferies & Co.

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Hedge fund manager confidence levels resilient despite global economic headwinds, says AIMA

Brief:Confidence levels among hedge fund mangers remain resilient despite the war in Ukraine, Russian economic sanctions, and global inflationary concerns, according to AIMA. Hedge fund returns have been mixed, with some strategies struggling while others have racked up bumper returns, resulting in wide performance dispersion across the industry.  While some fund strategies have experienced a challenging start to the year, others have thrived. "Despite these challenges and the threat of more still to come, the industry’s global confidence score for Q1 reflects the fact that hedge funds are reinforcing their value proposition of offering investors financial security and uncorrelated returns during uncertain times," writes AIMA. Global macro (+19) and multi-strategy (+18) strategies reported the highest confidence scores in AIMA's latest Hedge Fund Confidence Index poll and both are currently among those strategies most appealing to investors looking to make hedge fund allocations.

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China’s Covid Outbreak Highlights Weak Lending as Borrowers Hold Back

Brief: China’s central bank is struggling to drive up lending in the economy despite cutting interest rates and giving banks a cash boost. With a worsening Covid outbreak locking down mega cities Shanghai and Shenzhen, worries about jobs and incomes mean businesses and consumers are unwilling to take on more debt. Banks are reluctant to extend more loans too as a property downturn drives up bad debts and squeezes profits. That creates a challenge for the People’s Bank of China, which is set to diverge further with a tightening U.S. Federal Reserve by possibly cutting policy interest rates for a second time this year on Friday. Many economists also expect the central bank to reduce the amount of cash banks must hold in reserve, freeing up more money for lending. Problem is, with restrictions to contain the spread of omicron amid China’s ongoing Covid Zero strategy keeping consumers on edge, any new stimulus may end up being parked at banks rather than flowing through to the real economy.

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A new world order for the stock market is coming, explains BlackRock CIO

Brief: Making money in the stock market will likely look different over the next few years compared to the low interest rate era seen from the end of the Great Financial Crisis, says BlackRock's CIO of U.S. fundamental equities Tony DeSpirito. "It's a really big deal," says DeSpirito on Yahoo Finance Live. DeSpirito explains that since the end of the financial crisis, the economy has experienced very low growth, very low inflation and very low rates. But those factors largely ended during the pandemic, with that regime being one with high inflation and a love for stay-at-home stocks. Now things are changing once more as home prices have shot higher at this point in the pandemic, stock prices are still elevated, the unemployment rate is sub 4% and interest rates are headed upward. This emerging backdrop means investors have to search for companies that have pricing power and sell unique products. All in, it will be a more complicated backdrop for investors to navigate, concedes DeSpirito. "This is fertile ground for individual stock pickers," says DeSpirito.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday, April 12, 2022:

  • In the United States, the number of Covid-19 cases is again on the rise, especially in the Northeast. Four of the five states with the highest weekly case rates per 100,000 are in the Northeast, according to data from the Centers of Disease Control and Prevention (CDC). The state of Rhode Island currently has the highest number of new cases, with 172.4 cases per 100,000, which is nearly three times higher than the national average of 59 per 100,000. Over a two-week period, new daily cases in Rhode Island have risen 53 per cent, from 170 a day to nearly 260. New Jersey, New York, Connecticut, and Maine are also seeing a rise in new infections. The Omicron variant BA.2 now makes up 84 per cent of new cases in the Northeast, which is higher than any other region in the country. Dr. Ali Mokdad, an epidemiologist with the University of Washington's Institute for Health Metrics and Evaluation said that people who had been infected with the previous Omicron variant may have some degree of immunity from the BA.2 strain and areas where the first Omicron strain flourished may be less effected by BA.2. “States that did a good job controlling infections with mandates, most in the Northeast and West, are more susceptible now with BA.2,” he said.

  • In Canada, Public Health Minister Theresa Tam is advising Canadians to continue to wear a mask and get boosted regardless of local guidelines. Cases from coast to coast are on the rise and while regional guidelines differ across the provinces, Tam is urging the public to remain masked and get boosted as soon as possible. “Let me just emphasize all across Canada, doesn't matter where you are, it’s very likely that the Omicron variant, the BA.2 sub-lineage is spreading quite widely in your community,” she said. “So doesn't matter where you are in Canada right now, I would advise getting that booster shot, masking and improving ventilation.” Tam also acknowledged that while restrictions may be lifted in most areas, provincial health authorities are still encouraging individual responsibility without forcing people to comply. When asked if the definition of fully vaccinated should be moved to three doses instead of two, Tam said that is “an ongoing discussion,” while stressing the importance of boosters.

  • Prime Minister of the United Kingdom Boris Johnson and Chancellor of the Exchequer Rishi Sunak have both been fined for breaking Covid-19 lockdown rules, the prime minister’s office confirmed on Tuesday. “The prime minister and Chancellor of the Exchequer have today received notification that the Metropolitan Police intend to issue them with fixed penalty notices,” a spokesman for Johnson’s office said. Throughout the Partygate saga there have been several calls for Johnson to resign if he was to receive a fine for his role in the lockdown parties. However, Johnson said Tuesday that he has paid the fine and that he has no intentions of resigning. The prime minister and his finance minister were in attendance at least two parties held throughout lockdowns in the in U.K. which prevented people from attending gatherings, including funerals. Although members of the opposition parties continue to call for Johnson’s resignation, the choice rests with his own Conservative party who can challenge his leadership if 54 of the 360 Tory parliamentarians request a vote of confidence. Yet, due to the hostile European environment caused by Russia’s invasion of Ukraine, some who previously demanded the prime minister’s resignation have now changed their tune.  “In the middle of war in Europe, when Vladimir Putin is committing war crimes and the UK is Ukraine’s biggest ally…it wouldn’t be right to remove the prime minister at this time,” said Douglas Ross, leader of the Scottish Conservative Party.
     
  • Germany’s health ministry said on Monday that the country may have to destroy 3 million doses of Covid-19 vaccines that expire at the end of June. Ministry spokesman Hanno Kautz said in an interview that “we have more vaccines available at the moment than is being used and than we can donate.” He continued that the global vaccine sharing program, COVAX, is not currently taking donations. The German government originally thought that 10 million doses would have to be destroyed, until recently, when they found out that the Pfizer BioNTech vaccine has a longer shelf life than originally expected. “There is certainly a danger of vaccines being discarded,” Kautz said, but assured the public that “not many” have been discarded thus far. The vaccine effort in Germany has slowed considerably in recent months, with only 33,000 new shots being administered per day over the last week. Nearly 76 per cent of the population is considered fully vaccinated, with 59 per cent having received a booster. The government last week rejected a proposal to require anyone over the age of 60 to get vaccinated.

  • Taiwan’s Health Minister Chen Shih-chung said the country expects over 1000 daily domestic cases of Covid-19 by the end of the month. Chen continued that the public need not panic as only a small number of cases have caused serious illness. Taiwan has been able to largely contain outbreaks throughout the pandemic by closing down its borders early on and implementing a rigorous contact-tracing program. Since the beginning of the year the island nation has only recorded 4900 cases of Covid-19 and almost all have been driven by the highly infectious Omicron variant. “I think that, looking at the present trends, by the end of April local cases will almost certainly top 1,000,” Chen said. The government is sticking by its “new Taiwan model” that will try to eliminate serious illness and community spread without shutting down its economy, like it was forced to do in May and July of last year. Approximately 80 per cent of the population has been fully vaccinated, and only two deaths have been recorded in the country this year.  “There's no need to panic, absolutely none,” Chen said.

Covid-19 – Due Diligence And Asset Management

Pandemic continues to drive investors to active management

Brief: If the latest numbers from the Investment Funds Institute of Canada (IFIC) are any indication, the pandemic has created a resurgence in active management. Investors who rushed to beat the March 1 registered retirement savings plan (RRSP) contribution deadline pumped nearly $10 billion into mutual funds in February alone, according to IFIC. As of March 1, total mutual fund assets reached $2 trillion in Canada. A big chunk of that came from a $111.5-billion bump in mutual fund sales in 2021. That’s nearly four times the $29 billion in mutual fund sales in 2020, which was in line with average annual sales going back to 2000. In comparison, sales in passively-managed exchange-traded funds (ETFs) totaled $4 billion in February, bringing total assets to $317.7 billion by March 1. Over half of February’s mutual fund sales went into balanced funds, which have been the funds of choice throughout the pandemic. Like the name implies, balanced funds attempt to strike a balance between equities and fixed income.

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Fund managers most gloomy on record on recession woes: BofA

Brief: Global growth optimism has sunk to an all-time low, with recession fears surging in the world’s investment community, according to the latest Bank of America Corp. fund manager survey. The share of investors expecting the economy to deteriorate is the highest ever, according to the April survey. Stagflation expectations jumped to the highest since August 2008, while monetary risk increased to a historic high, BofA strategists said, after surveying 292 panelists with $833 billion in assets under management in the first week of April. The results highlight how gloom is taking hold among investors as the Federal Reserve turns more aggressive in its attempt to tame soaring inflation. The bearishness has been extreme enough to trigger BofA’s own buy signal, a contrarian indicator for detecting entry points into equities. Global stocks have been under pressure this month after rallying from lows in March as bond yields have soared. BofA’s strategists disagree with the tactical buy signal, saying they “remain in ‘sell-the-rally’ camp,” as the stock market slump earlier in the year was just an “appetizer not main course of 2022.”

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China stocks end higher on hopes of policy easing, relaxation in curbs

Brief: China stocks rebounded in afternoon trading to close higher on Tuesday, as hopes of easing in COVID-19 curbs in some pilot areas lifted tourism and consumer goods sectors, while expectations of policy support for the economy lifted sentiment. The blue-chip CSI300 index ended 2.0% higher at 4,179.97, while the Shanghai Composite Index gained 1.5% to 3,213.33 points. The Hang Seng index rose 0.5% to 21,319.13, while the China Enterprises Index gained 0.8%, to 7,264.43 points. Tourism stocks surged 8.4%, transport firms soared 5.1%, while consumer staples added 3.9%. An unverified document about picking pilot regions, including Shanghai, for relaxed quarantine requirements is circulating and traders say it pushed up related sectors. New bank lending in China rose more than expected in March, while broad credit growth accelerated from the previous month.

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Wall Street’s Enthusiasm Wanes for Bonds Backed by Risky Consumer Debt

Brief: Runaway inflation and a shaky economy are setting the stage for financial uncertainty, igniting fear in Wall Street investors that bonds and other investments backed by consumer debt might be weighed down by high risk. “When we’re investing, we’re investing less,” Clayton Triick, Angel Oak Capital Advisors portfolio manager told the Wall Street Journal on Tuesday (April 12). He added that investments backed by debt that is owed by borrowers with lower credit scores are especially troublesome. When the COVID-19 pandemic gripped the world in 2020, investors were less than enthusiastic about bonds backed by consumer debt. The assumption was that defaults would be the rule rather than the exception as businesses locked down and people were furloughed and laid off. Government stimulus programs and lender forbearance made many of those fears unfounded as even the most borderline borrowers stayed current. Many consumers used the extra funds to pay down debt beyond staying current, and anything leftover was squirreled away.

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AMP: After Covid hibernation, the shopping centre is back

Brief: Near-record low unemployment, a $250 billion national savings pool and rising wages will see shopping centers bounce back strongly over the next 12 months according to AMP Capital. AMP Capital Head of Retail and Investment, Marco Ettorre said Australians remained reluctant to travel internationally due to COVID-19 and have continued to save over the last two years, pointing to a strong boost for shopping centers. "As COVID restrictions wane and consumers regain the confidence to go shopping, conditions for retail real estate are starting to look favourable again. And for all the pain of the pandemic, households in 2022 are in a better position to spend," Marco Ettorre said. "It's not back to the pre-Covid levels but there are good returns available and retail-led mixed-use opportunities for investors on the right shopping center assets," he added. Newer shopping centers that cater for a mix of uses should deliver excellent returns. "Leading shopping centers are blurring the lines across real estate categories by adding office space, residential, education facilities, healthcare and other services under the same roof," Mr Ettorre said.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday, April 11, 2022:

  • In the United States, several cabinet members and House Speaker Nancy Pelosi have tested positive for Covid-19, as the virus sweeps through the Biden administration. After attending a dinner in Washington last week for politicians and journalists, a number of cabinet members and top aides reported being infected, including Commerce Secretary Gina Raimondo, Attorney General Merrick B. Garland, Valerie Biden Owens, the president’s sister, and Jamal Simmons, the communications director for Vice President Kamala Harris. Dr. Anthony Fauci, the president’s chief medical adviser said there are strong protocols in place to protect Biden, adding that the president has also had four shots.
  • In Canada, the province of Quebec expects to see a rise in hospitalizations over the next two weeks; the province’s healthcare research institute predicts there could be as many as 265 admissions per day within that timeframe. Quebec’s interim public health director, Dr. Luc Boileau, said while hospitalizations are going to be high, they’re not expected to overwhelm the healthcare system. He urged caution among residents as the sixth wave appears to be underway. “We can’t forget the virus is present and the pandemic isn’t over,” Boileau said during a news conference Friday. “We’re seeing it. We all know someone who has recently contracted Covid-19 and some have even contracted Covid-19 again.”
  • In the United Kingdom, the “Living with Covid” plans are being questioned by some experts, who say the government was too quick to lift restrictions in England. National Health Service Medical Director Stephen Powis says hospitals are under strain again, both because of the virus patients and the numbers of staff who are out sick. Britain’s official statistics agency reported that almost 5 million U.K. residents, or one in 13, had the virus in late March. "Blinding ourselves to this level of harm does not constitute living with a virus infection -- quite the opposite," said Stephen Griffin, a professor in medicine at the University of Leeds.
  • India began to administer booster shots on Sunday, or what they call “precautionary” doses. The free third shots are limited to two priority groups – frontline healthcare workers and those aged 60 and older. All other residents wanting a precautionary dose will become eligible nine months after receiving their second shot – but they will have to pay for one at a privately-run facility. Unlike many other countries, where people have received a different vaccine as a booster dose, India is not allowing any mixing and matching. Of all vaccine doses administered in India, 82% are the AstraZeneca vaccine, made domestically and called Covishield.
  • China continues to deal with the aftermath of lockdowns and strict Covid-19 policies, with the city of Shanghai discharging over 11,000 recovered virus patients on Sunday. Authorities insisted the patients be allowed to return home, even though lockdowns have restricted movement throughout the city. On Saturday, health authorities announced the restrictions would be lifted in areas with no new cases in the last 14 days, after another round of mass testing. The U.S. has expressed concern over China’s approach to Covid-19, and on Friday advised citizens to reconsider travel there due to “arbitrary enforcement of local laws and Covid-19 restrictions.”
  • In Australia, Prime Minister Scott Morrison has called an election for May 21, with the Covid-19 pandemic likely being one of the major issues, in addition to climate change and the economy. Now seeking its fourth three-year term, Morrison’s conservative coalition government has been seen as largely successful at handling the Covid-19 pandemic and takes credit for the country having the third lowest death toll among the 38Organisation for Economic Co-operation and Development (OECD) countries. Although Australia is now one of the most vaccinated countries in the world, the opposition criticized the government’s slow rollout after they initially fell months behind schedule.

Covid-19 – Due Diligence And Asset Management

Stocks open lower, led by more weakness in tech companies

Brief: Stocks are opening lower again on Wall Street as the market extends a losing streak from last week. The S&P 500 was down 0.9% in the early going Monday. Technology companies were again doing worse than the rest of the market. That pulled the Nasdaq down 1.5%. Both indexes fell last week for the first time in four weeks. Twitter was in focus after mercurial Tesla billionaire Elon Musk said he wouldn’t be joining the company’s board after all. Musk recently became the company’s biggest shareholder and is now free to increase his stake.Global stock markets and Wall Street futures sank Monday after the Federal Reserve indicated it might raise interest rates more aggressively to cool U.S. inflation and President Emmanuel Macron emerged from the first round of France's election facing a challenge from the far right. London and Frankfurt opened lower. Shanghai, Tokyo and Hong Kong retreated. Oil fell more than $2 per barrel on concern global economic growth might weaken.

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Oil slides on release of strategic reserves and China lockdowns

Brief: Oil prices dropped by more than $2 a barrel on Monday after a second straight weekly decline on plans to release record volumes of crude and oil products from strategic stocks and on continuing coronavirus lockdowns in China. Brent crude for June delivery was down $2.97, or 2.9%, at $99.78 a barrel. U.S. West Texas Intermediate crude lost $3.32, or 3.4%, to trade at $94.96. Bank of America maintained its forecast for Brent crude to average $102 a barrel for 2022-23, but it cut its summer spike price to $120. Swiss investment bank UBS also lowered its June Brent forecast by $10 to $115 a barrel. “The release of strategic government oil reserves should ease some market tightness over the coming months, reducing the need for oil prices to rise to trigger near-term demand destruction,” said UBS analyst Giovanni Staunovo.

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Big Banks Set to Post Weaker Deal Revenue Amid Ukraine Chaos

Brief: Wall Street’s dealmaking boom came to an abrupt halt amid the war in Ukraine and a global shift toward rising interest rates, leaving big banks set to post a quarterly slump in investment-banking revenue. The record merger-and-acquisition pipelines bank executives touted at the start of 2022 are still on the horizon, but have been put on the back burner amid gyrating markets and rampant inflation, according to Barclays Plc analyst Jason Goldberg. “Many deals did not get launched given the market volatility throughout the quarter,” Goldberg said. “We do think pipelines remain strong and have just been more elongated than canceled.” Another pressure point is the Biden administration’s more-skeptical view of mega mergers. U.S. antitrust enforcers earlier this year announced an effort to toughen merger reviews, saying a new framework is needed to combat a surge in deals that threatens to worsen already high concentration across industries.

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U.K. Economy Grew Less Than Expected as Manufacturing Slumped

Brief: The U.K. economy grew less than expected in February after industrial production and construction shrank. The 0.1% expansion followed a robust 0.8% gain in January, Office for National Statistics figures said Monday. Growth of 0.2% was forecast by economists. It left output 1.5% above its level in February 2020, before the pandemic struck. Manufacturing dropped unexpectedly, driven by shortages that held up output from carmakers. That reflects turmoil in global supply chains left over from the pandemic that’s likely to worsen with the war in Ukraine. Construction also fell in the month, driven solely by a decrease in repair and maintenance work. New business increased slightly. The rise in GDP, which reflected continued easing of coronavirus restrictions, leaves Britain on course for growth of around 1% in the first quarter. However, that may be a high-water mark, with soaring energy bills and inflation set to deliver an unprecedented hit to living standards this year.

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Jobless rate falls to record low as economy adds 72,500 jobs in March, StatCan says

Brief: Canada's unemployment rate dropped to a record low last month as more people jumped into a hot labour market — and economists say the jobless rate could yet fall even lower. The March unemployment rate registered at 5.3 per cent, down from the 5.5 per cent recorded one month earlier as the economy added 72,500 jobs. Statistics Canada said Friday it was the lowest jobless rate since comparable data became available in 1976 and down from the previous low of 5.4 per cent in May 2019. It was also a turnaround from the early days of the pandemic in May 2020 when the unemployment rate hit a record 13.4 per cent. CIBC senior economist Andrew Grantham said oil-producing provinces like Alberta and Saskatchewan were not at full employment before the pandemic struck and may have space for more job gains.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday, April 8, 2022:

  • The United States is headed for another Covid-19 surge in the fall, according to the country’s top infectious disease expert. Dr. Anthony Fauci said on Wednesday that the colder weather will likely lead to an uptick in cases. He pointed to the example of the U.K., where there is waning immunity in addition to a lessoning of restrictions. "Those conditions are also present in the United States," he said. "So, I would not be surprised if we see an uptick in cases. Whether that uptick becomes a surge where there are a lot more cases is difficult to predict." Fauci also added that “there are uncharted waters for us with this virus.”
  • In Canada, a new survey suggests many Canadians had trouble getting access to rapid tests, particularly in December 2021 and January 2022. The survey, conducted by Statistics Canada and released on Thursday, found that 39% of respondents could not access a rapid test at a time when they wanted one. Of those respondents, 60% said the tests were unavailable when they tried to obtain them. Another 21% said they did not know where to go to get a test, while 18% said the wait time to get a test/appointment was too long.  The survey was an online questionnaire that asked respondents about their experiences with Covid-19 between December 2021 and the time of their response. There were 36,857 Canadians surveyed between Feb. 21 and March 13, 2022. 
  • In the United Kingdom, Prime Minister Boris Johnson has said he will not rule out the possibility of further lockdowns if a deadly new variant arrives. The Prime Minister explained that while he wants to avoid having lockdowns ever happen again, nothing is officially off the table. “I think it would be irresponsible of any leader in any democracy to say that they’re going to rule out something that can save lives,” he said. “I believe the things we did saved lives…there could be a new variant more deadly, there could be a variant that affects children, that we really need to contain, I’m not going to take any options off the table. But I don’t think it will happen.”
  • Spain announced that it will end indoor mask mandates beginning on April 20, except for on public transit, in hospitals and in long-term care homes. Case numbers have been reduced significantly across the country, and only 3.5% of hospital occupants are there for Covid-19. Spain stopped mandatory use of outdoor masks in February, though officials still recommended they be warn in crowded areas. Officials also made a surprising announcement that unvaccinated British tourists would no longer be welcome in the country, a U-turn on their original announcement that all Britons would be allowed to enter with a negative test regardless of vaccination status. The Spanish tourist board reversed the decision only hours later, calling the move a “miscommunication.”
  • China continues to ramp up Covid-19 control measures across the country, with major cities going into lockdowns and others tightening restrictions. Shanghai remains under lockdown with no signs of it easing, while Beijing has ramped up testing across the city’s most important sectors including in schools and institutions that handle imported goods. The city of Zhengzhou also said on Thursday that it would test all 12.6 million of its residents. According to Nomura, there are 23 Chinese cities under either full or partial lockdowns cities that account for 22% of China’s GDP. Shanghai will suffer a 6% loss of its GDP if the lockdown continues throughout April, resulting in a 2% GDP loss for China as a whole. 
  • In Australia,  the new ‘Deltacron’ strain has arrived in New South Wales (NSW),  authorities have confirmed. Two recombinant cases were reported by NSW Health, one of them being the Deltacron case and the other being a combination of BA.1 and BA.2. Deltacron was first detected in France in mid-February, with a few cases emerging around Europe and the U.S. The strain has the same genetic sequence as Delta, except for the part of the sequence that encodes the virus’ spike protein, which comes from Omicron. Currently, there is no evidence to suggest that the strain is more dangerous or likely to evade vaccine protection than other strains.

Covid-19 – Due Diligence And Asset Management

Toronto businessman accused of $12M pandemic Ponzi scheme found and charged with fraud

Brief: A Toronto businessman accused of orchestrating a $12-million pandemic-related Ponzi scheme was arrested and charged with fraud by Toronto police on Monday, just hours after investigators discovered his location, CBC News has learned. Mark E. Cohen's whereabouts had been unknown since last August. At the time, shadowy figures with ties to underground gambling rings, and others, began showing up at his former North York home demanding to know where he was and that he return large sums of money they had invested with him, according to a source familiar with the situation who is not authorized to speak publicly on the matter.CBC News previously reported on those efforts to find Cohen and three lawsuits accusing Cohen of convincing investors to help him buy used cars that would be resold at huge profits amid the pandemic-triggered vehicle shortage last year. The 42-year-old faces two charges of fraud over $5,000. A Toronto police spokesperson confirmed Cohen's arrest and the charges against him in an email to CBC News.

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China Investment In U.S. To Remain Low Amid Pandemic, Invasion Fallout

Brief: Fallout from Russia’s invasion of Ukraine will likely add to downward pressure on China investment in the United States this year. So believes Reva Goujon, senior manager at New York-headquartered Rhodium Group, which specializes in China research. Slower economic growth in China in recent years has already been weighing down inflows. “The current economic headwinds are strong and growing,” Goujon said in a telephone interview today. Longstanding U.S. national security concerns about Chinese investment have been intensifying yet also taking on a new twist. “On the U.S. side, some recent industry comments about Chinese investment are very interesting, such as the discussion of the possible CATL investment in North America,” Goujon noted.

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About a Third of San Franciscans See Permanent Remote Work

Brief: About a third of San Francisco area voters in a poll by the Bay Area Council said they expect to do their jobs from home permanently, a shift that could subdue the level of growth of the tech hub hit hard by the rise of remote work. Indeed, about 68% of those surveyed by the business group are concerned about the future of the economy in the region, whose recovery of jobs that were lost during the height of the pandemic continues to lag that of the state and the nation. In the poll, 29% of respondents working remotely for at least part of their time said they were also going to a workplace, and 23% said they expect to do so within six months. In addition, the share of voters who said they feel safe returning to “normal” has almost tripled from last year to 30%, while 12% -- double that of last year -- said that will never happen. Nearly a quarter said it will take a year to three for a return to normal.

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Pfizer Takeover Makes Dent in a $34 Billion Stock-Market Slump

Brief: Pfizer Inc.’s acquisition of ReViral Ltd. chipped away at the drug maker’s stock-market slump. The company’s shares gained about 3.7% Thursday after the announcement that it was buying the lung-focused biotech firm for as much as $525 million, bucking the broader market’s drop. But the shares are still down almost 7% this year -- cutting some $34 billion from its market value -- amid investor concern about the loss of revenue as drug patents expire and the uncertain fate of its booster shots as the Covid-19 pandemic winds down. That’s left the company trading at a discount to health-care peers that have been hitting record highs as investors turn to defensive bets amid geopolitical turmoil and an uncertain economic outlook.Wall Street is itching for Pfizer to act to shore up growth, potentially by utilizing the $150 billion of capacity that Bank of Montreal estimates it has for acquisitions. Yet Thursday’s deal for a closely-held drug developer, ReViral Ltd. is likely too small to do much to change the pharmaceutical behemoth’s outlook.

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Chinese tech stocks in Hong Kong slip as investors watch Covid situation in China

Brief: Shares in Asia-Pacific were mixed on Friday, as Chinese tech shares slipped and investors watched the Covid situation in China. Hong Kong’s Hang Seng index fell 0.24% in afternoon trade, while the Hang Seng Tech index dropped 1.83%. Alibaba slid 2.47%, while JD.com shed 3.35%. Meituan lost 2.70%. Mainland Chinese markets were mixed. The Shanghai composite gained 0.47% to close at 3,251.85, while the Shenzhen component was down 0.11% at 11,959.27. Covid is in focus in China, with Shanghai reporting 20,398 new asymptomatic coronavirus cases and 824 new symptomatic cases on April 7. The city is under a strict lockdown in a bid to stop the spread of the virus. “Near-term sentiment [for Chinese shares] could stay curbed given a confluence of macro headwinds, Omicron spread, global liquidity uncertainty and US/China tension concerns,” according to a Morgan Stanley note dated April 7.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday, April 7, 2022:

  • In the United States, a top official at the Food and Drug Administration (FDA) has said the drug regulator has until early summer to decide whether vaccine makers need to change existing COVID shots to target different virus variants to avoid another possible surge in cases this fall. Dr. Peter Marks told the drug regulator’s advisory committee Wednesday a decision would need to be made by June in order to have shots available for the fall. Pfizer and Moderna are reported along with other vaccine makers to be conducting trials on omicron-based jabs, however according to the FDA, the companies aren’t currently coordinating their efforts on vaccine formulas and should be, similar to their work updating the flu vaccine to target new strains every year.

  • Canada’s most populous province could likely see upwards of 100,000 new cases of COVID-19 each day, with roughly five per cent of its residents currently infected, the head of the province’s science table said. Dr. Peter Juni, the outgoing director of Ontario’s Science Advisory Table (he is moving to England to work as a professor at Oxford University), made the comments to media on Wednesday after noting a resurgence of COVID activity has seen people hospitalized with the virus increase by 40% week-over-week. Dr. Juni has noted that behavioural changes brought on by the lifting of mask mandates recently has pushed caseloads past their latest modeling, which was released three weeks ago. At that time, it was expected that hospitalizations would likely rise to around 800 in May. As of April 6th, there were 1,074 people in Ontario hospitals with COVID-19.

  • In the United Kingdom, the British Medical Journal has published findings that people are at an increased risk of developing serious blood clots for up to six months after having COVID-19. Researchers have noted for six months, there is a greater risk of developing a blocked blood vessel in the lungs, called a pulmonary embolism, and for two months people are at a greater risk of bleeding. The results noted a five-fold increase in the risk of deep-vein thrombosis, a 33-fold increase in the risk of a pulmonary embolism and an almost two-fold increase in the risk of bleeding. The study looked at data for more than a million people who tested positive for COVID-19 between February 2020 and May 2021 and compared that with data of more than four million people without COVID.

  • In Germany, the government was thrown a curveball on Thursday when lawmakers rejected a bill requiring all people aged 60 and over in the country to be vaccinated against COVID-19. The government had pitched it as a compromise solution that they hoped would get a parliamentary majority. In the end, 378 lawmakers voted against the bill, 296 were in favour, while nine abstained. Chancellor Olaf Scholz and his health minister originally had called for the vaccine mandate to apply to all adults in Germany. While Germany is currently facing a decline in cases, Social Democratic lawmaker Dagmar Schmidt noted it was necessary to prepare for a new rise in cases. “We will face the same challenge next fall that we did last fall,” Schmidt said. “The virus won’t simply disappear.”

  • Japan will lift its entry ban on non-resident foreign nationals from 106 countries, starting on Friday. The move from Japan’s government, however, will not drastically change its strict pandemic-border controls as it will continue to suspend the visas issued before December 2nd, except for diplomats’ spouses of Japanese nationals and permanent residents, among others. According to the government, visas will not be issued, in principle, unless those seeking to enter Japan fall under “exceptional circumstances”, such as visits to those who are seriously ill or for funerals. Foreign tourists remain banned from entering Japan.

  • The World Health Organization (WHO) reported on new analysis Thursday that states up to 65% of the African population have been infected with COVID-19 and estimates that the number of actual cases may have been nearly 100 times more than reported. The WHO noted as of September 2021, 65% of people tested had some exposure to COVID-19, translating into about 800 million infections. In contrast, only about 8 million cases had been reported to the WHO during that time period. In its new analysis, the WHO also noted the milder COVID-19 cases seen in Africa were attributable in part to the continent’s much smaller proportion of people with underlying risk factors like high blood pressure, diabetes and heart disease.

Covid-19 – Due Diligence And Asset Management

European Central Bank head says she’s positive for COVID-19

Brief: European Central Bank President Christine Lagarde tweeted Thursday that she tested positive for COVID-19 and has mild symptoms but will continue working from home. “I am vaccinated and boosted, and my symptoms are thankfully reasonably mild,” Lagarde, 66,wrote on Twitter. “I will work from home in Frankfurt until I am fully recovered. There is no impact on the ECB’s operations.” The news conference she typically holds following the meeting of the Frankfurt-based bank’s rate-setting council is slated to go ahead next Thursday, with the format to be decided in the coming days. Lagarde's tweet comes as numerous European countries have dropped nearly all their COVID-19 restrictions and arebattling a surge of the virusfueled by the highly infectious omicron subvariant BA.2. Another tweet from Lagarde shows her speaking unmasked with European finance ministers at a meeting Monday. U.S. House SpeakerNancy Pelosi also has tested positive for COVID-19, her spokesman said Thursday, a day after appearing unmasked at a White House event with President Joe Biden.

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Equity fund outflows climb to highest levels since Brexit vote

Brief: Investors withdrew £1.53 billion from equity funds in March, the largest outflow since July 2016 at the time of the Brexit referendum, according to Calastone’s latest fund flows report, as Russia’s invasion of Ukraine continued to rock markets. Investors actively sold out of funds, Calastone said, as opposed to going on a buy strike, and outflows increased week-on-week over the month before tailing off at the end of March. Global equities suffered the greatest impact, as investors sold down a net £992 million of their holdings in this category, while UK funds overweight commodity stocks benefitted from some protection. Fixed income funds also suffered outflows, totalling £274 million, making it the worst month for the asset class since the start of pandemic, though outflows were higher in February. “The world’s major stock markets were very volatile in March, but they have mostly regained the losses they sustained when Russia attacked Ukraine on 24 February,” said head of global markets at Calastone, Edward Glyn. “This has not been enough to reassure UK fund investors. Global risks are rising – growth prospects have deteriorated, and a recession is now a possibility in many developed countries. Inflation is taking hold, living standards are being squeezed and government budgets are also under pressure.”

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Tapping into the hedge fund renaissance

Brief: As hedge fund assets rise and performance rebounds, prime brokers can be a critical part of the industry's growth. The hedge fund industry is on the up. Following several years of patchy manager performances, a number of high-profile closures, and sustained investor reluctance to continue coughing up hefty fees in exchange for often-lukewarm returns, the sector is enjoying something of a renaissance. In 2021 hedge funds generated their third biggest annual gain since the Global Financial Crisis, while global industry assets under management swelled to record volumes last year – in the neighbourhood of more than USD4 trillion in total. At the same time, investors are said to be once again looking at how hedge funds can provide diversifying returns in portfolios. A study of more than 2000 hedge funds by Barclays last year suggested hedge funds now offer a “compelling alternative” to fixed income allocations within a traditional 60/40 portfolio and could be key to strengthening returns amid a shifting market paradigm. “From the end of the financial crisis to the end of 2018, as market averages marched upward, it was very hard for alternative investment managers to stand out.

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ASIC to allow COVID-19 temporary relief for financial advice to automatically repeal 15 April 2022

Brief: ASIC will allow the temporary relief inASIC Corporations (COVID-19—Advice-related Relief) Instrument 2021/268(COVID-19 Instrument) to be automatically repealed on 15 April 2022.The COVID-19 Instrument commenced on 15 April 2021. It extended the following forms of relief, initially introduced in April 2020: ‘Situations in which Statement of Advice is not required’ relief. This relief allows financial advisers to provide a record of advice, rather than a statement of advice, to existing clients requiring financial advice due to the impacts of the COVID-19 pandemic. ‘Urgent Advice’ relief. This relief allows financial advisers additional time to give their clients a time-critical statement of advice. ASIC undertook targeted industry consultation to better understand the effects of our approach. Based on feedback, we do not consider that the current status of COVID-19 responses in Australia provides a sufficient basis for a decision by ASIC to further extend the relief provided by the COVID-19 Instrument.

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Transformative £2m grant funding aims to boost Covid-19 recovery for social enterprises led by people of colour in England

Brief: A total of £4m of blended finance, including £2m grant funding, will be made available to Black and minoritised ethnicity-led social enterprises and charities in England to help them recover from the fallout of Covid-19. The funding was announced by Social Investment Business (SIB), the Access foundation and social enterprise partners on Tuesday. This includes £2m of unrestricted grants from Access’ Flexible Financeprogramme, matched with £2m of loan money from the Recovery Loan Fund. The funding is expected to support 20 organisations. Social enterprises and charities must apply for a loan under the Recovery Loan Fund to be eligible to receive grants.  The announcement came as the social investment sector in the UK has been heavily criticised over its failure to adequately serve social enterprises and charities led by people of colour. 

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday, April 6, 2022:

  • In the United States, the Food and Drug Administration said in a statement that a Covid-19 antibody treatment by Vir Biotechnology Inc. and GlaxoSmithKline Plc will no longer be authorized, because of the dominance of the BA.2 Omicron subvariant. The subvariant now accounts for three out of every four Covid-19 cases in the country, according to the latest government data. The treatment, known as sotrovimab, was found to be ineffective against BA.2. The move comes as a blow to the companies, who only a few months ago saw high demand for sotrovimab after it was shown to be one of the few treatments that worked against the Omicron strain. Shares of VIr Biotechnology fell more than 10%, while Glaxo shares fell less than 1%.
  • In Canada, provinces are preparing to offer second boosters after the National Advisory Committee on Immunizations (NACI) made an official recommendation on Tuesday. NACI recommended that boosters be offered to people between 70 and 79, and to people from First Nations, Metis and Inuit communities, in addition to those aged 80 and over and those in long-term care homes. The committee is still reviewing whether or not a second booster is needed for younger adults and adolescents. “Preliminary data indicate that a second booster dose provides additional protection, including against severe disease,” the committee said on Tuesday.
  • In the United Kingdom, cases reached their highest level since the beginning of the pandemic in March, because of the infectiousness of the Ba.2. subvariant and waning immunity in older adults. According to data from Imperial College London's latest React-1 study, the average prevalence of Covid across England between March 8 and 31 was 6.4%, the highest level in the pandemic. This is compared to 4.41% in January. The study also found that while cases are plateauing in younger age groups across England, they are still rising for people aged 55 and over. It also suggests that hospitalizations have gone up and will continue to rise because of the prevalence of cases in older adults. 
  • Brazil’s health regulator Anvisa has issued a new set of rules for international travellers, with a cautious easing of coronavirus restrictions. Under the new rules, fully vaccinated travellers will no longer have to present a negative Covid-19 test upon entry, they will only have to show proof of vaccination. "In general, the new rules confirm vaccination as the basis for national border policy for all modes of transportation," Anvisa said in a statement. "Complete immunization is mandatory for all individuals eligible for vaccination and who intend to enter Brazil." Foreigners who do not reside in the country and are not fully vaccinated remain barred from entering the country.
  • Funeral services in Hong Kong are becoming overwhelmed as they deal with the fifth wave of coronavirus infections. Public mortuaries have had to borrow space from other public facilities like nursing homes and charities and the six crematoriums are running around the clock, performing nearly 300 cremations a day which is double the usual number. There is also a backlog of paperwork, which has caused delays and forced some bereaved residents to have to wait to collect bodies. Since the beginning of the fifth wave in Hong Kong, more than a million Covid cases and over 8,000 deaths have been reported.
  • In Australia, three non-profit groups have combined forces to fund an inquiry into the country’s handling of the pandemic, an inquiry they describe as non-political. Andrew “Twiggy” Forrest’s Minderoo Foundation, the Paul Ramsay Foundation and the John and Myriam Wylie Foundation will provide a report by September, with the inquiry being led by a former top public servant, Peter Shergold. “This is not intended to be a politically partisan hatchet job. It is trying to say, there will be future pandemics, there will be future health crises, and what can we learn from this experience over the last two years?” Shergold said.

Covid-19 – Due Diligence And Asset Management

Janus Henderson: Global government debt to hit record $71.6trn in 2022

Brief: Global government debt is set to soar by 9.5% to a record $71.6trn in 2022, according to the second annual Janus Henderson Sovereign Debt Index. The $6.2trn increase in debt will primarily be driven by the US, Japan and China, but every country across the world is likely to see its borrowing levels increase, Janus Henderson stated. In 2021 alone, global government debt jumped to $65.4trn, an increase of 7.8% year-on-year, as every country increased borrowing amid the Covid-19 pandemic. Meanwhile, the global interest burden is set to grow by around one seventh on a constant-currency basis to $1.16trn this year. Janus Henderson stated that the biggest impact here will likely be felt in the UK due to rising interest rates, the impact of higher inflation on the large amount of UK index-linked debt, and the cost of unwinding the country's quantitative easing programme. This is because "significant" fiscal costs come with unwinding QE as interest rates rise.

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BNP Allows Staff in Europe to Work From Home Half the Time

Brief: BNP Paribas SA reached one of the most comprehensive work-from-home deals among major banks, with as many as 132,000 employees given the option of doing their jobs from home for up to half the week. Staff in 22 countries across the region can decide to work from home every week for as much as 2.5 days or to adopt a more flexible rhythm, the lender said in a statement Wednesday. Employees will need to be in the office at least one day per week. The deal, which runs until 2024, extends a framework that was already applicable in France as lenders in the region adopt flexible arrangements to boost morale and save costs. Banco Bilbao Vizcaya Argentaria SA said last month it will permanently allow employees to work from home as much as 40% of their time, though that deal only covered about 12,000 employees in Spain. The push for more flexibility contrasts with Wall Street, where firms increasingly push for a full return to office.

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Bank of America to bring workers back to office by June 1 -Bloomberg

Brief: Bank of America told staff earlier this week that it plans to bring workers back to offices by June 1, including those who are not vaccinated, Bloomberg reported on Tuesday. Staff will return in a series of stages, although workers have already begun returning to offices in some cities, including in New York, according to Bloomberg. The bank has been encouraging workers to get vaccinated and boosted for months, and previously only allowed vaccinated employees into the office.The bank is now proceeding with its return to office plans because COVID-19 cases are low or falling nationwide, and it will not require staff to get the COVID-19 vaccine or boosters, according to Bloomberg.

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Ex-Bank of America Bankers Are Among 6 Banned by Fed Over Covid Loan Fraud

Brief: The Federal Reserve banned six former bankers, including two formerly at Bank of America Corp.’s wealth management unit, from the industry for fraudulently obtaining loans designed to provide economic relief to small businesses during the pandemic. The Fed on Tuesday announced the penalties for Autumn Jordan and Manuel F. Pinazo, who previously worked at Merrill Lynch Wealth Management, along with Dedryck O. Carson, Wendy Rodriguez Legon, Michael T. Lemley, and Tracy L. Mallory, who were at Regions Financial Corp. The regulator said all six applied for assistance under one of the government’s Covid-19 relief programs “based on false and fraudulent representations and used the funds for unauthorized personal expenses.” The former employees obtained funds through the Small Business Administration’s Covid-19 Economic Injury Disaster Loan program, according to the Fed. Authorities have been trying to crack down on abuses of that federal effort and others.

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HP is betting that hybrid work is here to stay

Brief: HP (HPQ) announced it would buy office headset-maker Poly (POLY) for $3.3 billion last week. It’s a big-ticket deal for a company that’s on the lookout for its next chapter. In recent memory, dealmaking has been inextricably tied to the old guard tech giant and its prospects but when the COVID-19 pandemic hit, everything changed. In 2020, Xerox (XRX) withdrew its offer to buy HP after a months-long, TV-worthy drama that involved threats of a hostile takeover, a poison pill plan, and activist investor Carl Icahn. HP has since pursued its own deals, some of which have been bets on hybrid work. In July 2021, HP bought remote computing software provider Teradici. In the release at the time, HP touted hybrid working-related projections by Fortune Business Insights, which estimated that the remote desktop software segment will grow at a “17% compound annual growth rate through 2028.”

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday, April 5, 2022:

  • The United States Senate has reached a bipartisan deal to secure $10 billion in pandemic relief funding on Monday. If passed, the bill will see funding made available for more testing, vaccines, and Covid-19 treatments. Notably missing from the deal is resources set aside for global pandemic relief which Democrats had hoped to include. Senate Majority Leader Chuck Schumer expressed his frustration with the agreement but said a new deal for further global assistance may be coming later in the spring.  “While we were unable to reach an agreement on international aid in this new agreement, many Democrats and Republicans are committed to pursuing a second supplemental [agreement] later this spring,” Schumer said in a statement. “It is my intention for the Senate to consider a bipartisan international appropriations package that could include additional aid for Ukraine as well as funding to address Covid-19 and food insecurity globally.” Utah Senator Mitt Romney, a Republican in favor of global funding, released a statement reassuring fellow Republicans that a new deal would not take money out of the pockets of Americans. “Importantly, this bill is comprised of dollar-for-dollar offsets and will not cost the American people a single additional dollar,” he said. He continued that he is willing to work with his Democratic counterparts to “explore a fiscally-responsible solution to support global efforts in the weeks ahead.”

  • Data released from the Public Health Agency of Canada (PHAC) showed a 34 per cent increase in daily average case counts as of March 30, suggesting that a sixth wave is now underway. Rising case numbers and hospitalizations have health experts urging the public to continue getting booster shots and wearing masks. The surge in cases has been linked to the removal of pandemic restrictions and the highly transmissible Omicron variant BA.2. Now some experts are saying that the removal of mask mandates was done too hastily and that certain jurisdictions should reconsider their implementation. “Masks need to go back on very quickly. Otherwise, we’re going to have a lot more cases on our hands,” said Dr. Kashif Pirzada, an emergency physician in Toronto. “I think we should be encouraging people to wear a mask in a crowded situation, subway, or a sports arena or in a large classroom … or a shopping mall,” he said. Vaccination rates in the country are also on the decline, although 80 per cent of the population has received two doses of an approved vaccine, only 47 per cent have received a booster or third dose.

  • In Ireland, the amount of people in hospital with Covid-19 has dropped to its lowest number in two weeks. Just under 1,400 people were in hospital as of Tuesday, down from 1600 last week and a total of 7,733 new cases were confirmed through the country’s Health Protection Surveillance Centre. In recent weeks, the number of people in intensive care units has remained steady, despite an overall increase in cases. There are currently 54 people in intensive care, with 5 having been released on Tuesday. The BA.2 strain of the Omicron variant is making up roughly 95 per cent of new cases on the island and has now been declared the most infectious respiratory disease ever to circulate in the country. According to health officials, over half of the patients in hospital with Covid-19 were incidental cases who had originally been admitted to hospital for other reasons. 

  • The outbreak of Covid-19 in Shanghai that now has 26 million people on lockdown has been described by officials in the city as “extremely grim.” Director of Shanghai’s working group on epidemic control, Gu Honghui, told state media that the epidemic in the city is still “running at a high level.” Nearly 10,000 health workers have been sent to Shanghai from across the country to help alleviate the stress on the existing health care system. Similarly, 2,000 military personnel have been recruited to administer testing to residents, some of whom have been unable to leave their houses for weeks. Eastern Shanghai which was scheduled to come off lockdown last Friday is still in a quarantine state, with most services being restricted. Nearly 73,000 cases have been recorded in the city during the most recent outbreak, including another 13,354 on Monday, however, there has so far no been no deaths officially recorded. The vast majority of reported cases are asymptomatic, and almost all of them have been caused by the BA.2 Omicron variant.

  • The number of new Covid-19 cases has dropped in France for the last two days potentially signaling an end to the sixth wave in the country. According to la Direction générale de la Santé, the French health agency, there was just over new 102,000 cases recorded on Sunday, a 7 per cent drop from the Sunday before. Figures from the agency have a three-day lag, but if preliminary data is correct, cases could be plateauing. Data from French biomedical research facility Institut Pasteur suggests that the peak of 150,000 cases a day was expected in late March followed by a drop. The research led by infectious diseases modelling expert Dr Simon Cauchemez, has so far accurately reflected case numbers in the country but that may still change. The Institut has said that their modelling is not to be considered a “prediction” and that there are factors that have not been accounted for such as weather and temperature. Warmer weather has proven to slow the spread of the virus, but a recent cold snap could see uptick in new cases.

Covid-19 – Due Diligence And Asset Management

What Japan’s Top CEOs Will Take Away From the Pandemic

Brief: As Japan moved to fully lift Covid-19 restrictions at the end of March, the country’s top chief executives said the lessons from the pandemic will be longer-lasting. “The ongoing threat of Covid-19 throughout 2021 reinforced for me the fact that improving human health around the world is an essential part of sustainable social development,” said Sunao Manabe, chief executive of Daiichi Sankyo. Manabe was the top-scoring chief executive in the biotech industry in Institutional Investor’s 2022 All-Japan Executive Team survey, as voted for by buy- and sell-side participants. Manabe says Japanese pharmaceutical companies have much to learn from early delays in the development and production of coronavirus vaccines in the country. Daiichi Sankyo was the first company to develop an mRNA vaccine in Japan, and the first in the world to use its proprietary cationic lipid, which it believes improves the safety of the shot. With support from the Japanese government, the company is developing a vaccine that targets a specific receptor binding domain of the novel coronavirus spike protein, which it hopes will be more effective and safer than other companies’ mRNA vaccines, which target the entire length of the spike protein. Daiichi Sankyo’s vaccine is being developed for general use by the end of 2022.

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Moderna Drops as Two Buyers Turn Down More Covid Shots

Brief: Moderna (NASDAQ:MRNA) stock fell 4% Tuesday as reports came in that two large buyers have declined options to purchase more of its Covid-19 vaccines, a sign of a waning pandemic bringing down demand. The African Union and Covax, the World Health Organization-backed group, decided not to obtain more of the vaccine as developing nations struggle to turn supplies into inoculations, Bloomberg reported. Less than two months ago, the company had forecast higher vaccine sales for the second half of the year, pinning its estimates on Covid-19 becoming a flu-like endemic illness that would lead people to take shots on a regular basis. While the African Union agreed to purchase 50 million doses for delivery in the first quarter, the body of 55 member states opted not to acquire another 60 million doses in the second quarter, according to the wire agency.

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Ray Dalio: 'We're going to have a period of stagflation'

Brief: Billionaire investor Ray Dalio is concerned about the potential for a stagflationary economic backdrop to take form amid persistently high levels of inflation and rising interest rates. "I think that most likely what we're going to have is a period of stagflation. And then you have to understand how to build a portfolio that's balanced for that kind of an environment," the Bridgewater Associates founder and co-chief investment officer said in an interview for Yahoo Finance Presents. Stagflation can be defined as a period of slow economic growth, increased joblessness and rising inflation. And every which way an investor turns right now (even on Google, where searches for "stagflation" have surged 400% since the start of the year) it looks like a speeding train called Stagflation Express. The Consumer Price Index (CPI) rose by 7.9% in February, marking the fastest pace of annual inflation in 40 years amid a push higher in rent, food and used car prices. Meanwhile, the Personal Consumption Expenditures index (PCE) rose 6.4% in February, accelerating from a 6.1% increase in January.

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Treasury yields invert as traders weigh U.S. recession risk

Brief: The bond market on Monday continued to flash warning signs that the U.S. economy could be headed for a recession after U.S. Treasury yields inverted again. The yield on the 2-year Treasury yield inched marginally lower to 2.424, while the benchmark 10-year Treasury note rose about 4 basis points to 2.412%. The yield on the 5-year government bond moved 1 basis point higher to 2.56% and the 30-year Treasury bond climbed about 5 basis points to 2.473%. Yields move inversely to prices and 1 basis point is equal to 0.01%. 2-year and 10-year yields, which form the main part of the yield curve watched by traders, inverted once again on Monday. Those Treasury yields flipped on Thursday for the first time since 2019 and did so again on Friday, following the release of closely watched jobs data. “The yield curve inversion continues to be the focus of investors, triggering conversations around the timing of the next recession,” Nationwide chief investment of research Mark Hackett said in a note. “Historically, the yield curve inversion has meant that the fuse is lit for a recession. But the timing of a recession is impossible to predict at this stage.”

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CDC Head Plans to Review Agency After Covid Response Criticism

Brief: The U.S. Centers for Disease Control and Prevention plans to conduct a review after facing a wave of criticism for its response to the Covid-19 pandemic. In an agency-wide message to her leadership team and staff on Monday, CDC director Rochelle Walensky shared her plans to review the agency’s structure, saying that “never in its 75 years history has CDC had to make decisions so quickly, based on often limited, real-time, and evolving science.” She said that an external senior federal health official was hired for an evaluation of CDC’s structure, systems and processes, according to an earlier report published by the Washington Post. The agency has come under strain and scrutiny as it was forced to quickly take action during the pandemic based on data developed at top speed. “Work is needed to institutionalize and formalize these approaches and to find new ways to adapt the agency’s structure to the changing environment,” a CDC spokesperson said in an emailed statement confirming the review. The agency has repeatedly been criticized for Covid guidelines involving health workers, such as earlier this year when it shortened recommended periods for isolation and quarantine. After that, it came under fire for not backing routine testing for exposed people before resuming normal activities.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday, April 4, 2022:

  • In the United States, the Centers for Disease Control and Prevention (CDC) will lift a controversial public health rule known as Title 42, that has blocked millions from attempting to cross the border. On Friday the CDC said in a statement that the order will be lifted on May 23, allowing the Department of Homeland Security time to establish a program for providing vaccinations to migrants crossing into the U.S. The administration has said that those who refuse to get vaccinated and haven’t been previously vaccinated will be held at Immigration and Customs Enforcement Detention if they are single adults or released on tighter conditions if they are families. Title 42 was imposed in March 2020 by then President Donald Trump to stop Covid-19 from spreading across the nation’s land borders with Canada and Mexico.
  • In Canada, a new survey has found that the pandemic created division among Canadians, and that it is currently one of the country’s most polarizing issues. The national phone survey by the Canadian Hub for Applied and Social Research at the University of Saskatchewan was conducted between March 7 and March 24 and involved 1,011 Canadians. The Covid-19 pandemic at 72% and the federal election at 73% were the most divisive issues over the past two years, respondents said. About 40% of respondents said arguments about the pandemic or politics have caused them to reduce contact with family or friends.
  • In the United Kingdom, a new Covid-19 variant has been detected and according to the World Health Organization (WHO), it may be more transmissible than any previous strain. The variant, known as XE, is a mutation of BA.1 and BA.2 Omicron strains, and also known as a “recombinant.” "Early-day estimates indicate a community growth rate advantage of 10 percent as compared to BA.2, however, this finding requires further confirmation," the WHO said. Health officials said there were about 637 cases of XE and that it was first detected in mid-January. Meanwhile, cases in the U.K. have reached record numbers, with an estimated 4.9 million people infected in the week ending March 26. 
  • Hong Kong has asked its entire population of more than 7.4 million to voluntarily test themselves for Covid-19. The testing will begin next week and last for three days in a row, from April 8-10. Chef Executive Carrie Lam made the announcement on Saturday, explaining that a mass compulsory test will also still be needed but she did not say when that would happen. Authorities suspended the idea when a previous announcement caused panic buying. For now, testing will be done at home voluntarily with rapid test kits delivered by the government, and any infections should be reported to the authorities within 24 hours.
  • South Korea has opened to fully vaccinated tourists from all countries, allowing them to enter without quarantine as of Friday. A negative coronavirus test is still required for entry. The government is considering relaxing more restrictions, including the rule to wear masks outdoors. Health Minister Kwon Deok-cheol said on Friday that the curfew for restaurants will be pushed back to midnight from 11 PM, and private gatherings of up to 10 people will be allowed, beginning April 4. If daily case numbers continue to fall, more restrictions will be removed, with the exception of wearing masks indoors, Kwon said.
  • Australia is offering a fourth jab to anyone over 65, the immunocompromised, those in long-term care homes and Indigenous Australians over 50. Beginning today, anyone within those groups can get their fourth shot, so long as they’ve had their booster at least four months ago. The rollout comes as experts are predicting a dual Covid-19 and flu wave, over the winter months, fearing the flu season will coincide with an Omicron BA.2 surge. Right now case numbers are falling in Victoria and New South Wales, although hospitalizations are on the rise.

Covid-19 – Due Diligence And Asset Management

Great Resignation Isn’t Slowing and May Persist, Randstad Says

Brief: The Great Resignation shows no sign of easing and a dwindling supply of workers may be here to stay, according to Randstad NV, a global provider of employment services. Fewer people in the job market, underpinned by a long-term demographic trend, is allowing talented workers to have more options and they’re going where their needs are met, said Sander van ‘t Noordende, who took over as chief executive officer of the Dutch company on Tuesday. “That is sort of a change today: Employees are more prepared to attach consequences to their unhappiness or not getting what they want,” van ‘t Noordende said in a phone interview as Randstad revealed its latest Workmonitor report. “They’re prepared to quit their job if they’re not happy.”   The Great Resignation has been a boon to employees searching for better working conditions and higher pay. Economies bouncing back from the pandemic and work from home options have made it easier for employees to quit unappealing positions and look for alternatives, driving up wages.

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A Transformational Year: Assessing the changing prime brokerage landscape

Brief: The collapse of Archegos and the GameStop short squeeze has radically upended the hedge fund prime brokerage space over the past year, raising fundamental questions over PBs’ lending activities and business models. The implosion of Archegos Capital Management in early 2021, coupled with the “meme stock” short-selling squeeze which saw amateur investors drive up the price of selected shorted stocks – handing hefty losses to certain hedge fund managers in the process – has brought renewed upheaval to a prime brokerage sector that had only recently adapted to the challenges of Covid-19 and a landscape of lower revenues and falling trading volumes post-2008. The sudden meltdown of Archegos – the New York-based family office led by Bill Hwang, a former ‘Tiger Cub’ who previously managed money at Julian Robertson’s Tiger Management – led to USD10 billion in losses for its brokers.

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How the Pandemic Transformed the PE Secondaries Market

Brief: Over the last two years, funds that hold only a few huge companies — often only one – have come to dominate the private equity secondary market. These funds, called continuation funds or GP-led secondaries, allow general partners to hold onto what they believe are still-promising companies after a fund reaches the end of its life as well as raise new money from existing clients. In 2021, 44 percent of GP-led secondaries were invested in single-asset or highly concentrated continuation funds, up by 9 percentage points from the year before, according to private equity advisory firm Campbell Lutyens. Investors have been gravitating towards single-asset funds in part because they can “dig deeper into assets and into the work that particular general partners carry out,” according to Gonzalo Erroz, partner at the U.K.-based manager Hayfin Capital Management. The pandemic made it harder for investors to conduct due diligence on larger portfolios.

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Pandemic continues to drive investors to active management

Brief: If the latest numbers from the Investment Funds Institute of Canada (IFIC) are any indication, the pandemic has created a resurgence in active management. Investors who rushed to beat the March 1 registered retirement savings plan (RRSP) contribution deadline pumped nearly $10 billion into mutual funds in February alone, according to IFIC. As of March 1, total mutual fund assets reached $2 trillion in Canada. A big chunk of that came from a $111.5-billion bump in mutual fund sales in 2021. That’s nearly four times the $29 billion in mutual fund sales in 2020, which was in line with average annual sales going back to 2000. In comparison, sales in passively-managed exchange-traded funds (ETFs) totaled $4 billion in February, bringing total assets to $317.7 billion by March 1.Over half of February’s mutual fund sales went into balanced funds, which have been the funds of choice throughout the pandemic. Like the name implies, balanced funds attempt to strike a balance between equities and fixed income.

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Pandemic Recovery Stocks a Good Bet, Causeway’s Ketterer Says

Brief: It’s still a good time to buy stocks that benefit from a pandemic recovery, such as airline and travel companies, according to Sarah Ketterer, chief executive officer of Causeway Capital Management. Investments with upside that have been held down by the prolonged Covid-19 outbreak and Russia’s invasion of Ukraine include Google parent Alphabet Inc. and Ryanair Holdings Plc, Europe’s biggest discount airline, she said during an interview Friday with David Westin on Bloomberg Television’s “Wall Street Week.” “Alphabet is interesting to us, because some of their ads are related to travel and leisure and we see that recovering,” Ketterer said. “These are opportunities for investors, because we can’t assume that invasions last forever and this pandemic is thankfully dissipating.” Stocks rallied this week, recovering some of the ground lost so far in 2022, while bonds flashed a key recession warning sign as rates of short-term Treasuries exceeded longer-term debt in what’s known as a yield-curve inversion.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday, April 1, 2022:

  • In the United States, a new study published on Wednesday found that children ages five to 11 who had the Pfizer BioNTech Covid-19 vaccine were 68% less likely to be hospitalized during the Omicron wave. The study, conducted by the Centers for Disease Control and Prevention and the Boston Children’s Hospital looked at both vaccinated and unvaccinated patients with and without Covid-19, at 31 hospitals in 23 states. The study found that adolescents ages 12-18 were 40% less likely to be hospitalized by Omicron after receiving two shots of the vaccine. The risk of developing serious illness or requiring a ventilator was lowered by about 80% for those who received the shots in this age group. 
  • Canada has officially eliminated the testing requirement for fully vaccinated travellers entering the country by air, land or water. As of today, these rules are no longer in place, though people could still be subjected to random testing at the airport. Unvaccinated travellers will still be tested on arrival and again eight days later, and will need to isolate for 14 days. The Tourism Industry Association of Canada welcomed the change, expecting a surge in travel bookings, though the surge is not expected to reach pre-pandemic levels just yet. Federal officials have said they will continue to monitor the situation as it evolves.
  • In the United Kingdom, a group of bereaved families called on Prime Minister Boris Johnson to resign after it was announced that 20 fines will be issued over the partygate scandal. The Covid Bereaved Families for Justice said in a statement that the Prime Minister’s team was being fined for breaking their own rules “clearly and blatantly,” also adding that the Prime Minister should have resigned months ago. "It’s crystal clear now that whilst the British Public rose to the challenge of making enormous sacrifices to protect their loved ones and their communities, those at 10 Downing Street failed," the statement said. After the announcement about the fines, the group gathered at the Covid memorial wall opposite parliament.
  • Germany has reached its Omicron peak, the Robert Koch Institute (RKI) said Thursday. The institute explained in a statement that the peak of the wave has likely passed but “infection pressure remains very high with more than 1.5 million Covid cases reported to the RKI within one week.” The BA.2 Omicron subvariant has become the dominant strain in the country, now accounting for 81% of all new cases. The RKI and the Health Ministry are set to propose changes to the country’s quarantine rules, Reuters is reporting. Health Minister Karl Lauterbach wants to change the mandatory seven-day isolation for people with Covid-19, to a voluntary five days of isolation with a test at the end.
  • Italy has exited its state of emergency, more than two years after it was introduced at the beginning of the coronavirus pandemic. The country’s Green Pass, a document that proves whether a person has been vaccinated, had a recent negative test or recent recovery, is no longer required for access to outdoor areas of bars and restaurants, museums, banks and public offices as well as on local and regional transportation.  The Green Pass will still be required for indoor dining at restaurants and on long-distance transportation until April 30. Mask mandates will also remain in place until that date.
  • Australia’s most populous state of New South Wales (NSW) has added 331 to its death toll, after health authorities reviewed registry data. NSW Health cross-checked the death certificates between January 2020 and March 2022 that listed Covid as the contributing factor or cause of death. That puts the total Covid death toll for NSW at 2,422, with 270 of the unreported deaths occurring in 2022, 58 in 2021 and three in 2020. NSW Health said in a report they were not sure why the details of the deaths were not reported to them. 

Covid-19 – Due Diligence And Asset Management

Citi raises its forecast for China’s GDP growth, bringing it closer to the official target

Brief: China’s economy faces so much new pressure from Covid that Beijing may increase stimulus — boosting overall growth, Citi said Thursday. “Given the strong start of the year and the anticipated government support, we revise up our growth forecast from 4.7% to 5.0% for 2022,” Xiangrong Yu, chief China economist at Citi, said in a report late Thursday. The new forecast is closer to the official gross domestic product target of around 5.5%, which was announced in early March. For January and February, China reported better-than-expected growth in retail sales, fixed asset investment and industrial production. The upgrade to Citi’s GDP forecast comes on the back of expectations of investment in projects such as infrastructure and affordable housing, according to the report. The official Purchasing Managers’ Indexes — which measure market conditions — for manufacturing and services businesses both fell into contraction territory in March. That’s the first time both indexes have done so since February 2020.

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Airlines’ Rally Stands on Shaky Ground as Investors Scamper

Brief: Airline stocks managed to outperform the S&P 500 Index in the first quarter as economies reopened and people started traveling again, but prospects for a sustained rally look shaky. An exchange-traded fund that tracks the sector is on pace for its biggest-ever monthly outflow in March. Since Russia invaded Ukraine more than a month ago, oil prices have shot above $100 a barrel and jet fuel prices have soared, and with the war showing no sign of abating, those headwinds are unlikely to go away anytime soon. The US Global Jets ETF’s outflow for March stood at about $335 million, according to Bloomberg data as of Thursday morning. The fund’s second-largest monthly outflow was in December, about $122 million. After a spate of upbeat outlooks from several carriers suggested demand for air travel was stronger than what the market had anticipated, airline stocks have rallied back over recent weeks from the lowest levels since October 2020.

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Wall Street Upbeat on Health Stocks After Worst Hit in Two Years

Brief: Wall Street analysts are optimistic that health-care stocks are poised to keep rebounding from the first quarterly loss since the onset of the pandemic. As geopolitical tensions mount, inflation surges and the bond market flashes warning signals that interest-rate hikes may set off a recession, there are signs of investors circling back to health-care stocks that are often seen as a haven from swings in the economy. AbbVie Inc., AmerisourceBergen Corp., Anthem Inc. and UnitedHealth Group Inc. have all jumped back to record highs even though as a group they still trade at valuations below the S&P 500 Index. “There seems to be seem a sentiment shift since recent Fed commentary,” said Bloomberg Intelligence strategist Michael Casper. “Oversold sectors like health-care have caught a bid in sign of relief the Fed wasn’t more aggressive at the March meeting.”

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U.S. Recession Unlikely Despite Bond Market Alarm: PIMCO, Amundi

Brief: The United States is unlikely to face an economic recession in the next two years despite bond markets flashing warning signs, inflation at its highest in decades and rising geopolitical risks, portfolio managers at PIMCO and Amundi said. A closely monitored part of the U.S. Treasury yield curve briefly inverted on Tuesday, a sign that investors were concerned the U.S. Federal Reserve's aggressive rate hikes to tame inflation could tip the economy into recession. "We see low probability of a recession this year or next. Our models show the risk is slightly higher than the historical average, but not at a level that is concerning," Erin Browne, multi-asset portfolio manager at bond giant PIMCO, told the Reuters Global Markets Forum on Wednesday. Browne's view was echoed by Ken Monaghan, co-head of high yield at the U.S. arm of Europe's largest asset manager Amundi, who told the forum he does not expect a recession in 2022 and reckons it is unlikely in 2023 despite some elevated risks.

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Americans Added $4.2 Trillion in Pandemic Savings Skewed to Rich

Brief: American households had an extra $4.2 trillion of readily available cash at the end of last year compared with before the pandemic, after they received more government support and trimmed spending due to Covid curbs, according to the latest Federal Reserve data. Savings increased to $14.7 trillion from $10.6 trillion at the end of 2019, the Fed data show. The biggest portion of that increase came in the form of checking-account deposits and physical cash, which soared to $3.9 trillion from about $1 trillion. The rest of the extra liquidity is in the form of time deposits and short-term investments. The windfall is piling up at the top of the income distribution. About two-thirds of the excess savings were accumulated by the highest 20% of earners, with $1.2 trillion of it held by the top 1%.

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Contact Castle Hall to discuss due diligence
 
Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.