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Covid-19 Diligence Briefing

Our briefing for Tuesday June 2, 2020:

  • In the United States as all 50 states have at least partially reopened, several southern states have reported sharp increases in COVID-19 infections. Alabama, South Carolina and Virginia all saw cases rise at least 35% or more in the week ended May 31st, compared to the prior week. Cases have risen in 17 states overall, according to a Reuters report. United States Surgeon General Dr. Jerome Adams is the latest in a number of health experts who fears new outbreaks of the coronavirus will result from the nationwide protests of George Floyd’s death. In an interview, Dr. Adams highlighted the coronavirus pandemic has disproportionately affected communities of colour, noting "I remain concerned about the public health consequences both of individual and institutional racism [and] people out protesting in a way that is harmful to themselves and to their communities.”

  • The doctor who was responsible for a new cluster of coronavirus cases in the Canadian province of New Brunswick is speaking out. Dr. Jean-Robert Ngola said he did not self-isolate upon returning from an overnight return trip to neighbouring province Quebec to pick up his four-year old daughter. The mother of the child had to travel to Africa for her father’s funeral. Dr. Ngola, who isn’t showing any symptoms, is unsure of where he obtained the virus noting, "Who can say? … The virus is circulating everywhere. … How many people are unwitting carriers?” Since word has circulated of his case, Dr. Ngola says he is now the target of racist harassment, false reports have been made to the police, and feels abandoned by public health officials. There are 12 new cases of the coronavirus in northern New Brunswick since May 21st. Prior, the province had gone two weeks without a new case.

  • The United Kingdom government is considering a travel corridor with other countries who have low rates of coronavirus infection. Those nations that would fall under that criteria would not have to adhere to the UK’s 14-day self-isolation period, which is due to take effect on June 8th. The UK travel and hospitality sectors have warned that the government’s quarantine plan will further damage their industries which have already been hit hard by the coronavirus pandemic.

  • In France, cafes and restaurants were allowed to open for the first time in 11 weeks after being closed due to the coronavirus lockdown. Restaurants and cafes still have to limit the number of customers due to social distancing rules and in the Paris region, customers can only be served on outdoor terraces until June 22nd. France’s finance minister has noted the economy will likely shrink by 11% this year but is convinced it will rebound in 2021 with the help of government support.

  • Wuhan China’s Health Commission announced Tuesday that it had completed 9.9 million coronavirus tests of its residents with no new confirmed cases. There were 300 asymptomatic cases discovered in the testing, but China does not count asymptomatic cases as confirmed cases. The testing began on May 14th for the city of 11 million people, which was ground zero for the coronavirus epidemic.

  • A Brazilian university study is projecting the country could reach 1 million cases of the coronavirus and 50,000 deaths by the end of the month. The study conducted by the Federal University of Rio Grande do Sul predicts the number of COVID-19 cases in Brazil will double in the next 18 days. As of Tuesday, Brazil has reported close to 527,000 cases and close to 30,000 deaths.

  • Japan has announced the approval of saliva-based tests for the coronavirus as a way of boosting testing rates as the Tokyo government issued a stay-at-home alert following an increase in infections. The state of emergency was lifted in Tokyo last week, but the local government is urging people to stay at home for non-essential business and to practice social distancing as 34 new cases were reported on Tuesday, the most since May 9th. Japan’s testing rate is well behind other industrialized nations such as the United States, Italy and South Korea leaving critics to say the low rate of testing is making it difficult to trace the virus.

Covid-19 – Due Diligence And Asset Management

Private Equity Lands Billion-Dollar Backdoor Hospital Bailout

Brief: As the coronavirus pandemic upended the U.S. health-care system, EmCare IAH Emergency Physicians, a Houston staffing company owned by private equity firm KKR, made a little-noticed request of the government: It applied for a $317,379 interest-free loan. KKR had for years paid lobbyists to fend off efforts to ban a practice known as surprise billing used by EmCare and other providers that has driven up the cost of health care. But that didn’t stop the U.S. Health and Human Services Department from approving the loan and almost 300 others totaling more than $60 million to subsidiaries of KKR-owned companies. Shut out from many coronavirus relief programs, private equity companies have found a back door at HHS, where they have borrowed at least $1.5 billion, according to a Bloomberg News analysis of more than 40,000 loans disclosed by the department…  Health-care facilities owned by Apollo Global Management, which started the year with about $46 billion, received at least $500 million in HHS loans. And Cerberus Capital Management’s Steward Health Care System LLC, which threatened to close a hard-hit Pennsylvania hospital, received at least $400 million in loans. Last month Cerberus was working to quadruple the size of a fund to invest in distressed loans to $750 million.

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Wall Street Sends Wine, Masks to Clients with Steakhouses Closed

Brief: Wall Street investment funds won’t let a pandemic and riots stop them from wooing clients. With boozy steakhouse meetings no longer an option, evenings on the town are being replaced with wine tastings via conference call and online concerts. There are also care packages tailored to the times -- packed with masks -- and donations to food banks and charities. Disruptions set off by the coronavirus pandemic, now complicated by protests and curfews, are prompting asset managers overseeing products such as mutual funds and exchange-traded funds to figure out new ways to remotely grab the attention of wealthy customers, institutional investors and financial advisers. That often means trying to hobnob in the virtual world. It’s accelerating a shift that was already underway, as big firms rely less on social outings to generate and work leads, said Amanda Walters, principal at Casey Quirk, a division of Deloitte Consulting. “Asset managers are asking, ‘Do we need to be face-to-face as much as we were before?’ And the answer is probably no,” she said.

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Goldman Sachs Commits to New Central Paris Headquarters

Brief: U.S. bank Goldman Sachs (GS.N) has signed a lease for a new Paris headquarters building, committing to a city centre office development at a time when many banks are weighing scaling back their presence in cities amid the COVID-19 pandemic. Goldman has signed a 12-year deal for 6,500 square metres of space at 83 Marceau, an office building being redeveloped a block away from the Arc de Triomphe, developer SFL said on Tuesday. The commitment represents 81% of the building’s floor space. The project is expected to be completed in the third quarter of 2021.

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Relief Rally or Bear Market Bubble? For Investors, it’s Hard to Tell

Brief: What started as a bear market bounce in U.S. equities has transformed into one of the most dramatic rallies in memory, leaving investors looking to past rebounds, options markets and technical analysis for clues on how far it could run. The S&P 500 is up 37% since its late March close as of Monday and the Nasdaq Composite is near a fresh record after a surge that has seemingly ignored widespread economic upheaval and uncertainty over the coronavirus pandemic. The rally’s speed has left investors in a quandary. While few are willing to bet against a rebound that has steam-rolled most forecasts, some are concerned the market has become detached from economic reality by expectations of unlimited support from the Federal Reserve and U.S. lawmakers. The S&P 500, for instance, now trades at 21.2 times earnings, its highest level since 2002, even as unemployment is at levels last seen in the Great Depression. A Reuters poll showed investors expect Friday’s U.S. employment data to show a loss of 7.45 million jobs cut in May, after a record 20.5 million in the previous month.

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No One Knows What Their Bond Fund is Worth

Brief: During the worst of the market chaos in March, some credit hedge funds suspended redemptions because they didn’t know what their holdings were worth and the prices of fixed income exchange-traded funds were out of whack with the net asset value of their underlying bonds. The prices for stocks, which trade on an exchange, are available in real-time. But bonds still trade over-the-counter, meaning a dealer and an investor negotiate a price, whether on a screen of over the phone. As a result, there is no central place to go for bond prices. Bond mutual funds, for example, use what are called evaluated prices from third parties such as ICE Data Services. ICE has analysts and algorithms gathering and assessing multiple sources of information scattered throughout the market to provide evaluated bond prices to investors, asset managers, dealers, and others. In March and April, as markets cratered and transactions ground to a halt, that information evaporated.

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The Buy-Side Trader is Getting Outsourced in Coronavirus Crisis

Brief: A once-in-century disruption to securities trading is intensifying a revolution in how some investment firms conduct business. With at-home traders navigating the wildest market swings in history, more money managers are tapping outsourcing companies to buy and sell financial assets on their behalf. With their employees at risk of falling sick or losing regular access to market venues, the buy side in lockdown is turning to a booming industry that’s drawing big-gun entrants including State Street Corp., AllianceBernstein Holding LP and Wells Fargo & Co. In so doing, the largest providers are reporting a surge in revenues as transaction volumes jump and new clients sign up. Outsourced traders essentially act as a middleman between the buy side and sell side in handling trading flows. Some outsourced trading divisions are run inside bigger financial services firms, like Jefferies Financial Group Inc., while others operate as small, standalone shops. Their pitch to asset managers: Ensuring best execution with an extensive network of brokerages and high-speed technology, which can be expensive for smaller funds to maintain on their own.

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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 June 1, 2020:

  • In the midst of the coronavirus pandemic, the United States are dealing with mass protests over the death of George Floyd, an unarmed black man at the hands of four former Minnesota police officers. Health officials are concerned, along with state and city leaders of spreading the coronavirus due to the close contact of the protestors. While many are wearing a mask, as the situation escalates with police and national guard members, health officials fear the use of tear gas and other methods are forcing protestors to cough and sneeze, which could spread the virus. As the unrest grows in America, the tension doesn’t appear to be dissipating anytime soon as United States President Donald Trump told state governors on Monday they must be tougher and use more aggressive tactics on the violent protestors.

  • The World Health Organization (WHO) have called on President Trump to reconsider terminating their relationship with them over the handling of the coronavirus pandemic. On Friday during a news briefing, President Trump announced the United States would end its relationship with the WHO but provided no further details on what that separation would like. “The US government's and its' people's contribution and generosity toward global health over many decades has been immense, and it has made a great difference in public health all around the world," WHO Director-General Tedros Adhanom Ghebreyesus said. "It is WHO's wish for this collaboration to continue."

  • Canadian Prime Minister Justin Trudeau said the federal government will be accelerating its plan of delivering infrastructure funding to cities who badly need it after suffering a hit from the coronavirus pandemic. Prime Minister Trudeau said $2.2 billion in annual infrastructure will be delivered in one payment this month to give municipalities earlier access to the funds instead of waiting on multiple payments. Government opposition have said the help is too little too late, and municipalities are only receiving money they were entitled too, not any additional help in operating shortfalls.

  • Health officials in the United Kingdom have told Prime Minister Boris Johnson he has eased the coronavirus restrictions too soon in the country, which will risk a spike in infections. As of Monday, some school classes were allowed to resume, up to six people can meet outside and two million vulnerable people who were sheltering in place, were also allowed to spend time outdoors. Health officials believe the government doesn’t have a fully functioning tracking system in place to track new outbreaks and media reports showing Britons enjoying the nice weather at beaches, with little social distancing over the weekend, did nothing to ease their concerns.

  • India began loosening some coronavirus-related restrictions on Monday even though the country is experiencing it largest daily increases of COVID-19 cases. Indian’s health authorities said close to 8,400 cases were recorded in back-to-back days. The country will shorten the nationwide curfew and allow some states and territories to decide if they want to resume intrastate and interstate travel. The first phase of India’s three-part reopening formally begins on June 8th.

  • Familiar traffic jams and crowds of commuters greeted those in the Philippine capital of Manila as one of the world’s longest lockdown restrictions was lifted. Public transportation could only carry a fraction of the people they normally could due to social distancing measures, which meant commuters had wait for hours to catch a ride. Police have warned citizens they will go after violators who don’t wear face masks, or don’t observe social distancing.

  • In south Australia further restrictions have been eased as some business will be allowed to open their doors for the first time in more than two months. Australians will be allowed to return to the gym, go to the movies and have a seat at the bar, but capacity limits are still in place. For instance, a maximum of 80 people are allowed inside a gym and pubs in New South Wales can have up to 50 guests, instead of 10.

Covid-19 – Due Diligence And Asset Management

‘Appalled’ – Here’s What Wall Street CEOs are Saying about the Killing of George Floyd and Protests Rocking US Cities

Brief: Wall Street CEOs expressed horror, anger and empathy in staff emails and messages posted to social media as protests continued to roil U.S. cities in the week after the death of George Floyd in Minneapolis. The May 25 death of Floyd, who had been handcuffed when a police officer kneeled on his neck for more than eight minutes, sparked introspection and calls to fight racism by the biggest American financial firms. Floyd’s death followed the recent deaths of other black citizens including Ahmaud Arbery in Georgia and Breonna Taylor in Kentucky. Here’s what they said…

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Wall Street and Fed Fly Blind as Coronavirus upends Annual Stress Tests

Brief: U.S. financial regulators, banks and their investors will get their first glimpse into the health of the nation’s banking system as it confronts soaring corporate and consumer defaults in the economic crisis sparked by the novel coronavirus. And no-one, including the U.S. Federal Reserve which sets the annual bank “stress test” exams, has a clue what to expect. “That is the $100,000 question. Actually, it’s much bigger than that and I am sure the Fed is working hard to get it right. We’re curious, and we don’t have clarity,” said Kevin Fromer, CEO of the Financial Services Forum, which represents the biggest banks in the U.S. That could mean banks may be on the hook for billions more in capital than they had anticipated, which could ultimately force them to slash dividends, slim down their balance sheets or reduce lending.

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Pinto Endured Lonely Weeks Co-Running JPMorgan as World Lurched

Brief: Daniel Pinto checked into a hotel in midtown Manhattan around 2 a.m. on a Friday in early March, hoping to get a little rest after an epically hard day. Things were about to get much worse. His slog that day had begun in London with a routine call with his boss, JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon. But just a few hours later Dimon was rushed into emergency heart surgery, and the board named Pinto — who oversees the firm’s Wall Street operations — to temporarily run the bank alongside Gordon Smith, the head of its consumer business. Pinto flew to New York for what he thought would be a brief stay. Then markets began panicking over the coronavirus pandemic. He didn’t check out until a month later. “I’ve seen crises my whole life,” Pinto said in an interview. Yet “we haven’t seen a crisis of this magnitude. It’s probably short-lived but very deep, and it’s everywhere around the world.”

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Howard Marks: Get Used to Uncertainty

Brief: When will the Covid-19 pandemic end? What’s going to happen to the economy? Investors have a lot of questions about the future — but no one, according to Howard Marks, has the answers. In his most recent client memo, the Oaktree Capital chairman addressed the current state of uncertainty and what he described as the “futility of forecasting,” arguing that not even expertise in a given field necessarily equips a person to predict what will happen.  It’s an argument the credit investor has made before, including in his last missive to clients in early May. In this newest letter, released publicly on Thursday, Marks explained that forecasting is impossible because the future is path-dependent — in other words, whatever happens between now and then can affect the ultimate outcome. “Not only how will the virus behave, morph, travel, react to warm weather and infect, but also how fast will we reopen the economy, how will people behave when we reopen it, and what will the virus do at that time?” he wrote.

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Private Equity Firms and Investors Overcome Covid-19 Fundraising Hurdles

Brief: Increased information flow, more transparency and informal settings have mitigated a lack of in-person meetings as investors and fund managers find ways to overcome roadblocks resulting from the coronavirus pandemic. Face-to-face meetings, a traditional linchpin in the process of checking out fund managers before investors make commitments, have been prevented by government restrictions aimed at reining in the pandemic. Investors, placement agents and fund managers say virtual meetings using video conferencing and presentations using other technologies have kept fundraising largely on track. In addition, the adaptations often lead general partners to offer greater stores of information on investments, returns, deals in the pipeline and strategy to prospective limited partners, helping to compensate for the lack of in-person visits and to increase investor confidence. “I had never had the opportunity to see these general partners in a time of stress, how on top they are of what private equity can do with and for their portfolio companies,” said a limited partner who is considering a follow-up capital commitment with a fund manager.

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Nordea Liquidates L/S Equity Fund as Boutique Shuts

Brief: Nordea has liquidated one of its Alt Ucits strategies following the decision of its sub-adviser Madrague Capital Partners to close the firm.In a statement to shareholders, Nordea said Madrague Capital Partners’ decision to withdraw its asset management licence led to the termination of the Nordea 1 – European Long Short EquityFund.The fund was first launched in December 2018 and was the first fund since Nordea tool 40% stake in the investment boutique. Madrague Capital Partners’ investment team consisted of five members, including CIO Lars Franstedt and portfolio manager and CEO Martin Persson.‘The board of directors of Nordea 1 Sicav considers that this event is detrimental to the fund’s performance and therefore to the interest of the fund’s shareholders and has consequently decided to put the Fund into liquidation with immediate effect,’ the firm stated. Madrague Capital Partners was approached for a comment but didn’t respond at the time of the publication.

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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 May 29, 2020:

  • In the United States, a new study shows more than two million New Yorkers had been infected with COVID-19 by the end of March. State data shows only 189,000 cases two months ago, which leaves a massive 1.8 million gap. The new study conducted by the University at Albany notes there are several reasons for the gap including people’s symptoms ranging from mild to none at all, and therefore they never sought medical attention. Others might have wanted to get tested, but couldn’t find a doctor to test them due to the shortage at the time of the pandemic. New York state and New York City in particular became the epicentre of the coronavirus epidemic in the United States.

  • In Canada, the province of New Brunswick has seen a cluster of cases in a zoned region after easing their coronavirus restrictions. The issue isn’t so much the cluster, it’s who was responsible for the initial cause. A doctor who travelled into Quebec, came back without mandatorily isolating for two weeks, and went back to work in a local area hospital may have exposed up to 150 people (initial tracking/tracing estimate – the official number is likely much more). The doctor has been suspended and COVID-19 testing has been made available to anyone in the region of 25,000 people.

  • The United Kingdom has extended its £6.8 billion stimulus package to counter the mass unemployment rate in the country until the end of October. Companies will start contributing to the government’s furloughed workers scheme starting in August, covering five per cent of the costs. The number goes up to 10 per cent in September and 20 per cent in October. According to the independent Office for Budget Responsibility, unemployment in the UK could rise by 2 million due to the coronavirus.

  • As of June 15th, Greece will open its borders to 29 countries. Notable absences off the initial list of countries are people from the United States, UK, France, Spain and Italy. Chinese, German, Israeli and Australian tourists will be allowed to fly direct to Athens and the northern city of Thessaloniki. The list will be expanded on July 1st, according to the country’s tourism ministry.

  • Sweden’s handling of the coronavirus epidemic has left them on the outside looking in to bordering countries as they look to reopen. Norway and Denmark have agreed to each other’s tourists to visit the country, but excluded Sweden whose death rate per capita is 10 times higher than Norway and four times higher than Denmark. Finland too haven’t opened their borders to Sweden, instead bubbling up with other Baltic countries such as Estonia, Latvia and Lithuania.

  • Moscow health authorities have revised the city’s death toll for April with now more than double the amount of people dying from the coronavirus. The official number of deaths last month is 1,561, up from 636. Russia’s official number of COVID-19 deaths has been relatively low compared to other countries with similar numbers, leading many to believe the official counting methods have been misleading on purpose. In the report, Moscow’s health department noted new counting guidelines, which included even the most debatable cases in its overall figures.

  • Brazil had a reported 26,417 cases of the coronavirus on Thursday, a new daily record. The nationwide total was closing in on 440,000 cases as Thursday marked the third day in a row Brazil recorded more than 1,000 deaths in a day.

Covid-19 – Due Diligence And Asset Management

Morgan Stanley is Planning to Bring Traders Back to New York Headquarters Next Month, Sources Say

Brief: Personnel to its New York headquarters in mid to late June, according to people with knowledge of the situation. The firm expects that, at least at first, only a small number of traders and workers in other departments will make use of the option, said the people, who declined to be identified speaking about the bank’s internal goals. Morgan Stanley’s plans make it one of the first Wall Street firms to bring more employees back to the trading floor after months of working from home. Rival Goldman Sachs has also said it would bring some trading personnel back to offices in the next several weeks, and together the firms will provide an early test of whether the financial capital of the world can safely reopen amid the coronavirus pandemic. Morgan Stanley managers have been plotting for weeks on how to bring employees back to its Times Square headquarters, helped in part by what they’ve learned by reopening their Asia offices, according to the people.

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Alan Howard’s Hedge Fund Soars 100% in Virus-Fueled Chaos

Brief: Billionaire Alan Howard has doubled his investors’ money in the coronavirus crisis. The macro trader has returned about 100% this year in the hedge fund that he personally runs, according to people with knowledge of the matter. Most of the gain was in March when the pandemic sent the global markets into a tailspin, the people said, asking not to be identified because the information is private. A spokesman for Jersey-based Brevan Howard Asset Management declined to comment. Howard’s return marks one of the most profitable money-making phases of his investing career and is the highest achieved by a major macro hedge fund this year. The no-nonsense, fast-talking trader is leading his firm’s dramatic turnaround after years of mediocre returns and an exodus of investors. Howard’s AH Master Fund was started in 2017 to make riskier bets in order to achieve high returns. It has a handful of external investors, money from the firm’s flagship hedge fund and Howard’s own money. Every detail of the fund is kept top secret by the firm, according to people familiar with the company.

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Citi Breaks with Rivals on Whether Work From Home is Permanent

Brief: Citigroup Inc. plans to bring its workers back to the office when the Covid-19 pandemic ends, breaking with a raft of competitors planning to make remote operations permanent for many staff. “Our goal is to get our employees back,” Chief Executive Officer Mike Corbat said Friday at a virtual investor conference. Working remotely has definite advantages, Corbat said, including giving him the ability to meet with clients and employees from around the world all in the same week. But he said the firm doesn’t plan to leave employees at home permanently. The pandemic has forced companies to send thousands of employees to their home offices as a way to slow the spread of the deadly virus. For some workers, including those at Citigroup competitors Bank of New York Mellon Corp. and Synchrony Financial, the changes may be permanent, officials there have said. Citigroup, with roughly 200,000 employees around the world, has already begun bringing staff back to some of its offices in Asia, with the Hong Kong office at 50% capacity and Taiwan at 75%, Corbat said.

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Poorly-Timed Healthcare Buyouts Bruise KKR and Blackstone

Brief: Two big health-care buyouts are shaping up to be among the worst-performing private-equity investments in recent years. The coronavirus pandemic is only the latest reason why. Physician-staffing firms Envision Healthcare Corp. and TeamHealth Holdings Inc., whose emergency-room workers are ubiquitous throughout the country, were purchased by KKR & Co. and Blackstone Group Inc. in 2018 and 2017 for roughly $6bn and $3bn, respectively. The private-equity firms bought the companies, which contract with hospitals to provide them with an array of medical professionals, with plans to boost revenue and accelerate growth through acquisitions. As is typical in leveraged buyouts, they funded the deals with ample debt, which would accelerate their returns if plans worked out. But things didn’t go according to plans. Instead, the companies have faced a litany of problems, including bruising contract battles with insurance company UnitedHealth Group Inc. and a costly lobbying fight in Washington over legislation to curb what are known as surprise medical bills, which arise when patients are treated at hospitals in their insurance networks by out-of-network doctors.

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Private Equity Requests for Flexibility may Backfire During Pandemic

Brief: The unprecedented coronavirus crisis may have become a headache for private equity sponsors that have pushed for loose lending terms to finance leveraged buyouts as they saddled their portfolio companies with debt. At the heart of the matter is a provision in credit agreements that allows additional time to deliver audited financial reports. The language may allow businesses to delay reporting a potential covenant breach if one arose. Now, during the global health crisis, the added flexibility is forcing auditors to take a harder look at companies’ financial well-being. Most credit agreements require the delivery of ‘clean’ audited year-end financial statements certified by an independent accountant without doubts regarding a company’s ability to continue operations. According to Moody’s Investors Service, the failure to deliver financial statements that meet this requirement may constitute an event of default.

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The Dirty Secret of Asset Management: It’s Doing… Okay?

Brief: Asset managers that run traditional stock and bond funds suffered far less than many investors in the first quarter. The median revenue at traditional publicly traded asset managers declined 6.7 percent in the first quarter of 2020, according to an analysis by Casey Quirk, the asset management strategy consultant that is part of Deloitte. The Standard & Poor’s 500 stock index fell almost 20 percent in the first quarter as economies around the world shut down in response to the coronavirus. Amid the shutdown, asset managers shelled out less to keep their businesses going. Operating expenses fell 3.9 percent, according to Casey Quirk, which analyzed 19 firms with approximately $16 trillion assets under management. Investors also stayed put. Net flows declined less than 1 percent, with retail investors representing most of the outflows, according to the consultant. Operating margins declined 1.9 percent for the median firm.  With markets rising during 2019 and into early 2020, asset managers had a positive quarter when compared with the year-earlier period. 

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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 May 28, 2020:

  • As the death toll in the United States has now passed 100,000, the state hit the hardest is making a bold move when it comes to facial coverings. New York state governor Andrew Cuomo will sign an executive order that will authorize private businesses the right to deny entry to people who don’t wear a mask, or facial covering. “When we are talking about reopening stores in places of business, we are giving the store owners the right to say if you are not wearing a mask, you can't come in. That store owner has the right to protect himself, governor Cuomo said. New York City mayor Bill de Blasio is preparing for the area to begin phase 1 of its reopening in the first or second week of June. 

  • Canadian Prime Minister Justin Trudeau was co-host of a United Nations (UN) meeting that included more than 50 heads of state and governments aimed at lessening the social and economic blow of the coronavirus pandemic. Prime Minister Trudeau co-hosted the meeting with UN Secretary-General Antonio Guterres and Jamaican Prime Minister Andrew Holness. Trudeau called on a co-ordinated effort for global and domestic economies to bounce back. Noticeably not one of the 50 heads of state to join the meeting was United States President Donald Trump who has argued smart leaders put the interests of their country first.

  • United Kingdom Prime Minister Boris Johnson announced Thursday that England has met all five of the government’s tests for easing the lockdown. Therefore as of Monday June 1st, groups of six people can meet outdoors, outdoor retail and car showrooms can reopen and primary schools can resume as well. Non-essential retailers will be allowed to reopen starting June 15th with social distancing measures in place.

  • France Prime Minister Edouard Phillippe announced the country will relax travel restrictions inside the country and allow schools, cafes and restaurants to reopen next week. The announcement marks the second stage of France’s easing from their lockdown. The first stage happened on May 11th after a two-month shutdown. The country like many others throughout the world has seen their economy suffer with unemployment claims rising to 22% in April.

  • Philippines President Rodrigo Duterte has approved a recommendation to relax lockdown restrictions in Manila as of June 1st. Gatherings of up to ten people will be allowed, shops and some public transportation will reopen, while movement in and out of the capital city will be permitted. However, provided people wear masks and observe social distancing. The relaxed rules are happening even though the country reported its highest daily infection rate on Thursday. As of this weekend, Manila’s lockdown will surpass Wuhan’s, ground zero for the coronavirus epidemic, in terms of length.

  • South Korea announced on Thursday they will be strengthening quarantine measures in Seoul and surrounding areas after experiencing its largest jump in daily infections in nearly two months. Public facilities such as galleries and parks will be closed for two weeks while the country’s health minister has urged entertainment venues to suspend operations as well.

Covid-19 – Due Diligence And Asset Management

Finance CEO’s Worry Markets are too Optimistic About Economy

Brief: Leaders of the biggest financial companies are getting more optimistic about an economic rebound as the pandemic lockdown eases, but say recent stock gains might have overshot reality. “The market is assuming that we’re not going to see a severe second wave or third wave” of Covid-19, and that treatments will become available to cushion the impact of new outbreaks, BlackRock Inc. Chief Executive Officer Larry Fink said Wednesday at a virtual industry conference. “I do believe jobs are going to be slower coming back than other people believe.” Stock-market optimism was particularly pronounced this week, with some of the best performers, including Carnival Corp. and United Airlines Holdings Inc., among those hurt most by the pandemic. The S&P 500 has increased 36% since reaching its lowest in almost 3 1/2 years on March 23. Signs that economies are starting to come to life and prospects for a vaccine helped fuel the gains, as did upbeat comments from policy makers and business leaders. JPMorgan Chase & Co. CEO Jamie Dimon said some borrowers who requested forbearance are still making payments, and banks could be done adding to loan-loss reserves after this quarter.

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Hedge Funds Seek Distressed Debt Mavens Amid Pandemic Turmoil

Brief: First came the money. Now it’s the manpower. Hedge funds and investment firms are scouting for distressed debt specialists as they raise large war chests to snap up bargains amid the downturn triggered by the coronavirus pandemic. Elliott Management Corp., Signal Capital Partners and Taconic Capital Advisors have all embarked on a hiring spree in recent weeks, while headhunters Paragon Search Partners are juggling requests for distressed debt hires. “There’s so much money being raised, it requires more people on the ground,” said Louisa Watt, a lawyer who advises distressed debt funds as a partner at Brown Rudnick LLP. This is the busiest her clients have been in years, she added. One of the hedge funds she works with has done more trades in the last six weeks than they did in the last two years combined. Firms including Oaktree Capital Group LLC, Highbridge Capital Management and Chenavari Investment Managers are seeking to raise a record $68 billion to target companies that have been punished by the global economic shutdown, according to data compiled by Preqin.

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Property Fund Income Seen Plunging 35% and Value Slump May Last Beyond Crisis

Brief: Investors relying on commercial property funds could lose up to 35% of their income as rents dry up during the pandemic, and experts warn them to "brace themselves" for a looming crash in values even if the market bounces back. Asset managers running some of the UK’s largest commercial property funds are beginning to warn their clients to expect lower payouts as the virus hammers the industry. According to a Legal & General investor note, sent on 22 May and seen by Financial News, the firm’s £2.8bn UK property fund has collected 76% of the rent required by the end of March. L&G said that it collected 88% of required rent from offices, 81% from industrials, 76% from alternatives, 61% from retail, and 15% from leisure. L&G's rental collection from offices is holding up so far, but there might be fewer firms looking to rent space due to the success of swathes of employees working from home. Analysis from occupier consultancy DeVono Cresa found that demand for commercial property had dipped by 30% in the first quarter of 2020.

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Home Trading Triggers Bank ‘Black Hole’ Surveillance Alerts

Brief: Potential breaches of market rules have spiked since traders began working from home in March, drawing scrutiny from regulators and piling pressure on banks to plug “black holes” in surveillance systems, industry officials say. With banks unable to check in person on the behaviour of traders working remotely, they have to rely on machines that flag any apparent bad behaviour or suspicious transactions made under the unusual coronavirus crisis working conditions. “In your kitchen or spare bedroom there is no colleague to monitor what you are up to and what we are seeing across a number of clients is a spike in escalations,” said Erkin Adylov, CEO of Behavox, whose software is used by banks, hedge funds and asset managers in New York, London and Asia to monitor staff. Behavox has seen an 18% rise in conduct being “escalated” or singled out for scrutiny among clients since March, ranging from swearing to more serious incidents like disclosing client names.

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Canada’s Big Banks Set Aside $7.9 Billion for Soured Loans

Brief: Toronto-Dominion Bank and Canadian Imperial Bank of Commerce set aside record amounts for soured loans in the fiscal second quarter, bringing total provisions for Canada’s six-biggest banks to C$10.9 billion ($7.9 billion) as they brace for the coronavirus pandemic’s economic aftermath. Toronto-Dominion reported the biggest set-asides among the country’s large lenders, earmarking C$3.22 billion, while CIBC’s figure was C$1.41 billion. The higher provisions for credit losses eroded net income in the three months through April, with both companies missing analysts’ earnings estimates. The Canadian banks, like their U.S. counterparts, are building up reserves in anticipation of expected stresses to consumers and companies from the outbreak, which brought the North American economy to a virtual standstill and boosted unemployment on both sides of the border. Loan-loss provisions topped analysts’ expectations of C$8.9 billion for Canada’s six biggest banks.

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Private Equity in the Covid-19 Crisis

Brief: While the impact of the coronavirus pandemic on global stock markets is clear to see, it's harder to discern its effect on private equity markets. Investors in unlisted companies don't have the option to buys and sell shares at a moment's notice as they do with businesses listed on the stock market, but that doesn't mean these firms can't see their valuations plunge during a crisis. Private equity is typically viewed as a risky area of investment. Lack of liquidity is a prime concern as it can take a long time to offload an investment, and fledgling businesses are often prone to failure. Concerns around the risk of the sector were raised last year during the high-profilecollapse of the Woodford Patient Capital Trust, which was taken over and renamed by Schrodersafter embattled investor Neil Woodford closed his eponymous fund firm. Investment trusts have been caught up in the market turmoil of recent months and private equity trusts have not come out unscathed; Morningstar Direct data shows the average Private Equity investment trust is down 20.1% year to date. That compares with the FTSE 100, which is still down 20% year to date, and the S&P 500, down 13%. Just one of the 14 trusts in the sector, BMO Private Equity Trust (BPET), is in positive territory, with its share price up 2.42% year to date. Its peers, meanwhile, have seen their share prices tumble by as much as 49%. 

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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 May 27, 2020:

  • In the United States, Dr. Anthony Fauci, the nation’s top infectious disease expert and a member of the White House coronavirus task force, has called on Americans to wear face masks when out in public. Dr. Fauci said while the use of a mask is not 100% effective, it is a valuable safeguard and shows respect for one another if each person is wearing a mask. However, even something as small as a mask can stoke political fires within the United States as President Donald Trump refuses to wear one in public and criticized his November presidential opponent, Joe Biden for wearing one during a Memorial Day service.

  • The fallout from the military’s report on the state of long-term care homes in Canada’s two largest provinces continues. The Quebec government made the military’s report public on Wednesday, after receiving it the day before. The report provides an account on the 25 long-term care homes where members of the military were asked to assist during the pandemic. In many cases the report described of how staffing and equipment were inadequate when they arrived, but has since improved. While not overly encouraging, the report didn’t seem to be as dire as those outlined in the five cases in Ontario on Tuesday. More than 60% of the COVID-19 related deaths in Quebec have occurred in long-term care homes.

  • The United Kingdom launched its test and trace system on Wednesday. The National Health Service programme is designed to identify and isolate those infected with the coronavirus. Those infected will share their recent contact information and anyone identified as a contact will be expected to stay home for 14 days, even if they feel well to stop the virus from spreading. Along with the test and trace system, Prime Minister Boris Johnson said it was the government’s ambition to ensure coronavirus tests are returned within 24 hours. However, Prime Minister Johnson would not commit to a timeline, other than noting ,“It’s going to be as soon as possible.”

  • France, Italy and Belgium have halted the use of hydroxychloroquine to treat patients suffering from COVID-19. The move comes after the World Health Organization decided to pause a large trial on the drug due to safety concerns earlier in the week.

  • The European Commission has called for the power to borrow €750 billion to help bankroll recovery efforts from the coronavirus. European Commission president Ursula von der Leyen wants a transformation of the European Union’s central finances that will allow them to raise large capital, which then can be redistributed to hard-hit member states.

  • According to a media report, the German government wants to end a travel warning for tourist trips to 31 European countries from June 15th. Elsewhere in the country Chancellor Angela Merkel will concede more power to its 16 states as they continue to fight the coronavirus pandemic. Chancellor Merkel has insisted on social distancing and mask wearing as vital to avoid a new wave of infections as states that have seen a low amount of cases want to move away from stricter rules.

  • A plan for a travel bubble between Australia and New Zealand could be presented to both governments as early as next week. The travel bubble could be operational by September as Australians are the largest national cohort visiting New Zealand, accounting for 40% of foreign arrivals and Australia is the most popular destination for New Zealanders travelling overseas.

Covid-19 – Due Diligence And Asset Management

Pompeo Certifies Hong Kong is no Longer Autonomous From China, Jeopardizing Billions of Dollars in Trade

Brief: Secretary of State Mike Pompeo said he certified to Congress Wednesday that Hong Kongno longer enjoys a high degree of autonomy from China -- a decision that could result in the loss of Hong Kong's special trading status with the US and threaten the autonomous region's standing as an international financial hub… His decision comes after Beijing introduced controversialnational security legislationfor Hong Kong -- legislation that Pompeo again denounced in Wednesday's statement as a "disastrous decision." Last week, the top US diplomat warned that the passage of the legislation would be a "death knell" for Hong Kong's autonomy. The proposed law hasprompted protestsin Hong Kong and has been denounced internationally, with observers warning it could curtail many of the fundamental political freedoms and civil liberties guaranteed in the agreement handing the city over from British to Chinese rule in 1997.

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Australian Investment to Stay at Home After Pandemic, IFM Says

Brief:One of Australia’s largest investment firms expects to see more demand for assets in its home market in the coming year as the coronavirus pandemic slows the recent wave of money flowing out of the country. IFM Investors Pty., a A$156 billion fund ($104 billion) owned by 27 of Australia’s largest not-for-profit retirement firms, is seeing appetite among its clients for local infrastructure projects, Chief Executive Officer David Neal said. The firm is considering raising new capital to lend to struggling companies and will consider being a cornerstone investor in future capital raisings by Australian-listed companies… Favoring local assets would mark a shift in strategy for the nation’s A$2.7 trillion pension pool -- the world’s fourth largest -- that’s been sending more money offshore in recent years as it outgrew the local market and investment opportunities dried up. It’s an opportune time as the government weighs new spending, with the economy on the brink of its first recession in almost 30 years.

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BlackRock CEO Says It’s Still Worth Betting On Global Equities

Brief: BlackRock Inc. Chief Executive Officer Larry Fink said it’s still worth betting on equities in the long run even though the coronavirus convulsed global stock markets this year and troubles may still lie ahead. “Even today, a strong ownership in the new economies over long horizons is going to be a great asset class,” Fink said on a Deutsche Bank AG webcast on Wednesday. “The only asset class over a long horizon that you can rest assured, over long horizons, that you’re going to be safe, will be global equities.” That doesn’t mean the near-term picture looks rosy. Fink’s remarks come weeks after he delivered a grim message on a private call with clients of a wealth advisory firm. Bankers he’s spoken to expect the coronavirus pandemic will hit American companies hard, with cascades of bankruptcies to follow, Bloomberg News reported at the time. Fink, whose firm is the world’s biggest asset manager, acknowledged Wednesday that near-term pain probably lies ahead.

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Goldman is Bringing Traders Back to Offices in New York and London in the ‘Next Several Weeks’

Brief: Wall Street is heading back to work. Goldman Sachs is planning on having some of its traders and other markets personnel return to offices in the U.S. and London in the next few weeks, executive John Waldron said Wednesday in an investor conference. “We are beginning the process of returning to our offices around the world,” said Waldron, who is Goldman’s president and chief operating officer. “We are planning for a core group of people in our markets-facing businesses to return in the US and London over the next several weeks.” Goldman, a top player in global trading and capital markets businesses, sent New York-area employees home in March as lockdowns began in the U.S. The bank’s Wall Street-centric businesses performed well in the first quarter, exceeding analysts’ expectations amid record volatility. Now, some of the 98% of bank employees working from home will begin to return to the bank’s offices in Manhattan, New Jersey and Connecticut.

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Frozen UK Property Funds Face Existential Crisis

Brief: British property funds are set to remain frozen for months as the market is impossible to value due to the coronavirus crisis, and some may need to change structure to survive, industry sources say. Ten big open-ended property funds tracked by Morningstar, with a total of 6.5 billion pounds ($8 billion) under management, stopped investors from getting their money out in mid March, saying valuers could not accurately assess real estate assets in a plunging economy.With question marks over the future of office working, the retail industry in crisis and the housing market only just reopening, the price of property is set for a major readjustment, but a dearth of transactions means the scale of change is still unclear.“This is a crisis unlike any other,” said Ben Sanderson, a director at Hermes Real Estate Investment Management. “In the short term, it’s going to be hugely challenging.”

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The II Fear Index: Investors Want the Fed’s Support, Even if it Increases Credit Risk

Brief: Nearly three-quarters of investment professionals believe the U.S. Federal Reserve’s corporate credit buying programs have stabilized markets since their lows in March. But this week’s II Fear Index reveals investors are also worried about new risk introduced by the initiatives — including a dangerous assumption of credit risk by the public. For six weeks, Institutional Investor has been polling investment professionals about everything from government initiatives to the rationality of equity investors for the weekly II Fear Index. This week’s survey had 168 respondents, the highest yet for the poll. About 74 percent of the surveyed investment professionals said the move by the Fed to purchase corporate bond ETFs, a first for the central bank, provides necessary liquidity to credit markets. But 70 percent said the Fed’s ETF buying also “raises concern about careless risk taking.” Sixty-seven percent of respondents said the initiative “unreasonably encouraged shifting credit risks from the private sector to the public sector.”

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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 May 26, 2020:

  • In the United States, New York governor Andrew Cuomo rang the opening bell at the New York Stock Exchange (NYSE) for the first time after a two-month shutdown due to the coronavirus pandemic. The NYSE in its current form is only partially reopened with roughly 100 brokers on the floor, most of those from small firms dependant on the physical space the NYSE provides. Traders were prohibited from using public transport to get to work, required to sign papers indemnifying the NYSE if they catch the coronavirus and follow the exchange’s health regulations.

  • Anger. Sadness. Frustration. These were the words used by Canadian Prime Minister Justin Trudeau after the military acted as a whistleblower signifying “extremely troubling” cases of elder abuse in Ontario long-term facilities they were called into help. The CBC is citing sources on details from the report that include residents going unbathed for weeks, cockroaches, and cases of Covid-19 patients roaming the hallways of the facilities. An emotional Ontario Premier Doug Ford called the long-term care system in the province “broken” and that his government was determined to fix it. It is unclear if similar abuse allegations were made as well by military officials at the Quebec nursing homes they were called into help with, although local media in the province has called attention to similar circumstances.

  • United Kingdom Prime Minister Boris Johnson’s government continues to come to the defence of his chief advisor. During a news briefing on Tuesday, health minister Matt Hancock said Dominic Cummings acted “within the guidelines” issued by the government when he traveled to northern England during the coronavirus lockdown.  Hancock said the trip was considered of exceptional circumstances due to childcare purposes. A poll has 60% of UK citizens believing Cummings should resign, but Prime Minister Johnson refuses to fire him, and Cummings refuses to quit.

  • Germany’s government, along with state premiers have agreed to extend social distancing guidelines until June 29 to help continue curb the spread of the coronavirus. The government has also agreed to a €9 billion deal with airline company Lufthansa to save it from economic collapse. The German government will take a 20% stake in the firm, which it intends to sell by the end of 2023. The deal now needs to be approved by the firm’s shareholders and the European Commission.

  • Dubai will raise the number of people allowed into shopping centres, offices and restaurants as of Wednesday. Businesses will be allowed to increase the number of employees going into offices to 50% (up from 30%). Shopping centres will be able to operate at 70% capacity (up from 30%) and cinemas closed from late March, can reopen allocating two seats per customer, leaving space horizontally and vertically.

  • Philippine President Rodrigo Duterte said during a televised address on Monday that students will not return back to school until a vaccine is available. Public school normally runs from June to April in the Philippines, but the start of the school year was pushed back to August 24th due to the coronavirus.

  • According to Chinese state media, the city of Wuhan has conducted more than 6.5 million coronavirus tests in just nine days. The ambitious city-wide plan to test all of its 11 million citizens is to prevent a second wave of the coronavirus as Wuhan represented ground zero of the global pandemic.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Plan Extreme Lengths to Protect Stars After Lockdown

Brief: One hedge fund may shut an office in Asia permanently and have employees work from home. Another may dramatically shrink its Manhattan headquarters. Meanwhile, industry titan Millennium Management has a 50-point checklist for reopening offices that includes air filtration and an application process for staff who want to come in. Around town, rivals are discussing procuring infrared temperature scanners for entryways and plexiglass dividers to slide between desks. If Wall Street’s big banks are adopting off-the-rack approaches to reopening skyscrapers to armies of employees, the asset management industry’s solutions are much more bespoke. Interviews with almost a dozen industry players show their plans are idiosyncratic and may go to new extremes. It reflects their need to protect star traders at any cost, but also the reality that they have less control over buildings shared with other tenants.

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Asset Managers Forced to Disclose Pandemic Failures Under New Stewardship Code

Brief: Asset managers will have to explain how they ignored the risk to their investments posed by a pandemic like Covid-19, under the new UK Stewardship Code that came into force this year. BlackRock, Fidelity International, Standard Life Aberdeen, Schroders and Legal & General Investment Management are among the leading companies that say they did not raise pandemic risk in discussions with companies or take it into account in investment decisions. Under the new code, asset managers are required to publish a report detailing “how they have identified and responded to market-wide and systemic risks” and “how they aligned their investments accordingly”. Even though the new code applies only from the start of the year, the Financial Reporting Council, the regulator that oversees the code, says that companies will be expected to say whether they took any account of pandemic risk before the outbreak.

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Hedge Funds Target France as Short-Selling Bans Lifted

Brief: A cluster of big name hedge funds have started betting against French companies, moving in after the lifting of a short-selling ban imposed earlier this year to calm financial markets, an analysis of regulatory filings showed. France joined Italy, Spain, Belgium, Austria and Greece in dropping short-selling bans last week. They had banned the practice for many stocks two months ago to curb extreme stock market volatility caused by economic uncertainty that has resulted from the coronavirus lockdowns. Hedge funds engage in so-called “short-selling” by borrowing a stock from an institutional investor, such as a pension fund, and selling it back when the shares fall, pocketing the profit… Citadel, Marshall Wace and Millennium are among hedge funds that have taken out short positions on French companies over the past week, with Peugeot (PEUP.PA) and Air France-KLM (AIRF.PA) among the most prominent targets.  British hedge fund Sandbar Asset Management took the opportunity to double its short position in Air France to 1.2% of the company’s equity capital on May 20, from 0.6% on March 17.

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Rich Chinese Investors Snapping up Luxury Homes from Singapore to Sydney

Brief: Rich Chinese investors are finding luxury real estate is a good hiding place from the economic fallout of the coronavirus. Across China and in some of their familiar hunting grounds in Asia, wealthy buyers are snapping up top-end housing, in many cases to guard their wealth against anticipated inflation and a weakening yuan. The rush to add real estate has led to a jump in upmarket housing prices in China, while offering some support for Asian property markets hit hard by the pandemic. "It's been flat-out," said Monika Tu, founder of Black Diamondz, an Australian company that caters to Chinese buyers of luxury real estate. Since March, Tu has sold A$85 million (S$79.3 million) of prime property, with about half the sales to Chinese clients who were in Australia when the pandemic hit. That's a 25 per cent jump from earlier in the year. The homes, priced between A$7.25 million and A$19.5 million, are all in Sydney's well-heeled, ocean-front suburbs such as Point Piper.

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Armed with Whistleblower Tips, U.S. SEC Cracks Down on Coronavirus Misconduct

Brief: The novel coronavirus outbreak and economic fallout is proving to be a bonanza for whistleblower lawyers as the U.S. securities regulator cracks down on a range of related misconduct from companies touting sham cures to misuse of federal aid. The Securities and Exchange Commission (SEC) fielded about 4,000 complaints from mid-March to mid-May, a 35% increase on the year-ago period, Steven Peikin, the agency’s co-head of enforcement, said this month as cases of COVID-19, the respiratory illness caused by the coronavirus, shot up… Getnick said a broad range of misconduct related to the COVID-19 outbreak, such as loan fraud, price-gouging, counterfeit or substandard medical goods, or healthcare fraud, could potentially find their way into the SEC’s remit, due to the breadth of U.S. securities law.

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Only a Few Hedge Funds Made Money in March and April: Here’s How

Brief: Father-of-six Nicolas Bryon didn’t get much sleep in March but it wasn’t family duties keeping him up. As global markets crashed, the Sydney-based hedge-fund manager rose every hour to check on his positions and execute trades. After weeks of broken sleep, his Atlantic Pacific Australian Equity Fund was up 23.6% for March and April, making it one of the rare hedge funds globally that made money in both periods. The two wildly different months messed with even some of the biggest money managers. In March, several bears reaped fortunes by betting on falling markets, only to lose money in April when government stimulus revived stocks. Globally, just 13% of hedge funds made money in both months, according to data compiled by Bloomberg. A number of those that did exhibited similar traits: an ability to trade across different geographies or asset classes and a hyper-vigilance toward monitoring positions.

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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 May 25, 2020:

  • The United States have suspended entry for anyone who has been to Brazil in the previous 14 days as both countries are now one-two when it comes to coronavirus cases. President Donald Trump’s administration had previous banned travel from other coronavirus hotspots in the world including China and Europe. Not on the banned travel list for America is Russia though, who have the third most coronavirus cases in the world.

  • The World Health Organization (WHO) have temporarily suspended studying hydroxychloroquine as a potential Covid-19 treatment due to safety concerns. This comes after a medical journal published last week described how Covid-19 patients who were treated with hydroxychloroquine and chloroquine were more likely to die. President Trump and Brazil President Jair Bolsonaro have both pushed the drugs as potential treatments for the virus, with President Trump stating he has taken the drug himself.

  • United Kingdom Prime Minister Boris Johnson finds himself in hot water as he tries to defend the actions of his top adviser. Dominic Cummings is facing widespread criticism for traveling more than 250 miles from his London home during the nationwide coronavirus lockdown. Cummings left with his wife and child to seek support from family members after his wife contracted Covid-19 and he started showing symptoms. Cummings defended his actions saying he did what he did to ensure the welfare of his child. Cummings is best known as the man who ran the successful BREXIT campaign and is credited with helping Johnson become Prime Minister.

  • In Canada, the province of Ontario didn’t have a banner weekend in the eyes of public opinion. On Saturday, multiple media reports displayed images of a Toronto area park looking like a mini-Woodstock with people caring little for social distancing. Even the mayor of Toronto, John Tory had to apologize after images of him circulated visiting the park trying to understand what happened. The problem for Tory was he did so with a protective mask sitting below his chin while talking to others in close proximity. In Quebec, Montreal-area retail stores (shopping malls still closed) were allowed to reopen for the first time on Monday since they were forced to close in late March. Montreal was the hardest hit city in the country and was the last region in Quebec to ease out of its lockdown.

  • Spain continues to ease its lockdown restrictions, announcing as of July 1st the country will lift quarantine measures for arriving international tourists. As of right now, Spain currently enforces a two-week quarantine for all international travelers into the country whether they are Spanish citizens, or foreign arrivals. Spain is looking to revive the tourism and hospitality sectors of its economy as it accounts for 12% of its GDP and 2.6 million jobs.

  • Japan’s Prime Minister Shinzo Abe lifted the coronavirus state of emergency for Tokyo and four other remaining areas, ending the restrictions nationwide. Japan has been fairly lucky compared to other densely populated areas with about 16,600 confirmed cases and about 850 deaths, despite its softer restrictions. However, to keep balancing protective measures with the economy, Prime Minister Abe will extend its travel ban to 111 countries as of Wednesday. The ban will now include the United States, India and South Africa, and forbids foreign nationals who stayed in those countries from entering Japan.  Japanese citizens can still enter the country as long as they undergo medical testing and a 14-day self-quarantine.

Covid-19 – Due Diligence And Asset Management

UBS to Start Own Venture Capital Fund in Effort to Digitize Bank

Brief: UBS Group AG is setting aside hundreds of millions of dollars of its own money to invest in fintech companies, joining peers in financing startups that are upending traditional banking. The Swiss wealth manager is planning a corporate venture capital fund to make investments between $10 million and $20 million in dozens of companies, according to a person familiar with the matter. UBS plans to hold the stakes for at least five years, the person said, asking for anonymity because details haven’t been finalized. A UBS spokeswoman confirmed the bank is starting such a fund, while declining to comment on specifics. The venture fund comes just months after UBS named ING Groep NV’s Ralph Hamers, an outspoken champion of digital banking, to succeed Sergio Ermotti as chief executive officer from October. While wealth management -- UBS’s biggest business -- is traditionally a high-touch operation, with clients valuing personal contact, the coronavirus pandemic has accelerated a shift toward digital services.

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Canada’s Banks to Cement Status as Solid Investments in a Crisis

Brief: Canadian banks, whose dividends yields climbed during the financial crisis, are again gaining favor with investors, as their pledges to maintain payouts gives them an edge over global counterparts who have shunned them. Canadian banks are currently offering dividend yields of 5.7% versus U.S. banks’ 4.2% and European lenders’ 1.7%, according to Datastream. Dividends are seen as evidence of good financial health and encourage loyalty from investors, particularly in the current low-yield environment. Canadian lenders have seen the smallest declines in share prices versus peers in Europe and the United States in the past three months. “Globally, there continues to be a pursuit for yield … and there are simply not many places where you can get yield anymore,” said Kash Pashootan, Chief Executive Officer of First Avenue Investment Counsel.

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Consultants Revisit how to Assess Managers Amid Pandemic

Brief: The remote-working environment is forcing investment consultants to rethink the way they assess money managers on behalf of institutional investors, leading to concerns over the ability of firms to get onto all-important recommended lists. The coronavirus pandemic and subsequent lockdowns worldwide have not stopped investment strategy search activity. And with institutional investors back up and running when it comes to hiring — and perhaps terminating — managers as they pick over market opportunities, consultants now have to keep up with any changes within existing relationships, and in some cases familiarize themselves with new firms and strategies, in a virtual manner. "Can we build the same level of conviction virtually? The answer is probably no, but it's not quite as bad as we feared," said Nick Samuels, London-based head of manager research at investment consultant Redington Ltd. "It's a little more efficient, you can get through more in a shorter space of time, and we don't have the travel time we used to, which can instead be used by meeting more people, or further desk-based quantitative work."

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Covid-19 Could Force Private Capital Managers to Lower Their Fees

Brief: Asset allocators are likely to have the upper hand over managers in any near-term commitments to private capital funds, if recent history is any indication. Preqin data from 2009 indicates that limited partners were better able to negotiate lower fees and other favorable terms in the wake of the 2008 financial crisis. In the 2009 survey of private equity investors, 43 percent said the balance of power had shifted toward LPs, while just 2 percent believed that general partners had gained power. Thirty-six percent said their position had not changed, while the rest reported that they weren’t investing in private equity at the moment. “The few LPs with fresh capital to commit found themselves in a stronger position to negotiate fund terms and conditions in their favor,” Preqin analyst Ashish Chauhan wrote in a new blog post discussing the 2009 data. “Some fund managers were able to compete for this investor capital by offering more LP-friendly terms and conditions.”

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U.S. Charges Ousted Hollywood Executive with Defrauding Pandemic Loan Program, BlackRock Fund

Brief: U.S. prosecutors have charged the recently ousted owner of a Hollywood movie distributor with defrauding a federal coronavirus Prosecutors said William Sadleir, 66, diverted much of the $1.7 million of loans he received on May 1 from the Paycheck Protection Program for personal expenses. He allegedly did this after falsely telling JPMorgan Chase & Co and the Small Business Administration the funds were meant for his former company Aviron Group, which had terminated him in December and where he has no current role. The PPP was meant “to help small businesses stay afloat during the financial crisis, and we will act swiftly against those who abuse the program for their own personal gain,” U.S. Attorney Nick Hanna in Los Angeles said in a statement. Sadleir was also accused of having previously induced the closed-end BlackRock Multi-Sector Income Trust Fund to invest $75 million in Aviron to support its films.

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Sculptor Credit Funds Draw Cash After Deep March Losses

Brief: Sculptor Capital Management’s (SCU.N) credit funds drew inflows from investors even as losses piled up at its SCU Credit Opportunities fund after weeks of coronavirus-fueled market swings.Credit funds operated by Sculptor, formerly known as Och-Ziff Capital Management, received around $1 billion in new money in recent weeks, a person familiar with the fund said.Those inflows come despite a rocky March in which the fund badly underperformed its peers. The SCU Credit Opportunities Fund, part of Sculptor’s $6 billion lineup of credit portfolios, was down 19.2% in the year to date through April after a 21.5% drop in March, according to investors in the fund.By contrast, the credit-sensitive HFRI Event Driven Index was down 9.32% in the same time frame.A representative for Sculptor, which manages a total of $35 billion in assets for pension funds and other wealthy clients and is one of the industry’s few publicly-listed firms, declined to comment.

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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 May 22, 2020:

  • As the United States heads into their Memorial Day long weekend, President Donald Trump has ordered states to allow places of worship to reopen from stay-at-home restrictions as of this weekend. President Trump said he would override any governor who refuses, declaring churches an “essential” service if need be under CDC guidelines. Media outlets are reporting it is unclear if President Trump has the power to override state orders to close churches or limit the size of services.

  • An article from the CBC says Canada is reopening without knowing where Canadians are getting COVID-19. The article sites the country’s two largest provinces as examples that make medical experts very nervous. For instance, Ontario has seen new daily cases trend upward, testing falling below their targets, and the source of infection for new cases remaining a mystery. In Quebec, their director of public health is not satisfied with number of people being tested as it falls far below their capacity of 20,000 per day. Similar to Ontario, their latest public health data provides no clear explanation on why infection rates continue to occur months after lockdown.

  • New plans from the United Kingdom will have travellers arriving in the country facing possible fines of £1,000 for violating self-isolating rules of 14 days. As part of the plan to prevent a second wave, starting June 8th, foreign nationals and British citizens arriving in the country will be told to share their contact details with the authorities. Health officials will then conduct spot checks at homes, with people breaching the rules facing fines.

  • As of Monday, two of Spain’s largest cities will being phasing out of the country’s lockdown. Madrid and Barcelona citizens will be able to meet in groups of 10, travel within their provinces and bars and restaurants will be allowed to serve clients outdoors. Local city officials from both Madrid and Barcelona have been feuding with the Spanish government for two weeks to lift the lockdown measures in place.

  • With the world dealing with the coronavirus pandemic, it appears China is making a play to tighten control over Hong Kong. China plans on setting up national security agencies directly in Hong Kong which critics fear will stir up tensions in the area. The move by Beijing caused the worst one-day performance of Hong Kong’s stock market in five years as there are now new concerns over the future of Asia’s financial hub.

  • The Australian government found a good mistake after a revision noted that the number of Australians expected to be covered by the wage subsidy scheme is actually half of what was expected. Australia’s Treasury Department said successful efforts to control the outbreak, combined with errors on applications by about 1,000 business means only 3.5 million people need to be covered under the program at a cost of $70B. The original tally had the government on the hook for 6 million people and $130B.

Covid-19 – Due Diligence And Asset Management

Full Disclosure? Hedge Funds Navigate COVID Health Questions

Brief: As the hedge funds once clustered in London’s Mayfair negotiate gyrating markets, they are facing a new line of investor questioning: who has contracted COVID-19? With billions sometimes riding on the performance of one star manager, or a small constellation of talent, investor interest in delving into the medical status of staff — a realm considered by many private — is perhaps understandable during a pandemic. “The important thing for managers is planning – what do they intend to do on the basis of when, not if, they get the virus,” said one of three investors who told Reuters they wanted to be informed about any coronavirus infections at the hedge funds they invest with. But most of Britain’s hedge fund managers have no protocol for divulging such details and there are no specific legal requirements for them to do so, according to Samuel Brooks, a partner at law firm Macfarlanes… They say they would only tell investors if their top managers fell seriously ill, but not necessarily inform them of a mild infection, or if lower-ranking staff became sick, according to interviews.

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World’s Biggest Investors Fear Second Virus Wave Will Derail Stock Rallies

Brief: Some of the world's biggest investors are worried that a second wave of coronavirus could derail the global stock market recovery, with many anxious about further lockdowns being put in place as a result. A poll of global investors, which manage more than $17tn collectively, found that 70% of hedge funds and long-only investors are “somewhat worried” or “very worried” about another outbreak of the disease, which has so far killed more than 320,000 globally and caused near economic paralysis. Respondents to the survey, conducted by online opinion sharing platform Procensus, also put a 34% probability on their region entering full lockdown again. The poll found that 34% are now prioritising data signals on infection rates and a second wave of Covid-19 cases, over news of a vaccine being developed. More than 30% of investors said they do not expect a vaccine to be ready on a global scale until 2022 at the earliest. However, others are more optimistic with 22% expecting a vaccine will be available by the second quarter of 2021.

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Bored Day Traders Locked at Home Are Now Obsessed with Options

Brief: Forget buy-and hold. Stuck at home and dreaming of a killing, bored retail traders are branching out into all manner of Wall Street exotica. Darting in and out of stock options, dabbling in complicated exchange-traded funds, devouring trading how-to books by the dozen -- all have become tools in the self-directed portfolio playbook. Locked down and socially distant with lots of time and (apparently) money to spare, they’re leveraging zero-percent brokerage fees in new and surprising ways. Big shock: Wall Street says it will end badly. “Obviously you’re exposing yourself, depending on how you’re doing it, to catastrophic loss,” said Brian Nick, chief investment strategist at Nuveen. “If you get a lot of investors in either individual securities, companies or investment strategies that they may not have experience with, it could lead to unhappy investors down the road.” Whatever the advisability, individual investors have been a rising force in the $6 trillion stock rebound. Contrary to old-school theories that mom and pop bail at times of market crisis, they piled in this year, lured by free trading and, probably, boredom, with casinos closed and sports betting halted. 

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Hedge Funds Increased Exposure to Growth Favorites in First Quarter: Goldman

Brief: Hedge funds concentrated their portfolios even further into growth stocks including Amazon.com Inc (AMZN.O) and Microsoft Corp (MSFT.O) in the first quarter of 2020 as the COVID-19 pandemic pummeled U.S. markets, Goldman Sachs analysts said in a report. The two American multinationals saw the largest increase in hedge fund holdings, according to an analysis by the bank of 822 funds with 1.8 trillion in gross equity positions. Along with Facebook Inc (FB.O), Alphabet Inc’s Google (GOOGL.O) and China’s Alibaba (BABA.N), they have been hedge funds’ top five long positions for seven consecutive quarters, the report said. Goldman Sachs said the focus on growth stocks, which tend to outperform the overall market, had supported recent hedge fund performance as Wall Street witnessed one of the quickest turns to a bear market amid a near-collapse in business activity.

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Invesco FX Manager Goes Long on Risk Despite Data ‘Cratering’

Brief: As the global economy contends with the biggest growth slowdown in decades, an Invesco fund manager has flipped his positions. Alessio de Longis, a New York-based fund manager at the $1.3 billion Invesco Oppenheimer Global Allocation Fund, said he is now underweight traditional haven currencies -- including the yen and the Swiss franc -- which are overvalued relative to their peers. He’s considering adding more exposure to the euro, Canadian dollar, Swedish krona and Norwegian krone since those are likely to carry more upside potential when growth prospects pick up. These currencies may get a boost as central banks and governments globally unleash billions of dollars in stimulus and rate cuts to counteract the crisis. Even though the outlook is grim at the moment, de Longis believes much of the current economic gloom has already been priced in.

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Apps to Book Elevator Rides, Masks and Staggered Shifts: Toronto Bankers get Glimpse of New Office Normal

Brief: Elevator queues, mandatory masks and staggered start times may await Toronto’s office workers when they start venturing back to North America’s second-largest financial centre. These are among the measures Cadillac Fairview Corp. Ltd. is pursuing as the commercial property firm prepares for a “measured” return of workers to downtown buildings. The company is landlord to some of Canada’s largest banks as the owner of office towers such as TD Centre and RBC Centre. “It’s going to be a gradual but steady climb back to normalcy,” Sal Iacono, Cadillac Fairview’s executive vice-president of operations, said in an interview. Ontario has been easing restrictions on business as the COVID-19 pandemic, which has killed nearly 2,000 people in the province, finally eases. Office workers should brace for dramatic changes, with numerous precautions to protect them and the public. Cadillac Fairview, owned by the Ontario Teachers’ Pension Plan which oversees 70 properties in Canada including the Toronto Eaton Centre shopping mall, is just one of the city’s large landlords adopting new measures to make returning to work safe.

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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 May 21, 2020:

  • A Reuters/Ipsos poll published on Thursday shows a quarter of Americans have little or no interest in taking a coronavirus vaccine if/when it becomes available. Their reasoning for falling into that category are concerns about the record pace in which vaccine candidates are being developed could compromise safety. The United States jobless claims have reached close to 40 million as another 2.4 million first time benefit applications were made in the last week. For those who like to look at the glass half-full, weekly jobless figures have dropped for seven consecutive weeks since its peak.

  • The president of the Canadian Medical Association (CMA) says the country isn’t prepared for a second wave of COVID-19. “We’re gambling by reopening”, said Dr. Sandy Buchman pointing to a shortage of personal protective equipment and poor testing numbers leaving Canadians vulnerable. During his news briefing on Thursday, Prime Minister Justin Trudeau tried to downplay the president of the CMA’s concern noting the government was focusing on how a resurgence could be quickly contained and controlled. Prime Minister Trudeau said he will talk with premiers Thursday evening to discuss testing and how the federal government can help scale up capacity where needed.

  • The United Kingdom’s continued push to improve the country’s testing now includes a coronavirus swab test potentially capable of returning results in 20 minutes. Speaking at a daily briefing on Thursday, UK health secretary Matt Hancock said the trials will start next week, will last up to six weeks total, and see about 4,000 people tested. Hancock also revealed through a government surveillance study that close to one in five (17%) Londoners have contracted the virus, compared to five per cent of the overall population.

  • Italy will take a huge step in the next few weeks as it tries to recover from the coronavirus. Prime Minister Giuseppe Conte announced as of June 3rd, the country will open its borders to all European Union (EU) countries and the UK with no mandatory quarantine. Just last week, Prime Minister Conte blasted other EU nations and threatened to leave the block over a proposal of “tourist corridors” that might have left Italy on the outside looking in due to being hit so hard by the coronavirus. Prime Minister Conte did not say what would happen if the contagion rate started to climb based on his bold border reopening.

  • Japan’s Prime Minister Shinzo Abe has now ended the state of emergency in 42 of the country’s 47 prefectures after Osaka, Kyoto and Hyogo have showed enough progress to ease some of their restrictions. The Tokyo metropolitan area and Hokkaido in northern Japan will remain under the state of emergency, but Prime Minister Abe said their status could be lifted as early as Monday after a review by health experts.

  • Brazil continues to struggle with the coronavirus epidemic. The country is on its way to trail only the United States for most coronavirus cases in the world. Earlier in the week, Brazil recorded it highest daily infection and death rate, prompting President Jair Bolsonaro to expand the country’s use of chloroquine to treat the coronavirus. United States President Donald Trump told reporters he is considering imposing a ban on travel from Brazil as the country closes in on 300,000 confirmed cases and 20,000 deaths due to the coronavirus.

Covid-19 – Due Diligence And Asset Management

Goldman says buy World’s Worst Stock Market Because Rebound is Coming

Brief: Goldman Sachs is bullish on the world’s hardest-hit stock market. Down more than 48% this year when measured in dollars, Brazilian stocks will benefit from growing appetite for risky assets and a recovery in commodities prices during the second half of 2020, strategists led by Kamakshya Trivedi wrote in a report dated May 20. “Brazilian equities are an ideal bounceback candidate,” the strategists said. They recommended investors go long the benchmark Ibovespa index with a target of 90,000 points, or about 9% above current levels. Investors have fled from Brazilian stocks and its currency this year as the Covid-19 pandemic battered the economy and worsened the nation’s already-fragile fiscal outlook. Assets have been further undermined by political turbulence and a lack of confidence in President Jair Bolsonaro as he downplays the coronavirus threat even as Brazil becomes the world’s hotspot for new infections.

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Has Fund Governance Improved Since the Financial Crisis?

Brief: The 2008 financial crisis exposed many deficiencies in corporate governance practices in the alternative funds industry. Not only was it revealed that a lot of offshore boards failed to prevent managers from succumbing to style drift and investment mandate breaches, but when the crisis hit, many directors simply permitted firms arbitrarily to impose gates and suspend redemptions without proper consideration being given to the best interests of investors. Many were left trapped in funds for long periods as a result. As markets stabilised, investors made it clear that some directors had neglected their fiduciary responsibilities and promptly demanded reform. Twelve years on from the financial crisis, Covid-19 is causing a different set of challenges. 

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Forescout sues Advent to Complete $1.9 Billion Merger

Brief: Forescout Technologies Inc (FSCT.O) sued Advent International Corp on Wednesday, after the private equity firm pulled out of a deal to buy the U.S. cybersecurity company for $1.9 billion.Forescout shares fell 5.2% to close at $19.84.Companies are walking away from acquisitions agreed to before the global coronavirus outbreak as economies suffer from lockdowns and recovery prospects are unclear.Forescout asked the Delaware Court of Chancery to force Advent to complete the deal after the buyout firm notified it last Friday it would back out. The agreement was signed in early February and scheduled to close on Monday.In a statement, Advent responded that it had informed Forescout of the company’s failure to maintain operations and financial resources as required under the agreement.

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The Coronavirus Crisis Will Make the Big Private Capital Managers Bigger

Brief: The largest managers will tighten their grip on private capital markets during the coronavirus pandemic, according to PitchBook. “Covid-19’s impact on in-person due diligence is thwarting fundraising attempts by nearly every GP and further exacerbating the bifurcation between mega-fund managers and everybody else,” Wylie Fernyhough, a senior analyst for private equity at PitchBook, wrote in a new report analyzing fundraising trends. “Business travel and in-person due diligence will likely be inadvisable for LPs for several months, meaning mega-funds and more established firms will continue to assume the lion’s share of capital.” According to the report, private equity firms Thoma Bravo, Silver Lake Management, New Mountain Capital, and Francisco Partners have either launched mega-buyout funds — defined by PitchBook as vehicles targeting $5 billion or more — or are nearing first closes in spite of the coronavirus pandemic. Smaller firms, meanwhile, “have had to push out fundraising efforts indefinitely,” according to Fernyhough.

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The Funds Investors are Dodging in the Dividend Drought

Brief: Investors pulled more than £100m from the Schroder Income fund in March and April of this year as UK companies began culling their dividends and leaving investors bereft of income amid the coronavirus crisis. Estimates from Morningstar showed the Schroder Income fund suffered the largest net outflows out of the Morningstar UK Equity Income sector in the two months, with £106m withdrawn from the portfolio. The Miton UK Multi-Cap Income fund, the Marlborough Multi-Cap Income fund and the Schroder Income Maximiser fund also saw large outflows of around £50m in March and April, while the Majedie UK Income fund saw £46m of net outflows. UK Equity Income funds have had a tough few months as companies scrapped payouts to shareholders during the crisis. The first major blow for income came as the UK’s biggest banks scrapped their payments for the rest of the year following pressure from the Bank of England to maintain a cash buffer to help them through the coronavirus crisis.

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Northern Trust to Shutter Money-Market Fund After Redemptions

Brief: Northern Trust Corp. is shutting down a money-market mutual fund after volatility in March spurred redemptions that sent it below a regulatory threshold for maintaining liquidity. The $1.7 billion Northern Institutional Prime Obligations Portfolio will stop accepting new investments next month and start selling its holdings under a liquidation plan set for July 10, according to a filing Monday. As a prime fund, it can invest in riskier securities than traditional money-market funds, including commercial paper, the term for short-dated bank debt and corporate IOUs. “The Board of Trustees has determined, after consideration of a number of factors, that it is in the best interests of the Prime Obligations Portfolio and its shareholders that the portfolio be liquidated and terminated,” the company said in its filing with the U.S. Securities and Exchange Commission. A spokesman for Chicago-based Northern Trust didn’t immediately have a comment.

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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 May 20, 2020:

  • In the United States, all 50 states have at least partially reopened as of Tuesday with America heading into its Memorial Day long weekend. President Donald Trump has said he is planning to host the G7 leaders conference at Camp David instead of video conferencing from June 10th-12th. The summit’s in-person gathering was cancelled back in March by President Trump as the coronavirus spread throughout the world making safe international travel next to impossible. The G7 conference was originally set at one of President Trump’s golf resorts in Miami, Florida, but that idea was scratched when public sentiment balked at President Trump potentially making a profit by holding it at one of his money-making properties.

  • During a news briefing on Wednesday, Canadian Prime Minister Justin Trudeau was non-committal, only saying “there are lots of discussions to come” when it relates to United States President Donald Trump’s proposal to hold the G7 summit at Camp David. Elsewhere, the country’s chief medical officer has asked the Canadian public to wear a mask as an added layer of protection whenever physical distancing is not possible. Dr. Theresa Tam said the new guidelines come as provinces begin to allow businesses and services to reopen.

  • United Kingdom Prime Minister Boris Johnson has pledged the government will have a track and trace coronavirus system implemented by June 1st as the country looks to ease lockdown restrictions. Speaking in the House of Commons, Prime Minister Johnson hopes to have 25,000 coronavirus trackers recruited by the start of next month that will be capable of tracking the contacts of up to 10,000 new cases a day. The UK government’s nationwide rollout of its tracing app missed its mid-May deadline and officials noted earlier in the week the technology may not be ready for several weeks.

  • Spain has issued a formal order that citizens must wear face coverings in all public spaces where people cannot observe a safe social distance of at least two metres. Previously, it was only necessary to wear masks on public transport. The new system will be enforced as of Thursday for anyone over the age of six with exceptions for people with respiratory problems or other disability issues.

  • Greece’s Prime Minister said the country will be reopened for international tourism by June 15th. Prime Minister Kyriakos Mitsotakis said the country would reopen its borders to tourists from a group of 20 countries with a good track record of containing the coronavirus. Prime Minister Mitsotakis mentioned Germany and Bulgaria by name as two of the nations that will be included in the group of 20.

  • A Dubai survey of companies has found close to three-quarters believe they expect to close within the next six months due to the economic toll of the coronavirus. The survey conducted by Dubai’s chamber of commerce found 27% of respondents expected to go out of business within the next month, while 43% fear the same outcome within the next six months. Dubai has eased its restrictions since late April, but with one of the strictest lockdowns in the world, which included a 24-hour curfew for the majority of last month, the result was a severe economic blow to the private sector.

  • China and Australia are locking horns in a coronavirus battle that will affect the imports and exports of the two key trading partners. Australia has publicly criticized China and its handling of the coronavirus pandemic – something that obviously isn’t sitting well with China. The country is considering targeting Australian exports of wine and dairy in retaliation and have already slapped on tariffs and restrictions of other exports such as meat and barley. Australia is the world’s most-China dependant developed economy.

Covid-19 – Due Diligence And Asset Management

BlackRock’s Biggest Credit ETF Swells to Record Amid Fed Pledge

Brief: The world’s largest credit ETF has ballooned since the Federal Reserve said it will backstop the market. Total assets in BlackRock’s iShares iBoxx $ Investment Grade Corporate Bond exchange-traded fund, ticker LQD, touched a record $46.7 billion on Tuesday, according to data compiled by Bloomberg. That compares to $28.2 billion on March 19, just days before the central bank said it would purchase investment-grade corporate bonds and certain ETFs that tracked them. The Fed’s move spurred a rally in high-grade bond markets, where investors were shedding their holdings in an effort to raise cash amid dire economic data. The central bank’s pledge combined with the asset class’s strong fundamentals makes investment-grade bonds look appealing, according to Columbia Threadneedle’s Ed Al-Hussainy.

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Investor Ricky Sandler Pushes for Herd Immunity Approach to Coronavirus after his Hedge Fund Loses Billions

Brief: A hedge fund chief who had a bullish view of the stock market when social distancing restrictions began is now supporting the idea of herd immunity to coronavirus as states begin to reopen. Ricky Sandler, founder and CEO of Eminence Capital, recently told friends in a letter obtained by CNBC that he believes there should be a widespread attempt at protecting the vulnerable while large portions of the population develop herd immunity. Sandler, who lost billions on his stock market positions nearly two months ago, writes: “With proper coordination, I can envision Artists hosting virus relief concerts where young and healthy people go and hopefully get the virus and then the antibodies which allow them to donate blood to be used as a treatment or a prophylactic.” He went on to say that this proposal, which he calls “Plan B,” also would include “citizens that are comfortable go back to life as we know it with no restrictions.

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JPMorgan to use Common Desks to Make Offices Easier to Clean after Pandemic

Brief: When JPMorgan Chase & Co (JPM.N) staff return to offices in regions slowly re-opening from the coronavirus lockdown, some may be required to sit at common desks, or “hot desks,” a temporary seating arrangement that management hopes will make it easier to clean, according to a memo seen by Reuters. The memo, sent on Wednesday to staff in Europe, the Middle East and Africa, said the bank has no timeline for returning staff to offices, but that it is working on a plan that will limit the number of staff in buildings to about 50% at any one time. A JPMorgan spokesman verified the contents of the memo. That puts JPMorgan's plans in line with Goldman Sachs and other global banks, which are working out plans to return staff to offices while avoiding the kind of close social contact that could lead to a resurgence in the novel coronavirus.

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Did Hedge Funds Score on Masks and Sanitizer? Not so Much

Brief: What would seem like a sure win for elite investors - early bets on companies racing to make face masks, hand sanitizer and other coronavirus-related protective products - turned out to be a relatively unpopular strategy and one with surprisingly mixed results. Few hedge funds increased their holdings over the first quarter in companies associated with so-called personal protective equipment (PPE) such as 3M Co. (MMM.N), Kimberly-Clark Corp (KMB.N) and Honeywell International Inc (HON.N), according to a Reuters review of regulatory filings compiled by research firm Symmetric.io showing stock positions as of March 31. Hedge funds, on a net basis, sold off more than $760 million in those three stocks over the first quarter, according to Symmetric.io data, bringing the number of funds that own them down to 225 from 230.

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Hedge Fund Redemptions Skyrocket in March as Investors Pull USD85bn Amid Covid-19 Pandemic Fears, New Data Shows

Brief: Investors pulled more than USD85 billion out of hedge funds during March – some 2.7 per cent of total industry assets globally – amid growing fears over the economic impact of the coronavirus pandemic, new data from BarclayHedge shows. Investor redemptions skyrocketed from USD8.1 billion in February to USD85.6 billion the following month, with hedge funds in continental Europe the hardest hit, according to BarclayHedge’s Barclay Fund Flow Indicator. Continental European hedge fund managers suffered outflows of USD38.3 billion, while across the Atlantic US hedge funds recorded USD31.6 billion in redemptions. Funds in the UK meanwhile lost USD24.7 billion in redemptions. The withdrawals piled on further agony in what was a miserable Q1 for the hedge fund industry, with hedge fund strategies of all stripes suffering steep falls in performance during the market maelstrom.

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Lighthaven Capital to Donate 25 per cent of Performance fees to Fund Covid-19 Research

Brief: Traditional long/short fund Lighthaven Capital has committed to help in the fight against coronavirus by donating 25 per cent of its performance fees to fund research into Covid-19. Here, Founder and CIO Eric Cheung explains how a forward-thinking outlook is key to the firm’s investment philosophy… Back in 2018, the warning signs that the US stock market was getting toppish were picked up on by Eric Chung, CIO and founder of San Francisco-based Lighthaven Capital Management, a traditional equity long/short fund. At the time, Chung noticed that the Shiller P/E ration of the S&P 500 was as high as it had ever been, other than during the ‘Dot Com’ boom. “That gave us some pause and we readied ourselves in the event there was some catalyst for a downturn. One such catalyst was the US China trade war. We hedged significantly in 2018 which helped us when the market fell in Q4; we ended the year up over 26 per cent,” says Chung.

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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.

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