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Covid-19 Diligence Briefing

Our briefing for Thursday April 30, 2020:

  • In the United States, almost one in five Americans have filed for unemployment benefits in the last six weeks. The Department of Labor released their latest numbers with 3.8 million Americans filing benefits claims in the last week, which brings the overall total to 30.3 million. The 30+ million represents 18.6 of the country’s labor force. CNN is reporting 31 of America’s 50 states will look to partially reopen over the next few days.

  • United Kingdom Prime Minister Boris Johnson announced in a news briefing on Thursday that the government would release their plan to lead the country out of lockdown sometime next week. Johnson also confirmed the country was past its peak of the coronavirus outbreak but cautioned he would not risk the prospects of the country by easing restrictions too early and causing a second peak. The United Kingdom have over 171,000 confirmed coronavirus cases and close to 27,000 deaths.

  • Canada’s parliamentary budget officer announced the federal deficit for the year could be over $250 billion due to the coronavirus. The Liberal government has spent $146 billion to combat the coronavirus so far. Prime Minister Justin Trudeau defended the spending in a media briefing on Thursday saying the investments need to be made now to ensure an economic recovery as quickly as possible.

  • The European Union (EU) economy shrank by 3.5% in the first quarter of 2020, the worst quarterly drop since the EU started collecting data since 1995. In a move to counter the drastic decline, the European Central Bank (ECB) said it would lend money at minus one per cent to banks and launched a fresh round of unconditional repurchase operations to pump liquidity into the financial system.

  • Russia’s Prime Minister Mikhail Mishustin has tested positive for the coronavirus. Mishustin proposed that his deputy Andrey Belousov become acting Prime Minister as he undergoes self-isolation rules. President Vladimir Putin signed a decree appointing Belousov as acting Prime Minister.

  • Bloomberg is reporting one in five cases of coronavirus infections in the Philippines are either doctors or nurses. The country’s health care system has been overwhelmed due to the virus with a backlog in testing happening in mid-April because more than 40 staff in their main laboratory became infected. As of Wednesday, the confirmed cases of the coronavirus in the Philippines had risen to more than 8,000.

  • The BBC is reporting on Japan’s bizarre response to the coronavirus pandemic. The country is not in a lockdown and very little testing has been completed. The report takes Tokyo as an example. The city of 9 million people has tested less than 11,000 since February with just over 4,000 of those testing positive. The official guidelines for doctors say they should only recommend a test if the patient has pneumonia. The few rules the country does have in place, such as a stay-at-home order, people seem to be ignoring. Wednesday marked the first day of the Golden Week holidays that run through May 5th in the country. Many people continue to dine out, picnic in parks and crowd grocery stores with little regard for social distancing.

Covid-19 – Due Diligence And Asset Management

Multi-Asset Fund Fulcrum ‘Taking on More Risk than Normal’ to Ride Virus Volatility

Brief: Fulcrum Asset Management, the multi-asset £5bn investment manager co-founded by former Goldman Sachs partners Gavyn Davies and Andrew Stevens, is reaping gains from riding the coronavirus-driven market turbulence. Fulcrum's flagship Diversified Absolute Return fund was up 7.5% until 20 April, according to a person familiar with the situation. While much of that gain came off the spike in volatility in March, Fulcrum CIO Suhail Shaikh told Financial News it capitalised on active "tailwind" hedging choices which included so-called dispersion strategies, or capitalising on differences in volatility between an index and index component stocks. The fund is also trading in gold and currencies.

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Amundi Suffers ‘Crisis-Related’ Outflows During First Quarter

Brief: Amundi, Europe's largest asset manager, said its assets under management dropped by more than 7% during the first three months of the year due to onset of volatile markets prompted by the Covid-19 pandemic. According to its 30 April first quarter results, assets under management at the Paris-headquartered fund manager fell to €1.53tn at the end of March, down from €1.65tn at the end of last year — a drop which Amundi attributed to “a significant negative market effect at the end of March”. Outflows were heaviest across Amundi's institutional and corporate clients, which pulled a net €15.4bn during the quarter in what chief executive Yves Perrier called “crisis-related outflows”.  However, more than €12bn of new money coming from retail clients and Amundi’s joint ventures helped limit total net outflows across the group to €3.2bn between January and the end of March.

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Billionaire Sells More Lansdown Stock to ‘Spread the Risk’

Brief: Stephen Lansdown is paring his stake in Hargreaves Lansdown Plc, the financial firm he co-founded with fellow British billionaire Peter Hargreaves, to support other investments and give him the flexibility to pursue new ones. “Markets are defying a little bit of gravity at the moment, so I thought if I could see the opportunity to take some off it the table I would -- to spread the risk,” Lansdown, 67, said in a phone interview, referring to the sharp rebound in equities from their March lows. “We’re not out of the woods yet and won’t be for a long time, and you need to keep your powder dry to support what you’ve got and to take advantage of opportunities. It’s all about positioning.” A Guernsey-based company that Lansdown controls sold 160 million pounds ($202 million) of shares of Hargreaves Lansdown in an accelerated offering through Barclays Plc, according to terms seen by Bloomberg. He has sold more than $550 million of stock over the past five years, leaving him with a 7% stake worth about $600 million.

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Goldman Sachs Shareholders Back Executive Pay Packages

Brief: Goldman Sachs Group Inc (GS.N) said on Thursday that 71% of shareholders voted to approve the bank’s executive pay packages, according to preliminary tallies. The vote, taken at the bank’s annual shareholder meeting, is significant, as it comes after the influential proxy adviser Institutional Shareholder Services (ISS) recommended investors cast their votes against the pay of top bank leaders earlier this month. Early in the meeting, which was conducted by conference call online, bank director M. Michele Burns defended the board’s reasoning for executive compensation. The board awarded Chief Executive David Solomon $24.7 million for 2019, a 19.4% raise over his total 2018 pay.

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Carlyle Group Reports a Loss, Withdraws Forecasts

Brief: The coronavirus pandemic has hit theCarlyle Grouphard. It reported a first-quarter net loss of $612 million, or $1.76 a share.Carlyle (ticker: CG) reported a profit of $137 million, or $1.18 diluted earnings per share, a year earlier.The Washington, D.C., firm said it posted a loss in revenue of $745.7 million for the period ended in March. In the first quarter of 2019, Carlyle reported nearly $1.1 billion in revenue.The global investment firm declared a quarterly dividend of 25 cents per share. Assets under management were $217 billion, a 3% drop from the fourth quarter and 2% decrease from the same period in 2019. Fee-earning AUM slid 1% to $158 billion, driven by a 6% drop in real assets, which include real estate and natural resources. 

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Abu Dhabi Shelves Sale of $2bn Private Equity Book due to Coronavirus

Brief: The Abu Dhabi Investment Authority (ADIA) is delaying the sale of $2bn in private-equity fund stakes after the outbreak of the deadly coronavirus. The sovereign wealth fund, which is estimated to have about $580bn under management, was in talks with several investors including money manager Ardian about selling chunks of the portfolio, according to people familiar with the discussions. The market turmoil triggered by the crisis made it difficult for them to agree on how much the stakes were worth, said the people, who asked not to be identified because the talks are private. ADIA plans to restart the sales process in the second half of the year, one of the people said. Spokespeople for ADIA and Ardian 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 Wednesday April 29, 2020:

  • The United States economy shrank 4.8% in the first quarter of 2020, its worst performance since the 2008 financial crisis. America’s personal consumption rate dropped even lower to 7.6%; its lowest mark since 1980.

  • Canada now has over 3,000 deaths due to the coronavirus with over 51,000 cases reported. However, it isn’t all bad news for the country. Manitoba was the latest province to release its plans on restarting some sectors of the economy, which will begin as early as May 4th. Canada’s chief public health officer also noted the number of cases in the country is doubling every 16 days. This is much better than the three days it took for the numbers to double in the early stages of the epidemic.

  • The United Kingdom’s updated death toll numbers now has the country sitting only behind the United States and Italy. The total released on Wednesday has just over 26,000 dying from the virus, which now includes those who have passed away in nursing homes and the wider community. Prior to this number, only hospital deaths were being reported. The government also noted just over 52,000 tests were completed on Tuesday with the capacity to test just above 73,000 per day. Prime Minister Boris Johnson’s government had proposed a goal earlier in the month that the UK would be at 100,000 tests per day by the end of April.

  • With restaurants and cafes being engrained in European culture, Switzerland announced on Wednesday they would be the first European nation to see what the new normal will look like. As of May 11th, restaurants and cafes will be permitted to open. However, guests in those venues will be limited to two per table, and the table must be two metres apart. Shops, museums and libraries will also be allowed to reopen on May 11th.

  • India will allow millions of migrant workers to return home if they wish as the country prepares to ease its six-week lockdown. Migrant workers were stranded in cities and industrial areas, far from their hometowns when the lockdown order was quickly moved in place. Stranded migrants must show no symptoms of illness before being permitted to leave.

  • As the number of deaths in Brazil surpass 5,000 from the coronavirus, President Jair Bolsonaro continues to make life difficult for himself after reporters questioned him about the spike in the death toll. Bolsonaro responded, "So what? I'm sorry, but what do you want me to do?" He added even though his middle name is “Messias,” which translates to Messiah in English, he’s not “a miracle worker.” Bolsonaro’s attempt to walk back the comments were also not smooth saying, “I’m sorry for the situation we are currently living with due to the virus. We express our solidarity to those who have lost loved ones, many of whom were elderly. But that’s life, it could be me tomorrow.” According to a recent poll, 38% of Brazilians think Bolsonaro is doing a “terrible” job as opposed to 33% who think he is doing a “good” job.

Covid-19 – Due Diligence And Asset Management

Sachem Named ‘King of the Activists’ in New Study on Performance

Brief: When Sachem Head Capital Management enters a new position, the stock normally doubles in two years. That was the largest return among 10 major activist investors, The Edge Consulting Group, a special situations research firm, told clients this week. A disastrous outlook for 2020 earnings is likely to put increased emphasis on value investing, said The Edge Chief Executive Officer Jim Osman… The study, entitled “King of the Activists,” tracked 15 years of shareholder campaigns by investors including Starboard Value LP, Blue Harbour Group LP and Icahn Enterprises LP, which respectively finished second, third and fourth in the rankings, behind Sachem.

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JPMorgan Asset Sees Strong Era for Private Equity, Hedge Funds

Brief: The current difficult market environment will create fertile ground for private equity and hedge funds to boost their performance, according to JPMorgan Asset Management. Expected returns for cap-weighted private equity have risen to 9.80%, up 1 percentage point from the last forecasts issued Sept. 30, John Bilton, head of global multi-asset strategy, wrote in a note. The money manager’s projections “continue to be relatively aggressive for both hedge funds and private equity,” he said, and the pandemic-induced market volatility “actually reinforces our conviction that there is a good medium-term outlook for alpha generation.” “Dry powder on private equity balance sheets can be deployed now at lower entry multiples, broadly offsetting higher debt funding costs,” Bilton wrote.

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COVID-19 has ‘Changed Everything’, RBS Chairman says

Brief: Royal Bank of Scotland (RBS.L) chairman Howard Davies said on Wednesday the coronavirus pandemic had “changed everything” and its impact on society and the economy would likely be “stark and long-lasting”.In comments to investors at the bank’s annual investor meeting — held virtually to comply with social distancing rules — Davies said the sharp fall in the bank’s share price during the crisis made it unlikely the government would sell further stock in the state-backed bank soon.Chief Executive Alison Rose said the bank was doing everything possible to support its customers, many of whom were facing — and would continue to face — extremely challenging circumstances.

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Covid-19 Poses Challenges for Diversification, says AllianzGI’s Thies

Brief: The Covid-19 crisis has highlighted the challenges of diversification, which is not an exact science, according to Allianz Global Investors’ Manuela Thies. Thies, who is head of multi asset active allocation retail at the asset manager, said the current scenario doesn’t need to become a special case for going into non-traditional areas, as investors should always be looking to expand and complement their holdings. ‘The use of diversifying asset classes like alternatives in portfolios for risk mitigation purposes should be a permanent goal,’ Thies said in emailed comments sent to Citywire Selector.

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AustralianSuper Reports 85,000 Early Withdrawal Requests

Brief: AustralianSuper has received "85,000 requests from members seeking early release of their retirement savings," the Melbourne-based industry superannuation fund said Tuesday. The initial tally — a week after Australians could begin applying for an initial A$10,000 drawdown of their retirement savings to help them through the COVID-19 crisis — represents over A$650 million ($413.2 million) in savings, a news release said. AustralianSuper said it had already distributed "over A$319 million to almost 40,000 members so far." The super fund reported A$180 billion in retirement assets at the start of February — before a spreading coronavirus battered markets globally. Shawn Blackmore, the fund's group executive for service and advice, in the news release said AustralianSuper wants to "help members who are in immediate financial need under the Federal Government's Early Access to superannuation program" but emphasized that withdrawals would come at a cost.

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BlackRock to Close European Abs Return Equity Fund

Brief: BlackRock is set to close one of its absolute return equity funds, Citywire Selectorhas learned. The fund, formally known as the BSF European Diversified Equity Absolute Return, was managed by Robert Fisher andSimon Weinberger. A spokesperson for the firm has confirmed to Citywire Selector that the fund will officially close on 2 June 2020. The BSF European Diversified Equity Absolute Return fund had €5m in assets under management in March and was originally launched in August 2010. Commenting on the liquidation, a BlackRock spokesperson said: ‘We recently completed a review of the BSF European Diversified Equity Absolute Return Fund as part of our continual evaluation process to ensure our range remains relevant. Taking into account its current size and potential client demand, we have decided to close it.’

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday April 28, 2020:

  • United States President Donald Trump plans to sign an executive order and use the Defense Protection Act to ensure order meat-processing plants remain open. The order will affect many processing plants supplying beef, chicken, eggs and pork. In recent weeks, American meat producers have been hit with mass coronavirus outbreaks at their plants, which has caused a stalemate between the owners wanting to keep running and labour unions wanting more protection. President Trump’s order will declare the plants critical infrastructure and the government will look to provide workers with protective gear.

  • In Canada, the province of Quebec rolled out more plans for reopening their province on Tuesday. Premier Francois Legault announced stores that aren’t in shopping malls, construction, civil engineering and manufacturing businesses will be allowed to reopen in May. The Premier stressed reopening certain parts of the economy doesn’t mean physical distancing measures will be dropped.

  • The United Kingdom have called on the technical director of the National Cyber Security Centre to advise the government on how to secure the National Health Service’s (NHS) contact tracing app. Once the UK’s lockdown restrictions eventually ease, the tracing app will be used to inform people whether they have been in contact with someone with coronavirus and advise quarantine guidelines for those at risk. Privacy advocates have raised concerns over the idea the government using the app to collect other sensitive health data on its citizens.

  • France’s Prime Minister Edouard Philippe has outlined the country’s plans to ease lockdown restrictions as of May 11th. Businesses will be allowed to reopen, except for restaurants, cafes and other large meeting areas such as museums and cinemas. Public transit will be restored to 70% of its normal services with businesses encouraged to stagger working hours to avoid overcrowding and encourage working from home wherever possible. Finally, schools will be allowed to reopen progressively, starting with nurseries and primary schools, with a limit of 15 children per class. The lockdown being lifted on May 11th for France will depend on new daily cases dropping below 3,000. If not, the lockdown will continue.

  • Spain plans to transition out of its coronavirus lockdown in four stages that will hopefully take place over the next two months. Speaking to the nation on Tuesday, Prime Minister Pedro Sanchez noted the timeline will depend on if the virus flares up again and will vary by province. Prime Minister Sanchez said mainland Spain would enter the first phase of transition on May 11th with hotels and restaurants operating at 30% capacity.

  • Brazil seems to be buckling under the pressure of the coronavirus and may be emerging as the world’s next hot spot. Medical officials in Rio de Janeiro and at least four other major cities in the country have warned their medical systems are on the verge of collapse. It doesn’t help matters that President Jair Bolsonaro recently fired his health minister and replaced him with an advocate that is on his side for reopening the economy. Almost all Brazilian states have stay-at-home measures in place, some extending until mid-May.

Covid-19 – Due Diligence And Asset Management

Blackstone says Coronavirus Crisis Could Derail NIBC Deal

Brief: Private equity firm Blackstone said on Tuesday its proposed 1.36 billion euro ($1.47 billion) takeover of NIBC Holding NV might not win regulatory approval, sending shares in the Dutch bank 12% lower. “There is substantial uncertainty concerning the business plan and it continuing to be a realistic basis for obtaining regulatory clearance,” Blackstone said. “The relevant regulators have not yet given any indication of their views in this respect.” NIBC shares traded down 12% at 0900 GMT in Amsterdam. Blackstone also warned that NIBC’s decision to postpone its dividend payments meant it could no longer guarantee the financing of the deal. NIBC this month decided to postpone dividend payments at least until the second half of the year, as European banks came under pressure to improve their capital positions to be able to weather losses caused by the coronavirus pandemic.

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A 3.6 Billion Manager Dumps Risk on Bet Crisis is Getting Worse

Brief: The investment chief of Veritas Pension Insurance Co. says he doesn’t understand why there are glimmers of hope in equity markets, as he sells stocks and buys government bonds to protect his portfolio. “There is a lot of optimism at the moment in the equity market that the crisis will soon be over, but I don’t believe it will,” said Kari Vatanen, who oversees 3.3 billion euros ($3.6 billion) as chief investment officer of Veritas in Finland. “In the real economy, we are going to see data getting worse, week after week.” Vatanen, who spoke after delivering first-quarter results that showed a 10% loss due to the rout triggered by Covid-19, says he’s been busy cutting risk in his portfolio since he started last month.

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HSBC sees Mounting Credit Losses After Pandemic Halves First-Quarter Profit

Brief: HSBC Holdings PLC (HSBA.L) on Tuesday warned of more earnings pain ahead after first-quarter profit nearly halved as it set aside a hefty $3 billion in bad loan provisions due to the coronavirus pandemic. Europe’s biggest bank said the outbreak would mean sustained pressure on its revenues as customer activity declined and lower interest rates squeezed margins, while noting increased fraudulent activity could lead to “potentially significant” credit losses. The bleak outlook, shared by many lenders reporting earnings this season, underscored the scale of the problems facing the sector as it grapples with corporate borrowers in crisis, plunging stock and oil prices, as well as low interest rates. HSBC’s new Chief Executive Officer Noel Quinn faces additional hurdles as plans to cut costs through layoffs - part of a wider restructuring unveiled in February - have been put on hold due to the pandemic.

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Wealth Revamp Helps UBS to 40% Net Profit Rise in First Quarter

Brief: The world’s largest wealth manager, UBS (UBSG.S), reported a 40% rise in quarterly profit on Tuesday, with its core business enjoying its best three months since 2008, thanks to a restructure and rich clients reshuffling portfolios to respond to the coronavirus outbreak. The bank booked net profit of $1.595 billion, slightly ahead of its previous guidance of around $1.5 billion. It reported strong operating growth across all but one of its business divisions, even after accounting for the risk of increased defaults resulting from the virus. “This quarter, I can comfortably say, you saw UBS at its best,” Chief Executive Sergio Ermotti said on a call to analysts and journalists, sounding a confident note on the bank’s preparedness as it braces for headwinds from a fall in asset valuations, sinking interest rates and a slowdown from bumper client activity levels.

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Investors Should Brace for a ‘Great Repression’ That Will Make Past Downturns Look Tame, Economist says

Brief: The economic aftermath of the 2008 financial crisis was so tepid it was referred to as the “Great Recession”. In the wake of the coronavirus catastrophe, investors need to brace for the “Great Repression”, which may be even uglier than the downturn of a decade ago. That is the takeaway from an analysis out on 27 April from economist David Rosenberg. Rosenberg is often considered a “perma-bear”, but that is not entirely fair. He has had his optimistic spurts. This just isn’t one of them. In the “base case” for the US economy, published by his firm, Rosenberg Research, the economy “reopens” in May, in a staggered approach across industries and regions. There are “periodic setbacks in terms of COVID-19 case counts…sufficient to make people less comfortable and confident about spending then they did prior to the crisis. A vaccine is not developed in this forecast, but treatment that alleviates the worst respiratory symptoms” is developed within the next six months, he writes.

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MFS Closes Energy Fund After Assets Drop to $2M

Brief: MFS Investment Management has closed its global energy fund after assets dropped to around $2m with limited prospect of further growth, Citywire Selector has learned.The specialist fund, which was formally called theMFS Meridian Funds – Global Energyfund, was overseen by James Neale. It was officially liquidated on 15 April 2020. MFS IM wrote to investors at the end of February about its plans to close the fund when it had around $6.8m in assets under management. It originally launched the strategy as a Luxembourg-domiciled fund in February 2009. In a short statement toCitywire Selector, a spokesperson for MFS IM said: ‘As MFS does not believe the fund will grow to a viable size, we believe that liquidation best serves the interests of Funds shareholders. The liquidation took place on the 15 April 2020.’

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday April 27, 2020:

  • As Johns Hopkins University reports more than three million coronavirus cases worldwide, one of the more high-profile recoveries returned to work on Monday. United Kingdom Prime Minster Boris Johnson reassumed his role as leader of the country. In his first comments since returning to work, Johnson warned the UK were at “the moment of maximum risk” and that lockdown measures would need to remain in place to avoid a second surge of infection. The UK’s lockdown measures are to be reviewed again on May 7th.

  • In the United States, many regions of New York state will likely see their lockdown extend beyond their current May 15th deadline. During a news briefing on Monday, New York Governor Andrew Cuomo released new test results that showed nearly one-in-four New York City residents carried antibodies for the coronavirus, which means they contracted COVID-19 at one point or another. The state at the epicentre of the coronavirus for America has seen its cases drop recently, but still are recording roughly 1,000 new cases each day. The United States are closing in on 1 million cases and have over 55,000 reported deaths due to the coronavirus.

  • In Canada, Ontario released their plan for reopening, but Premier Doug Ford refused to set hardline dates. Instead, Ford released a framework for a three-stage process in getting the country’s largest province back to some sense of normalcy. Ford stated Ontario must see a consistent two-to-four week decrease in new daily COVID-19 cases before the three-stage process can begin. A little further ahead in the recovery process, Quebec announced their plan on Monday of having elementary schools and daycares reopening on May 11 outside of its main city of Montreal. Elementary schools and daycares will open a week later in Montreal on May 19th. All other schools, including high schools, colleges and universities will remain closed until late August. Quebec’s Premier said the timeline is dependent on the COVID-19 infection rate remaining stable.

  • Italy, the former centre of the coronavirus epidemic, saw its lowest daily total of deaths since March 14th. Prime Minister Giuseppe Conte plans to ease lockdown restrictions on Sunday May 3rd, with factories geared towards exports and public construction projects allowed to resume the following day. People will be allowed to travel within their regions to visit relatives, as long as face masks are worn, but movements between regions will still be banned unless for work, health, or emergency purposes. Schools will also remain closed until September.

  • In Australia, the country has turned to technology to battle the coronavirus with more than a million Australians downloading an app designed to help medical workers and state governments trace close contacts of COVID-19 patients. Government officials noted the first one million downloads came within the first five hours of the app becoming available. Prime Minister Scott Morrison has seen his approval rating skyrocket 27 points since the first week of March, mostly due in part to the country’s response to the coronavirus. Australia, a country of 25 million people, has recorded just 6,700 cases and 83 deaths due to the coronavirus.

  • New Zealand’s Prime Minister Jacinda Ardern claimed on Monday “there is no widespread, undetected community transmission in New Zealand. We have won that battle.” Therefore, after nearly five weeks of only essential services operating, New Zealanders will be able open up some businesses, takeaway food outlets and schools. The nation of five million people has seen 1,122 confirmed cases of COVID-19 with 19 deaths.

Covid-19 – Due Diligence And Asset Management

Jeffrey Gundlach is Shorting the Market, says a Retest of the Low ‘Very Plausible’

Brief: Jeffrey Gundlach, CEO of DoubleLine, said Monday that the stock market could sell off again to retest the low in March as he believes investors are too optimistic about the economic recovery from thecoronavirus pandemic. “I’m certainly in the camp that we are not out of the woods. I think a retest of the low is very plausible,” Gundlach said on CNBC’s “Halftime Report.” “I think we’d take out the low.” “People don’t understand the magnitude of ... the social unease at least that’s going to happen when ... 26 million-plus people have lost their job,” Gundlach said. “We’ve lost every single job that we created since the bottom in 2009.” The so-called bond king revealed he just initiated a short position against the stock market.

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Oil ETF Wreaks Havoc on Already Volatile Crude Markets

Brief: The United States Oil Fund LP again roiled oil markets as it unexpectedly starting selling all of its holdings of the most active West Texas Intermediate futures contract, triggering a massive swing in the price relationship between the June and July contracts. The changes, detailed in a regulatory filing, are the latest in a series that have have wreaked havoc on crude prices. The fund said it’s moving its money to contracts spread between July 2020 and June 2021 due to new limits imposed upon it by regulators and its broker… The largest oil ETF has changed its investment policy five times in the last two weeks. It also warned investors its valuation may deviate significantly from the underlying oil price, in effect acknowledging that it’s momentarily less focused on the price of WTI crude.

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Australia’s NAB Seeks $2.2 Billion from Investors, Slashes Dividend as Virus Halves Profit

Brief: The planned capital raising, via a discounted share sale, is the biggest by an Australian company since the virus outbreak, which has killed 83 people in the country and shut down large parts of the world’s 12th-biggest economy.The bank, Australia’s third-biggest, said it had decided to pay more than A$850 million in dividends, or about a third of what it paid last year, rather than scrapping it as it did not want investors who depended on the income to dump the stock.Its decision follows a regulatory directive to consider postponing shareholder payouts until the impact of the pandemic was better known.NAB, which brought forward its results by 10 days, is the first Australian bank to report earnings since the pandemic arrived in the country and so portends what could come from the rest of the sector.

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New Hedge Funds Beg for Cash With Kids in Background

Brief: Warn potential clients about screaming kids. Clean up your house. Don’t forget to shave. These are the rules for wooing clients to a new hedge fund while in a coronavirus lockdown. As if starting a hedge fund wasn’t tough already, this year it’s going to be even harder. At least 10 firms opened on April 1, with more slated for this year. Most will begin with substantially less money than their founders were expecting before the world came to a standstill, according to people involved in fundraising… For much of the past decade, raising money has been a slog. The industry faced ridicule for high fees and low returns, and clients were more likely to pull money than to add. Now startups also have to deal with much of the world under quarantine, and a global recession or worse, creating the least welcoming money-raising environment in years.

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Guggenheim’s Minerd Says Economic Recovery May Take Four Years

Brief: Scott Minerd, the chief investment officer of Guggenheim Investments, thinks it may take four years before the economy regains the level of activity it had before the coronavirus pandemic triggered a global crisis. “To think that the economy is going to reaccelerate in the third quarter in a V-shaped recovery to the level where gross domestic product (GDP) was prior to the pandemic is unrealistic,” he wrote in a note published on April 26. While governments are doing all they can to aid both businesses and individuals impacted by the virus shutdowns, Minerd said the help will likely be “insufficient, misdirected, and full of unintended consequences.” Many of the 26 million people who have applied for unemployment benefits over the past five weeks won’t be going back to work immediately even if the economy fully reopens, he added.

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Global Macro Managers Tipped for 2020 Comeback

Brief: In recent months, global macro hedge funds, which profit from trading on big economic trends, have seemed terminally out of fashion. Long-term legends of the industry, such as Moore Capital’s Louis Bacon,called time on their careerslast year while global macro funds in general struggled to perform against a backdrop of perennially stable markets. Investors carried their concerns into 2020, yanking $22bn from global macro hedge funds in the first three months of this year, out of a total of $33bn pulled from the industry, according to data provider HFR. But times could be about to change. Volatility is back. And some asset managers who allocate money across different investment strategies say that global macro could be set for a return. Macro hedge funds are “very nimble and can weather periods of volatility”, said Karen Ward, chief market strategist for Europe, the Middle East and Africa at JPMorgan Asset Management.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Friday April 24, 2020:

  • In what is clearly the most bizarre news headline to come out during the coronavirus pandemic, the company that makes Lysol and Dettol is urging customers not to ingest its cleaning products. What seems like common sense is making headlines due to a news briefing on Thursday where United States President Donald Trump suggested an injection of disinfectant as a possible solution to the coronavirus. President Trump claimed on Friday the comment was meant as a sarcastic remark to reporters in the room.

  • Canada’s largest province is working on the framework on what a reopening will look like. Ontario Premier Doug Ford said the plan will come early next week, but the province is still facing serious issues with case counts of 500 or more on a daily basis and requesting military backup at five of the hardest hit nursing homes in the area.

  • A Daily Telegraph report in the United Kingdom has Boris Johnson ready to reassume his duties as leader of the country as early as Monday. Downing Street officials were casting doubt on that timeline though noting while Johnson has been kept up to date on the coronavirus response in the UK, he has yet to work on official papers as usual and is still being guided by his medical team.

  • The leaders of France and Germany have teamed up with the World Health Organization (WHO) on an $8 billion-dollar plan to accelerate the race for the development of a coronavirus vaccine. French President Emmanuel Macron and German Chancellor Angela Merkel stressed once its available, the vaccine would be distributed to all those who need it, just not the country that develops it first. This comment was made due to the fact UK Health Secretary Matt Hancock stated earlier in the week Britons should be at the front of the line if a vaccine was created their first.

  • In the Philippines, President Rodrigo Duterte threatened enforcement of martial law across the country, citing attacks on soldiers delivering aid by communist rebels. President Duterte also expanded its Manila lockdown until May 15th and said measures will be expanded to other regions with large outbreaks, while being modified in lower-risk areas. Those modifications could include a partial resumption of work, transport and commerce. The Philippines are closing in on 7,000 total infections with 462 deaths.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Ruled Ineligible for U.S. Small Business Rescue

Brief: Hedge funds aren’t eligible for a U.S. rescue loan program, the government made clear Friday, potentially quelling a barrage of outrage over the possibility that well-heeled traders might beat out struggling small businesses for emergency funding. The Small Business Administration, in consultation with the Treasury Department, determined that because hedge funds are primarily engaged in speculative investments, the firms shouldn’t be entitled to Paycheck Protection Program loans. The prohibition also applies to private equity firms, according to guidance posted on Treasury’s website. The Trump administration does not believe that Congress intended those types of businesses, which are generally ineligible for SBA loans under existing regulations, to qualify, according to the guidance. Concern that hedge funds might tap the PPP program amid the coronavirus crisis has triggered a backlash on Capitol Hill and around the country. 

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NYSE Eyes Reopening Trading Floor, but Timeline Still Unclear

Brief: The New York Stock Exchange plans to reopen its iconic trading floor, which is shuttered due to coronavirus concerns, as soon as possible, but it has not yet set a date to do so, the NYSE and people familiar with the matter said on Friday. “The NYSE will reopen its trading floors when we can do so with reduced risk and without adding strain on local healthcare systems,” exchange spokesman Farrell Kramer said in a statement, without giving further details. The exchange operator also has an options trading floor in San Francisco that is closed due to the pandemic. The NYSE, which is owned by Intercontinental Exchange Inc (ICE.N), held a conference call with NYSE staff and the traders who work on the floor on Wednesday to discuss an eventual reopening, but did not set any dates, according to two people who were on the call.

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World’s Biggest Finance Firms Consider Shrinking Offices Due to Coronavirus Crisis

Brief: Finance workers have had to adapt to hot-desking, “smart offices” and meeting pods. Next in line: much less office space. Some of the world’s biggest finance firms are looking at slashing the size and numbers of their swanky offices as the coronavirus crisis has forced firms to radically change their working practices, Financial News can reveal. Major employers in the finance sector - including investment banks, law firms and accountancy giants - are already planning for a post-pandemic world in which fewer staff will work in the office full-time. For investment banks, which have typically relied on their employees working long and unpredictable hours in the office, the switch to remote working has been particularly radical, but some changes could stick.

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Barrack Says Real Estate in ‘Chaos’ as Laws Waived on Rent, Debt

Brief: Tom Barrack said the U.S. property market is in “chaos” and still on the verge of collapse because the federal government and local authorities are allowing renters and homeowners to skip payments because of the coronavirus. “We haven’t had a crisis like this,” Barrack, chief executive officer of Colony Capital Inc., said in an interview Friday on Bloomberg Television. “We’ve never had one where we just have a government taking of revenue.” The stimulus bill passed by Congress last month included a provision allowing borrowers to defer payments for as long as a year without penalty on federally backed mortgages. At the same time, cities and states throughout the country have suspended evictions and foreclosures to help the tens of millions of Americans who’ve lost their jobs.

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Sixth Street Targets More Than $6 Billion to Bolster War Chest

Brief: Sixth Street Partners is seeking more than $6 billion for an evergreen fund at the onset of what could become a prolonged period of market turmoil set off by the coronavirus pandemic, according to people with knowledge of the matter. The firm, founded by former Goldman Sachs Group Inc. partner Alan Waxman and nine others, began discussing its so-called adjacent opportunities vehicle with select investors in recent weeks, said the people, asking not to be identified because the talks are private. An upper limit for the fundraising hasn’t been set, one of them said. The $12 billion fund has been closed to new capital since 2017.

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Franklin’s $4.1 Billion Fund Halt Shows Lasting Credit Pain

Brief: Franklin Templeton will wind up $4.1 billion of Indian debt funds after a liquidity crisis compelled the firm to freeze investor withdrawals in the South Asian nation. The asset manager’s surprise announcement underscores persistent stress in credit markets as the coronavirus pandemic wreaks havoc on the global economy. It marked the biggest-ever forced closure of Indian funds and fueled worries of a renewed wave of withdrawals from similar products. Indian corporate bonds slumped on the news, while banks and fund managers paced declines in the country’s stock market… The firm said it’s shutting down the Franklin India Low Duration Fund, Franklin India Dynamic Accrual Fund, Franklin India Credit Risk Fund, Franklin India Short Term Income Plan, Franklin India Ultra Short Bond Fund and Franklin India Income Opportunities Fund.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday April 23, 2020:

  • In the United States, 4.4 million more Americans filed for unemployment in the last week. The most recent addition means 26.5 people are out of work in the United States. A CNBC report notes it only took five weeks of the coronavirus pandemic to wipe out all the jobs created since the Great Recession. The United States had created 22.4 million jobs since November 2009. On Wednesday evening, President Donald Trump signed his executive order barring some immigration into America for the next 60 days.  The order doesn't apply to spouses and minor children of US citizens; health care professionals; any member of the US Armed Forces and their spouses and children; and anyone entering for law enforcement or national security reasons.

  • The Canadian province of Saskatchewan is the first area in the country that has laid out its plan to reopen. Saskatchewan Premier Scott Moe unveiled his government’s plan that will be rolled out in five phases starting on May 4th. The first phase will see certain restrictions lifted on medical practices such as dentistry, optometry and physical therapy. Facilities that accommodate low-risk outdoor activities like boating and fishing will be allowed to open and golfers will be allowed to hit the course beginning May 15th.

  • As the end of the month grows near, the United Kingdom government are realizing they are well short of their testing capacity of 100,000 per day goal they set. Health Secretary Matt Hancock announced on Thursday the country is only producing up to 51,000 tests a day. However, John Newton, the man in charge of the testing programs says the government is still on track to reach the 100,000 per day by the end of April. The three T’s for this epidemic in England – testing, tracking and tracing are key to having the lockdown eased and stay that way.

  • The European Union and its leaders have agreed to work on a recovery fund to help rebuild Europe’s economy after the pandemic. However, having 27 nations within the union generate consensus on how to raise and spend the money was difficult. The Financial Times reported France and southern European countries pushed for a program based on grants, while northern member states insisted on loans.

  • Dubai is preparing to ease their lockdowns, such as having shopping malls and offices operate at 30% capacity and allowing small gatherings. The region has been in a notable restrictive lockdown for a month now. Residents were only allowed out of their home once every three days for groceries or emergencies, and only if they obtained a permit to do so from the police.

  • After the United States said they would suspend their contributions to the World Health Organization (WHO), China, the country at the centre of the controversy has tried to fill the void. China announced an additional $30 million in funding to the WHO in fighting the coronavirus pandemic. The country had already given $20 million last month to the organization. This is all still a far cry from what America gave to the WHO, which was $900 million in its 2018-19 budget cycle. The United States was the organization’s largest donor.

Covid-19 – Due Diligence And Asset Management

Blackstone Joins Debt Frenzy in Seeking $7 Billion for New Fund

Brief: Blackstone Group Inc. plans to raise one of the biggest funds to capitalize on the turmoil in debt markets. The investment firm is looking to raise $7 billion for its fourth GSO credit opportunities fund, according to people with knowledge of the matter. Blackstone’s new fund will aim to provide capital to performing companies, said the people, who asked not to be identified because the information isn’t public… GSO, Blackstone’s credit arm, which has about $129 billion of assets under management, closed its third-capital opportunities fund in 2016 at $6.5 billion. In the first quarter, the unit posted one of its worst-ever declines for its distressed strategies. The new fund targets companies in better financial condition.

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Larry Fink Sees More Remote Work Hampering Commercial Real Estate

Brief: BlackRock Inc. Chief Executive Officer Larry Fink said the work-from-home revolution will have lasting effects, including pushing down demand for commercial real estate. Fink said that after businesses were forced to run from mostly remote setups during the coronavirus crisis, many companies will choose not to bring all their workers back to the office even when it is safe to do so “I don’t think any company’s going to go back to 100% of the workforce in the office,” Fink said Thursday at a virtual event from Saudi Arabia’s Future Investment Initiative Institute. “That means less congestion in cities. It means, more importantly, less need for commercial real estate. So to me that’s one of the great outcomes of this.”

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Private Equity to Get Squeezed Out of Another Stimulus Program

Brief: Private equity’s decade-long debt binge is coming back to haunt it when it comes to obtaining the U.S. government’s coronavirus aid. Already largely shut out of the popular small business rescue loan program, the industry is now realizing that it’s likely to be excluded from the Federal Reserve’s $600 billion lending initiative because it bars companies that have loaded up on borrowed money. The prohibition strikes at the heart of the buyout-shop business model, where firms saddle the companies they purchase with debt in order to mint bigger profits on their investments. Though the Fed’s “Main Street” lending facility for mid-size businesses doesn’t specifically preclude private equity-owned companies, executives say they’ve concluded that the tough terms will prevent many of their firms from qualifying. Some politicians and investors say that may not be a bad thing, especially because taxpayer dollars are on the line.

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European Funds Suffer Worst Month Since Financial Crisis

Brief: Europe domiciled long-term funds suffered record outflows throughout March – a month defined by Covid-19 caused market volatility. Net redemptions reached €246 billion – “a staggering number that dwarfs even the darkest month of the 2007-09 financial crisis”, said Morningstar, which published the data. The worst month of the previous financial crisis was October, when investors withdrew €108 billion from long-term funds. This time round, as the Covid-19 death toll continued to rise worldwide, bond funds shed an “unprecedented” €140 billion, whilst equities suffered redemptions of €56 billion.

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Volatility Wipes $20bn From AMP Wealth

Brief: AMP says coronavirus-fuelled market volatility has wiped about $20 billion from its beleaguered wealth portfolio, while its global investment fund has also copped a whack. The finance giant told the ASX on Thursday its Australian wealth funds under management declined 13.5 per cent to $116.3 billion in the three months to March 31, a drop of $18.2 billion from $134.5 billion at the end of 2019. The company's New Zealand wealth business lost $1.2 billion, or 9.8 per cent in total AUM. Total assets under management at fund manager AMP Capital fell 5.3 per cent to $192.4 billion, down $10.7 billion from $203.1 billion in the fourth quarter of FY19. AMP chief executive Francesco De Ferrari said his firm had witnessed some recovery since the end of the quarter but expected volatility across equities, commodities and fixed income to continue as the coronavirus crisis rolls on.

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Only Tiny Fraction of Canada Hedge Funds Gain in First Quarter

Brief: The hedge fund industry gets its name from the premise it can generate gains even when markets fall. That didn’t happen in Canada during the first quarter, one of the most volatile trading periods in history. Only five of 61 hedge funds, or about 8%, posted gains during the first three months of the year, according to Venator Capital Management Ltd., a Toronto-based investment firm that tracks the industry. The top performer was CC&L Market Neutral Fund, with a 9.8% gain; the worst was Lawrence Park Enhanced Preferred with a 38.5% loss. Canada’s stock market reached a record in February before tumbling in March amid the coronavirus pandemic and then rebounding again, with days featuring both the biggest drop and surge on record. Corporate bonds also plunged, while government yields hit new lows.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday April 22, 2020:

  • In the United States, a coronavirus model routinely used by government officials warns that no state should reopen until at least May 4th. The model, maintained by the University of Washington, shows Alaska, Hawaii, Montana, North Carolina, Vermont and West Virginia as the only states in line for reopening in early May. The model shows South Carolina, who began reopening this week shouldn’t open until June 5th and Georgia who plans to ease restrictions later this week, shouldn’t open until June 19th.

  • Canada’s death toll from the coronavirus exceeded 2,000 on Wednesday while the total cases close in on 40,000. Even though these are grim numbers, Prime Minister Justin Trudeau noted in his media briefing on Wednesday that the federal government is coordinating with the provinces and territories about plans on reopening, noting some areas are further along than others. However, the decision to reopen the border with the United States is a nationwide matter and any decision made in that regard will be made at the federal level. Last weekend, Prime Minister Trudeau noted the closure of the border with America was extended for another 30 days.

  • Both the health secretary and deputy leader of the United Kingdom acknowledged on Wednesday they believe their country has now reached the peak of the coronavirus epidemic. Similar to other countries throughout the world though, the UK is dealing with worsening conditions in long-term care homes. The health secretary also noted even though they believe the peak has been reached, the easing of lockdown restrictions are still not close to happening as several tests need to be reached, including a consistent fall in the daily death rate.

  • Spain’s Prime Minister has asked parliament to back an extension of the legal order surrounding the lockdown until May 9th. There will be a slight relaxation of the rules as of this coming Monday, most notably, allowing children accompanied by adults to go for brief walks. Prime Minister Pedro Sanchez was grilled for comments/plans earlier in the week saying children under 14 could only be outside with adults to go to a store or bank.

  • Singapore has now become a hot zone for the coronavirus pandemic. Infections have now increased past 10,000 after more than 1,000 new cases on Wednesday. This marks the third straight day the country has seen its daily tally hit 1,000 or more. Singapore’s health ministry says the vast majority of the new cases stem from foreign workers’ dormitories, which have now been locked down and increased virus testing implemented to help curb the spread.

  • Australia’s Prime Minister Scott Morrison is seeking worldwide support for an international probe into the origins of the coronavirus pandemic. Last weekend, Australia’s foreign minister expressed concern of China’s transparency was at a very high point. Prime Minister Morrison noted a phone call with US President Donald Trump as a “very constructive discussion”. China has condemned Australia for its push on an international inquiry, stating lawmakers are taking instruction from America, while France and the UK have tried to play peacemaker, trying to make clear now is time to fight the virus, and not for finger pointing.

Covid-19 – Due Diligence And Asset Management

Expedia Shares Fly on Report of Talks to Sell Stake for $1 Billion

Brief: Shares of Expedia Group Inc (EXPE.O) rose 9% on Wednesday after a report that the online travel services company was in advanced talks to sell a stake to private-equity firms Silver Lake Partners and Apollo Global Management Inc (APO.N) for about $1 billion. The talks, which were reported here by the Wall Street Journal on Tuesday, come as companies across sectors look to shore up their finances in a bid to weather the raging coronavirus crisis. Expedia shares have fallen about 47% this year, taking a hard knock from the pandemic as lockdowns in many countries have decimated travel demand. “The biggest overhang on Expedia’s stock over the last month has been fears regarding its liquidity position,” Atlantic Equities analyst James Cordwell. “The news that it may be nearing a deal with Silver Lake and Apollo raises confidence that it will be able to make it through this current crisis relatively unscathed.”

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Hedge Funds Suffer Largest Quarterly Withdrawals Since 2009

Brief: Investors pulled a net $33 billion from hedge funds in the first quarter, the most in more than a decade. The total is about 1% of of industry capital, and the largest quarterly outflow since investors yanked about $42 billion in the second quarter of 2009, according to a report Wednesday from Hedge Fund Research Inc. In all of 2019, investors pulled $43.1 billion. Some of the industry’s largest names took a hit in last month’s market tumult, including funds run by Ray Dalio, Michael Hintze and Adam Levinson. The managers suffered losses as the coronavirus crisis brought much of the global economy to a standstill. Still, a slew of firms are welcoming fresh money, hoping to buy the market dip and capitalize on those investors that may be ready to open their wallets to take advantage of the market dislocations.

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Private-Equity Firm Sycamore is Trying to Get out of Deal to Take Over Victoria’s Secret

Brief: The private-equity firm Sycamore Partners is looking to back out of its deal to take over Victoria’s Secret fromL Brands, according to a lawsuit filed in a Delaware court on Wednesday. The deal for Victoria’s Secret to be taken private was reached in February, just weeks before thecoronavirus pandemicstarted hammering the U.S. economy and forced the closure of thousands of retailers’ stores. Sycamore said in the filing that L Brands’ decision to close its stores and skip rent payments in April violated the transaction. Sycamore is now seeking the court’s approval to break the deal, according to the filing. Representatives from Sycamore and L Brands were not immediately available to respond to CNBC’s requests for comment. 

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BlackRock says Sustainability Reports Might Slide During Pandemic

Brief: Top asset manager BlackRock Inc, which has vowed to put more focus on climate issues, said that companies might give a lower priority to sustainability reports as they struggle with the COVID-19 pandemic. In a stewardship document provided by a BlackRock (BLK.N) spokesman late on Tuesday, the firm suggested it would tolerate the change. BlackRock also took a neutral stance on the question of whether companies should continue to pay dividends or buy back shares, and said it expected companies to provide shareholders the chance for “meaningful participation” when they move annual meetings to cyberspace. The details marked some early specifics from the world’s largest asset manager about its expectations for companies dealing with the sudden economic shock stemming from the deadly respiratory virus.

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Scaramucci Quashes Reports of Citi Ending Ties with his Fund

Brief: Hedge fundinvestorAnthony Scaramuccion Tuesday refuted reports that Citibank has cut ties with his investment firm. “When they say ‘cut ties,’ the Wall Street Journal actually got that wrong. They issued a ‘sell’ on the fund,” the founder and managing partner of SkyBridge said. The Journal on Saturday published a reportthatCitigroup’s private bank decided to discontinue its relationship with SkyBridge after the company’s flagship fund suffered a loss of more than 20% in March. It cited a person familiar with the matter, who said Citigroup thinks the fund has “too much exposure to credit and mortgage-related securities.”

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JPMorgan Chase Plans to Return Employees to Work in Phases

Brief: JPMorgan Chase & Co, the largest U.S. lender, said on Tuesday it was working on a plan to bring thousands of employees who have been working from home for more than five weeks back onsite in stages, according to an internal memo seen by Reuters. JPMorgan is the first big bank to announce steps to return to normal as debate grows over reopening the U.S. economy after the novel coronavirus shuttered businesses across the country and put a record 22 million people out of work. “Two considerations are paramount as we plan for this across the firm: We want to do it at the right time — which may differ by region, country and state — and in a manner that prioritizes your health and safety,” the bank’s Operating Committee said in the memo. Around 180,000 of JPMorgan’s more than 200,000 employees have been working from home, with around 25% of its bank branches closed, in an effort to protect employees from the virus, bank executives said last week.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday April 21, 2020:

  • In the United States, President Donald Trump’s latest late-night tweet left his government officials scrambling. President Trump announced via social media on Monday night he plans to sign an executive order temporarily suspending legal immigration into the United States as the country fights the health and economic effects of the coronavirus pandemic. Media reports have the order ready for the President to sign in the coming days with the temporary ban lasting roughly four months.

  • As Canada closes in on 40,000 confirmed coronavirus cases, the province of Quebec became the first province in the country with over 1,000 deaths due to the pandemic. The province’s Premier notes approximately 850 of those deaths are linked to long-term care homes that spread across 80 institutions.

  • As England recorded an 82% rise in COVID-19 related patient deaths in hospitals in the latest 24-hour period, the death rate is actually much higher than being reported. A CNN article notes data from the United Kingdom’s Office of National Statistics (ONS) on April 10th, the true death toll was actually 41% higher than the government’s daily update. This is because the government’s numbers don’t take into account people dying from the virus in hospices, care homes, or private residences. They also can’t account for the lag in reporting cases. The government’s death total currently sits over 15,600.

  • On the outskirts of Paris, police were met by rioters as crowds of French citizens responded with fireworks and torching of garbage bins in protest of the heavy police presence in their area due to the coronavirus lockdown. It’s the third straight night of public unrest in France as the lockdown permits people to leave home only for groceries, to go to work, seek medical care or exercise. President Emmanuel Macron said schools and shops will gradually reopen starting May 11th, but restaurants, hotels, cafes and cinemas would remain closed for longer.

  • Spain’s Prime Minster is coming under fire for his restrictions on children’s movement once they are allowed outside of their homes come April 27th. On Tuesday, Prime Minister Pedro Sanchez clarified children under 14 would only be allowed out of their homes next Monday if they are accompanying adults such as shopping or going to the bank. That decision has drawn protest from the public and opposing politicians who say there is greater risk of obtaining and spreading the coronavirus by being in shops as opposed to open spaces. Spain has been in lockdown since March 15th.

  • Italy will announce by the end of the week its plans for a gradual reopening of their country as they emerge from their lockdown on May 4th.

  • In Japan, Prime Minster Shinzo Abe said his people haven’t practiced social distancing as much as is needed since the government issued a state of emergency two weeks ago. Prime Minister Abe has asked people to reduce their social interactions by as much as 80% to stop the virus from spreading. Surveys are showing Japanese citizens are still moving around too much such as making out-of-town trips and congregating in downtown areas where restaurants and grocery stores are still operating.

Covid-19 – Due Diligence And Asset Management

‘Reopen the Economy’ – Barry Sternlicht Worries About ‘Financial Suicide’ From Coronavirus Closures

Brief: The possible destruction of the U.S. economy must be weighed against the diminishing health risks from the coronavirus, real estate mogul Barry Sternlicht told CNBC on Tuesday. “I actually think we have to reopen the economy. We have to do it ZIP code by ZIP code,” said Sternlicht, whose $60 billion Starwood Capital Group has interests in luxury hotels and malls among its many other businesses. “We have to get going. The cost is too great. The government can’t carry a $23 trillion economy.” Sternlicht’s call to action comes as more states run by Republican governors are announcing plans to reopen parts of their economies as new daily virus cases in the U.S. continue to slow. Georgia’s timetable — one of the most aggressive in the nation — would allow gyms, hair salons, bowling alleys and tattoo parlors to reopen Friday. Elective medical procedures would also resume. By Monday, movie theaters and restaurants could start up again.

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AMP Capital Shutters Global Equities Fund for Platform Investors

Brief: Dwindling assets under management have forced AMP Capital to close a global equities fund for wholesale investors on platforms. AMP Capital's wholesale global equity - growth fund for platform investors (Class M) was closed last Friday. The decision was taken by the fund's responsible entity, National Mutual Funds Management Limited. "A reduction in the fund's size over time combined with certain fixed costs associated with operating the fund will have the result of increasing management costs for investors, and may compromise the ability to efficiently manage the fund and deliver cost-effective returns in line with the funds' objectives," it said in a notice to investors. "Therefore, we believe it is in the best interests of the fund's investors to terminate the fund."

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Big Investors Warn Hedge Funds on Tapping Small-Business Loans

Brief: Institutional investors in Pennsylvania and Alaska are taking a dim view of hedge funds and other asset managers seeking to tap emergency U.S. government money designed for struggling small businesses. Pennsylvania’s Public School Employees’ Retirement System is monitoring its managers -- as well as potential new ones -- to see if they took advantage of the rescue program. The Alaska Permanent Fund Corp. said it would view any manager taking assistance “quite negatively.” Some funds have already applied, Bloomberg earlier reported. “It is ethically questionable and likely not in the best interest of the industry as a whole, long term,” said Marcus Frampton, chief investment officer at Alaska’s $60 billion sovereign wealth fund. “Alternatives managers, from a fiduciary standpoint, should be exploring federal assistance for portfolio companies where it is needed to preserve value and help employees.”

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Hedge Fund Star Who Won Big in Last Crisis Slumps to 26% Loss

Brief: Hedge fund manager Ali Lumsden gained 73% the last time the mortgage-bond market went into meltdown. This time around, the veteran investor is on the wrong side of the crisis. East Lodge Capital, the firm Lumsden set up in 2013, saw its main hedge fund plunge 26% in March, according to people with knowledge of its performance. Another East Lodge fund fell 16%, said the people, who asked not to be identified because the information is private. London-based East Lodge specializes in securitized credit, which has taken a hammering in recent weeks as the near-shutdown of the global economy threatens a surge of delinquencies among borrowers. Lumsden, who has spent over 30 years in the structured-credit markets, made his name as chief investment officer of an asset-backed securities fund at Michael Hintze’s CQS. He averaged gains of 28% annually at the firm’s ABS fund from October 2006 through November 2012, highlighted by the big gain in 2008 when he bet against subprime mortgages and the banks that had loaded up on them.

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KKR Resurrects Credit Fund with New Name, Strategy for Virus Era

Brief: KKR & Co. is rebooting an unsuccessful credit fund with a new name for the coronavirus era. The firm has rebranded the Special Situations Fund III as the Dislocation Opportunities Fund, refocused its strategy and swapped managers in the hope of raising new money to scoop up bonds and loans battered by the Covid-19 pandemic. Instead of just seeking out distressed situations, the fund has a wide mandate to buy corporate and asset-backed debt, according to a marketing document seen by Bloomberg. KKR is marketing the vehicle to potential investors and plans to close the current round of fundraising on May 15. The firm is contributing $400 million of its own capital and seeking approval from clients to repurpose at least $217 million that was committed to the special situations fund, said a person familiar with the effort, asking not to be identified because the information is private.

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Hasenstab’s Global Bond Fund Posts a $4.3 Billion Drop in Assets

Brief: The main bond fund run by Franklin Templeton’s Michael Hasenstab posted a $4.3 billion decline in assets in the first three months of the year, its worst quarter since 2016. Total net assets in the Templeton Global Bond Fund slumped to $22.6 billion as of March 31, public filings show, down from $26.9 billion at the end of 2019. It was the fourth consecutive quarter of declines and takes the drop in holdings in the past year to $11 billion. Hasenstab has famously been caught on the wrong side of a huge bet against Treasuries and was forced to pare that back last year after yields plunged. Stimulus measures to fight the fallout from coronavirus have pushed yields even lower since.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday April 20, 2020:

  • As Canada continues to battle the coronavirus pandemic, they are now dealing with a different tragedy. Over the weekend, the country suffered it deadliest mass shooting in its history as at least 19 people, along with the shooter are dead. Nova Scotia RCMP expects that number to rise as they access an almost unthinkable 16 different crime scenes spanning across rural areas of the province.

  • In the United States, it didn’t take long for Americans to become restless with their state governors after President Donald Trump introduced plans of easing stay-at-home restrictions. Michigan, Ohio, Kentucky, Minnesota, North Carolina and Utah all experienced protests in some form over the weekend to reopen their respective states. The states were led by both democratic and republican governors, but state leaders seem to be in general consensus that testing needs to be ramped up significantly before they ease restrictions.

  • As Boris Johnson continues to recover from the coronavirus, the Sunday Times of London revealed a damning report of the Prime Minister’s initial handling of the pandemic. The report notes Johnson missed five emergency meetings in the beginning stages of the pandemic and missed a string of opportunities to get out front of the growing crisis as it spread across continental Europe. Government officials were quick to try and kill any momentum from the story noting “[t]he idea that the Prime Minister skipped meetings that were vital to our response to the coronavirus, I think is grotesque,” said Michael Gove, a senior Cabinet minister.

  • The death toll in Spain dropped to a month long low to just below 400, the lowest figure since March 22nd. Spain’s Prime Minister said he would slowly start lifting the country’s five-week lockdown during the month of May.

  • In Germany shops smaller than 800 square meters such as bookshops, florists, fashion stores, bike and car outlets were allowed to reopen on Monday. The country reported 1,775 new cases today, similar to Spain, their lowest total in a month.

  • On Sunday, Australia’s foreign minister said her concern about China’s transparency during the coronavirus pandemic was at a very high point. Marise Payne said Australia would be one of the countries pushing for an international investigation into the origins of the virus and how it spread throughout the world.

Covid-19 – Due Diligence And Asset Management

Oil Plunges 321% into Negative Territory for the First Time Ever as Demand Evaporates

Brief: Oil plunged into negative territory for the first time on record. The commodity's latest round of sharp selling comes as uncertainty mounts around storage for excess oil. Demand for crude has plummeted since the coronavirus outbreak has frozen activity worldwide.The price of West Texas Intermediate crude oil futures expiring in May plunged 321% to negative $40.32 cents a barrel, the lowest level ever recorded. Brent crude losses were muted by comparison, with the commodity sliding 9.5% to $25.41 a barrel at intrasession lows. The price of oil has continued to slide even after OPEC and its allies agreed to the biggest-ever production cut — one intended to backstop prices. Investors remain unconvinced the cuts can offset cratering demand for the commodity as the novel coronavirus keeps society from operating normally.

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Investor Shock as High-Flying Hedge Fund Posts Savage Slide

Brief: One of Australia's most prominent investment outfits, Regal Funds Management, has posted a shock 59 per cent slide in its high-performance hedge fund during March, leaving some investors fuming. Regal's chief investment officer Phil King told clients in a note distributed late last week that he had "underestimated the speed and scale" of the coronavirus pandemic, leaving a portfolio of stocks owned by the company's Atlantic Absolute Returns Fund exposed to savage share price falls. March was a difficult month for investors, with the ASX 200 falling more than 20 per cent and Wall Street sliding 18 per cent. But Regal's performance was significantly worse than some of Mr King's competitors, with local hedge fund VGI Partners posting a 1.4 per cent return and Totus Capital's Alpha Fund rising 10.4 per cent.

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Australian Funds Move to Cut Illiquid Values

Brief: The coronavirus sell-off is prompting big Australian superannuation funds to mark down their allocations to real estate, infrastructure and private equity to ensure defined contribution participants taking out money now to pay bills and cover expenses don't disadvantage those staying put. The move is the latest iteration of an ongoing fiduciary conundrum: Investing with a medium- to long-term investment horizon while participants retain the ability to move their money to competing funds on a short-term basis, said Nick Kelly, a Sydney-based senior investment consultant with Willis Towers Watson PLC.

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Managers Show the Money For Virus Relief Efforts

Brief: Money management firms and their senior executives have ramped up their philanthropic efforts in response to the devastation COVID-19 has wrought on communities around the world. The collective support of the 20-plus managers or their parent companies tracked by Pensions & Investments totaled $483 million as of April 16. Projects funded by investment firms range from providing first responders and health-care workers with protective supplies, food and child care through non-profits and government agencies, and funding research for a vaccine to combat COVID-19 to direct financial support for struggling small businesses. The largest amount aimed at COVID-19 relief efforts wasn't a donation, but an investment.

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Wells Fargo, JPMorgan Among Banks Sued Over SBA Virus Loan Aid

Brief: Wells Fargo & Co., Bank of America Corp., JPMorgan Chase & Co. and US Bancorp were sued by small businesses that accused the lenders of prioritizing large loans distributed as part of the virus rescue package, shutting out the smallest firms that sought money. The four banks processed applications for the largest loan amounts because they generated the highest fees, rather than processing them on a first-come-first-served basis as the government promised, according to lawsuits filed Sunday in federal court in Los Angeles. As a result, thousands of small businesses that were entitled to loans under the program administered by the Small Business Administration, known as the Paycheck Protection Program, were left with nothing, the plaintiffs said. JPMorgan declined to comment on the lawsuit. The bank said in a FAQ that its smallest business clients received more than twice as many loans as the rest of its clients combined. Representatives for the other lenders didn’t immediately respond to requests seeking comment.

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Head of Oil Trader Hin Leong Didn’t Disclose $800 Mln Losses – Court Filing

Brief: The founder and director of Singapore oil-trading company Hin Leong Trading Pte Ltd (HLT) directed the firm not to disclose hundreds of millions of dollars in losses over several years, he said in a court filing reviewed by Reuters. The affidavit signed by Lim Oon Kuin, a Singaporean in his 70s widely known as O.K. Lim, is part of a Friday filing to the Singapore High Court by HLT and subsidiary Ocean Tankers (Pte) Ltd, seeking a six-month moratorium on debts of $3.85 billion to 23 banks. The filing cites a collapse in the oil price and the coronavirus pandemic, which has hammered oil demand and pushed up costs for HLT, one of Asia’s largest oil traders. Despite reporting net profit of $78.2 million for the business year ended in October, “HLT has not been making profits in the last few years,” Lim said in the filing, which has not been made public.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Friday April 17, 2020:

  • United States President Donald Trump outlined his government’s plan of reopening the country. President Trump stated the federal government has three levels of guidelines for reopening, but it will be completely up to individual states on how and when they want to reopen. Phase one of the government’s plan includes schools that are closed, should remain closed and people who can work from home, should continue to work from home. Venues like restaurants and gyms can open as long as social distancing measures remain in place, but bars should remain closed. Phases two and three gradually decrease the recommended restrictions. President Trump noted the guidelines aren’t mandatory and some states could usher in phase one as early as Friday if they’d like. However, New York State Governor Andrew Cuomo lashed out at the federal government Friday during his news briefing saying states like his have received no federal funding and need more help when it comes to coordinated testing.

  • In Canada, Prime Minister Justin Trudeau announced the government will spend $1.7B to clean up abandoned oil and gas wells. This move covers two bases for the government; it checks off an environmental focus and maintains jobs in the provinces of Alberta, Saskatchewan and British Columbia. Energy jobs in Alberta, an oil rich province, have especially taken a hit during the coronavirus pandemic.

  • A professor of International Child Health and Director of the UCL Institute for Global Health said the United Kingdom government moved too slow on the coronavirus outbreak. Anthony Costello said the government’s indecision could cause up to 40,000 deaths in the UK once the first wave of the pandemic is over. Government officials have defended their response to the coronavirus, citing they followed scientific advice and responded with urgency. The UK’s death toll is closing in on 15,000.

  • Wuhan China, ground zero of the epidemic, has revised its death total adding nearly 1,300 new deaths due to the coronavirus. This number doubles the initial number given and provides ammunition to those who believed China were not very forthcoming in their totals and how serious the situation was. The coronavirus also caused the Chinese economy to contract by 6.8% in the first quarter of 2020. This is the first time China has seen its economy shrink in the first three months of the year since it started recording quarterly figures in 1992.

  • After weeks of infighting, Brazil’s President Jair Bolsonaro has fired his Health Minister, Luiz Henrique Mandetta in the midst of the coronavirus pandemic. Mandetta was one of Brazil’s biggest endorsers of social distancing, supporting governors’ decisions to shut down schools and businesses. This was in direct contrast to what Bolsonaro wanted, believing the economic fallout would be far worse. Bolsonaro has described the coronavirus as nothing more than a “little flu”. The president has replaced Mandetta with oncologist Nelson Teich, a man who supported Bolsonaro during his campaign to become leader of the country.

Covid-19 – Due Diligence And Asset Management

Renaissance Says Quant Models Misfired During March Mayhem

Brief: For Jim Simons, history is repeating itself, at least when it comes to meltdowns in the quant fund world. Computer models at Renaissance Technologies, the firm founded by the mathematician and former codebreaker, misfired when volatility surged this year, contributing to a first-quarter loss at its largest hedge fund. The beta models, which help determine portfolio exposure at funds for outside investors, “in recent volatile markets have not performed as expected,” Renaissance said in a March 30 filing. The setback for one of the industry’s best known hedge funds is another example of the turmoil wrought by the coronavirus. The pandemic has stalled global commerce, ended a record bull run for stocks and forced the Federal Reserve into an unprecedented multitrillion-dollar rescue of financial markets.

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British Hedge Fund Man Group says Assets Fell 11.5% in Q1

Brief: British hedge fund manager Man Group (EMG.L) said on Friday that its funds under management fell 11.5% to $104.2 billion in the first quarter as the novel coronavirus hit global markets.Man Group said the firm lost $10.7 billion on negative investment performance and $3.3 billion from currency and other movements.The firm’s long-only computer-driven and discretionary strategies, which bet on stocks rising, suffered the most during the quarter, losing $10 billion in investment movement and another $1.1 billion in outflows.Three of Man’s computer-driven long-only strategies were down more than 20% for the three months to March 31.

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BlackRock Becomes Key Players in Crisis Response for Trump and the Fed

Brief: As President Donald Trump grappled with the coronavirus outbreak last month, he boasted at a press conference of tapping a secret weapon for advice: Larry Fink. The chief executive of BlackRock Inc. provided insight to Trump on coping with the fallout from the pandemic -- and once again put his firm at center of a white-hot economic emergency. BlackRock is no stranger to stepping in during a financial crisis cleanup. It played a similar role in 2008. But back then, it was a smaller firm with a focus on fixed income, closer to Pacific Investment Management Co., which had renowned money managers Mohamed El-Erian and Bill Gross at the helm. More than a decade later, the investing landscape has shifted. BlackRock has a premiere role in helping the Federal Reserve stabilize markets. The central bank has hired the firm to help manage its economic relief efforts. Beyond U.S. borders, the Bank of Canada has called on the asset manager as it shapes its response to the meltdown.

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Zimmer’s Energy Hedge Fund Down 55% This Year After March Plunge

Brief: The energy fund at Zimmer Partners posted its worst quarter ever after sinking about 46% in March as oil markets plunged.The fund dropped 55% in the first quarter after losing money each month, according to an investor letter seen by Bloomberg. The fund, which ran $1 billion at the end of January, now has about $500 million in assets. The oil price war between Russia and Saudi Arabia ravaged the energy industry last month and helped send Brent crude to its lowest in nearly two decades. Making matters worse, the coronavirus pandemic has wiped out demand for crude amid an oversupply threatening the survival of oil producers and the economies of oil-dependent nations.

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Vanguard Latest to Close Money Fund to New Investors

Brief: Vanguard Group said on Thursday it closed its $39.5 billion Treasury Money Market Fund to new investors, becoming the latest big asset manager looking to protect the returns of existing clients. Restricting the flow of new money helps reduce the amount of new securities paying lower yields that Vanguard will need to purchase, slowing the rate of dilution to returns for current shareholders. “Vanguard is taking this prudent step to temper cash flows and will continue to monitor the Fund and employ additional measures if needed,” the company said in a statement. New money market investors would still have access to other funds in its $414 billion lineup, Vanguard said. Other fund companies have taken similar steps including Fidelity Investments on March 31.

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UK Accounting Industry Cuts Partner Pay and Furloughs Staff

Brief: The UK accounting industry has been plunged into its worst crisis in over a decade as the “Big Four” firms slash partners’ pay by up to a quarter and their mid-tier rivals furlough junior staff to cope with the fallout from the coronavirus pandemic. London-headquarteredKPMG,PwC,Deloitteand EY have reduced the amount of profits that are distributed to their partners each month by between 20 and 25 per cent to build up cash reserves and help survive a downturn in work. Partners at the UK arms of the four firms, which between them employ about 74,000 people, earned an average of £720,000 last year and undertake activities including company audits, tax and restructuring advice, and consulting on transactions.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday April 16, 2020:

  • In the United States 22 million Americans have filed for unemployment benefits in the last month. The country released their latest numbers on Thursday and another 5.2 million workers filed for benefits in the last week. New York state Governor Andrew Cuomo extended the lockdown of his state until May 15th. New Yorkers must now also wear masks while riding public transportation and in hired cars as state officials try to reduce the risk of spread. New York state was the hotspot for the virus and is the epicentre for the world economy, which may put a speed bump in President Donald Trump’s plan of reopening the country.

  • Canada’s long-term care facilities continue to be a top priority for government officials as the coronavirus has displayed noticeable holes in its checks and balances. Prime Minister Justin Trudeau is set to speak with the country’s premiers on Thursday about how to boost pay for critical support workers in long-term care homes. Canada’s chief public health official has noted in the past, half of the COVID-19 deaths in the country are linked to long-term care facilities. Quebec has even requested more doctors and members of the Canadian Armed Forces to come and help with the situation.

  • The United Kingdom has extended its nationwide lockdown for at least another three weeks. Deputy leader Dominic Raab stated the country has not yet passed its peak infection rate and that the government has five tests set out that must be met before restrictions can be relaxed, or the lockdown ended. They include a sustained, and consistent fall in daily death rates, confidence in testing, and that the National Health Service can cope with demand, just to name a few.

  • France’s President Emmanuel Macron said during a French radio interview that he has the backing of world leaders such as the United States, the United Kingdom and China for a global ceasefire and essentially world peace as the coronavirus pandemic spreads throughout the world. Macron also stated he was hopeful of obtaining Russia President Vladimir Putin’s support as well.

  • Australia will keep its restrictions in place for at least four more weeks. Prime Minister Scott Morrison notes that over the next month, he hopes his country can expand testing, improve its capacity to trace contacts of known coronavirus cases, and plan a response to any further local outbreaks. Current measures in place include restriction of citizen movement, and the closures of schools, restaurants, and pubs.

  • Japan’s Prime Minister Shinzo Abe has issued a nationwide state of emergency due to the coronavirus worsening throughout the country. The state of emergency will remain in place until May 6th. Prime Minister Abe’s response to the virus outbreak has been met with criticism. A recent poll has 75% of Japanese residents thinking it took their prime minister too long to declare a state of emergency in the country’s largest city, Tokyo.

Covid-19 – Due Diligence And Asset Management

Algebris Liquidates Quant Arbitrage Fund After Performance Collapses in Virus Turmoil

Brief: Algebris Investments, the London-based hedge fund, is liquidating its Quant Arbitrage fund following prolonged poor performance in 2020.The $12bn hedge fund firm, which manages credit and equity market-focused strategies, launched the Quant Arbitrage fund in May 2019 to take advantage of spikes in volatility. But according to data on MorningStar.com, the €26m fund was down 48% in 2020 until 14 April, having fallen foul of the Coronavirus-induced market turmoil and with its equity portfolio suffering as a result of recent marked declines in equity markets. A person close to the situation said the Quant Arbitrage fund, managed by Gianluca Lobefalo, the firm’s head of quant strategies, was in the process of being liquidated. “It was an experiment that didn’t work,” they said, adding Algebris didn’t want the “contagion effect to spread to other funds” run by the firm.

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Morgan Stanley CEO James Gorman sees Coronavirus-Induced Recession Lasting Through all of 2021

Brief: Morgan StanleyCEOJames Gormansees the coronavirus-induced global recession lasting for the entirety of this year and 2021. When asked about how a potential economic recovery expected in the second half of this year would take shape, Gorman said that while he hopes it will be a sharp “V” recovery, in reality it will probably take longer to reopen cities and factories. “If I were a betting man, it’s somewhere between a `U’ or ‘L’” shaped recovery, Gorman told CNBC Thursday in an interview. “I would say through the end of next year, we’re going to be working through the global recession.”

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Hedge Fund Elliott says Stocks Could Fall 50% From February Highs

Brief: Billionaire Paul Singer’s Elliott Management said global stocks could tumble more — ultimately losing half of their value from February’s high— as the world braces for the deepest recession since the 1930s-era Great Depression, according to a letter sent to clients on Wednesday and reviewed by Reuters. The New York-based hedge fund firm, which controls $40.4 billion in assets and whose views on markets and economics are closely watched by investors, wrote that the sharp market decline seen between late February and late March “provided a heavy bookend to a dozen years of basically nonstop positive returns in global stocks, bonds and real estate.“ And the rout is likely not yet over.

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BlackRock’s Assets Under Management Shrink Amid Market Turmoil

Brief: BlackRock Inc’s (BLK.N) assets under management dipped sharply in the first quarter amid turmoil in global markets caused by concerns about the economic fallout of the coronavirus outbreak. BlackRock’s assets fell to $6.47 trillion from $7.43 trillion at the end of the fourth quarter. “We had vast de-risking from February 21 to the end of the quarter,” Chief Executive Officer Larry Fink said on a conference call with analysts. Worries about the economic fallout of the coronavirus pandemic hammered global financial markets in the first quarter and soured investor appetite for riskier assets like stocks. The benchmark S&P 500 index fell 20% during the period.

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Fortress Targets $3 Billion for New Credit Opportunities Fund

Brief: Fortress Investment Group is talking to investors about raising at least $3 billion for a new credit fund as it anticipates forced selling and broader illiquidity as companies around the world grapple with the Covid-19 pandemic. The New York-based firm this week began sounding out interest in a vehicle known as Fortress Credit Opportunities Fund V Expansion, according to people with knowledge of the matter, who requested anonymity because the information is private. The firm could raise $5 billion or more depending on demand, one of the people said. Gordon Runte, a spokesman for the firm, declined to comment. The credit arm of Fortress is led by co-founder Pete Briger and fared well in the prior financial crisis. Its first credit opportunities fund, launched in 2008 at $3 billion, delivered an annualized gross internal rate of return of 34% through the end of last year, according to a document sent to investors this week. 

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SEC Staff Urges Investment Cos. To Update Info Despite Virus

Brief: Investment companies should make every effort to deliver timely financial information and risk disclosures to investors despite the disruptive effect of the coronavirus pandemic, U.S. Securities and Exchange Commissionstaff said.While the SEC has worked to provide selective relief to companies affected by COVID-19, investment companies should remain mindful of their obligations to provide key information to investors, Division of Investment Management staff said in a statement Tuesday.“In light of the current uncertainties and market disruptions, investors need high-quality financial information more than ever,” the statement said. “We are committed to promoting the updating and delivery of such information, which is particularly important to keep Main Street investors up to date about their investments.”Investment companies must update information in their prospectuses, including the underlying financial statements, SEC staff said. Companies should also weigh whether to update their risk disclosures in light of the pandemic, the statement said.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday April 15, 2020:

  • As the worldwide total for coronavirus cases climbed over the two million mark, the United States announced Tuesday they were halting funding to the World Health Organization (WHO) while a review is conducted. President Donald Trump blamed the WHO for not calling out China’s lack of transparency and said the governing body made a “dangerous and costly” decision to oppose travel restrictions on China. President Trump said the review would take 60-90 days. The move by the United States prompted worldwide condemnation with critics saying the virus knows no borders, and in the middle of the pandemic, now is not the time to play politics.

  • The Bank of Canada said COVID-19 could cause the economy to shrink by up to 30% this upcoming quarter, as compared to end of 2019. The central bank stated they have already provided the country with what amounts to $200 billion worth of support. Canada’s coronavirus cases are now over 28,000 and closing in on 1,000 deaths.

  • Smaller European countries are trying to reopen their societies after being in lockdowns for several weeks. Denmark planned to reopen day care centers and schools for children from the first to fifth grades on Wednesday. Meanwhile, Austria allowed thousands of shops to open their doors again on Tuesday with strict distancing measures still in place.

  • Germany plans on lifting restrictions on their shops starting next week. Chancellor Angela Merkel noted shops that meet certain size requirements will be allowed to reopen if hygiene plans are followed. Schools will also open again gradually on May 4th, with priority given to primary and secondary students in their final years.

  • In the United Kingdom, coronavirus cases are closing in on 100,000 with close to 13,000 deaths. Government officials are hoping the numbers are close to peaking and the 4,000-bed NHS Nightingale Hospital built in East London for coronavirus patient overflow only had 19 patients in it over the Easter weekend.

  • The Philippines introduced a more aggressive testing program that could locate as many as 15,000 unknown infections. The former military chief in charge of the national coronavirus taskforce said their modelling suggests up to 75% of people with infections have yet to be detected. The country has over 5,000 infections and 335 deaths due to COVID-19 and have been in lockdown since the middle of March.

Covid-19 – Due Diligence And Asset Management

Howard Mark’s Oaktree Seeks $15 Billion for Biggest Distress Fund Ever

Brief: Oaktree Capital Group LLC is seeking $15 billion to start the largest-ever distressed-debt fund, aiming to profit from companies damaged by the coronavirus pandemic. Oaktree Opportunities Fund XI will buy up debt in struggling companies and in some cases may seek control of businesses in restructurings, according to an investor presentation reviewed by Bloomberg. The sum is almost as much as the $19.4 billion in assets that Oaktree has already devoted to that strategy. The firm co-founded by Howard Marks plans to gather a larger fund than what it raised during the financial crisis more than a decade ago because it sees even more opportunities this time around, according to the presentation.

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Activist Hedge Fund Starboard Pounces on U.S. Companies in Turmoil

Brief: Most activist shareholders have refrained from challenging the boards of U.S. companies during this season of annual shareholder meetings, as businesses reel from the economic fallout of the coronavirus outbreak. Not Starboard Value LP. The New York-based hedge fund, which Jeffrey Smith spun out of investment firm Ramius in 2011, is pursuing proxy contests against five U.S. companies, even as rivals remain largely silent, according to a review of regulatory filings. Starboard, which built its reputation as a powerful player by winning more board seats than any other activist, is betting companies will be willing to settle during the crisis, so they can concentrate on their business and the safety of their employees.

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Polar to Wind up Absolute Return Fund as Fund Manager Falls Ill

Brief: Polar Capital has confirmed it is winding up its UK Absolute Equity fund due to the poor health of its fund manager. The fund, managed by Guy Rushton, had been among the top-performers in the Investment Association Targeted Absolute Return sector but its performance has faltered during the coronavirus sell-off. It had held £472.17m at the time of its February factsheet but that has since fallen to £292.2m. Polar Capital has now sent a letter to investors informing them the fund has been suspended with immediate effect so that an orderly wind down of the fund can occur. “The decision to terminate the fund has been prompted by the poor health of the individual fund manager,” the letter said. “Over the past few weeks and due to the unprecedented market turmoil caused by the Covid-19 pandemic, Polar’s risk team and central dealing desk has, at the request and with the consent of the fund manager, stepped in to provide assistance and support to the fund manager as he decided to reduce the fund’s risk.

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Hedge Funds Profiting from Covid-19 ‘Must Give More Back’

Brief: Hedge fund tycoons have made £1.5 billion in profits by shorting UK shares during the financial crisis, according to Evening Standard calculations that triggered calls for curbs on their activities and a windfall tax. Firms such as Citadel, owned by billionaire US investor Ken Griffin, AQR​ Capital, co-founded by billionaire hedge funder Cliff Asness, wealthy London financier Crispin Odey’s Odey Asset Management and Sir Paul Marshall and Ian Wace’s Marshall Wace were the most prolific winners from the market crash… An analysis of the 50 most shorted stocks show hedge funds made gains of £1.48 billion during March’s stock market rout betting against under-pressure firms like easyJet and Premier Oil. On the fall of easyJet alone, AQR made a paper profit of £48 million and Citadel £43 million. Odey made more than £4 million on Metro Bank, while every one of Marshall Wace’s 30 short positions will have paid off. Marshall Wace has one of the biggest number of shorts in London.

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Glade Brook Pitches ‘Extraordinary Opportunity’ in Tech Debut Amid Coronavirus

Brief: Glade Brook Capital Partners LLC, the venture capital firm led by Paul Hudson, is pitching a new fund to investors targeting the debt of private technology companies impacted by economic disruption from COVID-19. The $1.5 billion Greenwich, Connecticut-based firm began marketing the Special Situations Fund last week and is targeting $100 million for it by the end of April, according to a pitch document seen by Reuters. The fund will invest in preferred stock, convertible bonds and senior debt, in primary and secondary markets, in what Glade Brook sees as “high quality” but “dislocated” private technology companies, according to the materials.

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Silver Lake Finds its Sports and Entertainment Bets Caught in Covid-19 Crosshairs

Brief: Private equity firm Silver Lake built its reputation on the back of investments in technology companies such as internet phone service provider Skype and chip maker Broadcom. But in recent years, the firm, which manages more than $40bn in assets, has established itself as a major player in the sports and entertainment arena as well, investing billions of dollars in businesses that include cinema chain AMC Entertainment Holdings and the parent company of UK soccer team Manchester City. Now, some of these deals are coming under pressure. Companies in the sports, media and entertainment sectors are facing declining revenue as social-distancing guidelines and curbs on public gatherings have shut down sports leagues and the movie industry and led to concerts and cinema screenings being cancelled worldwide.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday April 14, 2020:

  • As the United States close in on 600,000 confirmed coronavirus cases, there seems to be a three-way battle between the government, the individual states, and health officials. President Donald Trump has said in recent media briefings that guidelines will be released “soon” aimed at re-opening the country. The President has also stated he has absolute power in making the reopening decision across the country, a claim that Governors in individual states are balking at. Meanwhile, health officials continue to state that re-opening the country May 1st is too ambitious and when the United States does start getting back to normal, it needs the capacity to test and trace new cases, which it doesn’t have currently.

  • In Canada, the Federal government is stating the country is still several weeks away from getting back on track and when it does, it will be with a phased-in approach. Prime Minister Justin Trudeau said that jobs in some sectors are at a lower risk than others, so workers into those fields may be able to return to work sooner. The closure of the border with the United States for discretionary travel will also remain in place for “several weeks”.

  • The United Kingdom is dealing with similar issues to America as media reports have ministers divided on when to relax lockdown measures as they try to balance the health of its citizens vs. the health of their economy. However, UK Chancellor Rishi Sunak tried to make clear where the government’s priority lies noting, “[t]he single most important thing we can do for the health of our economy is to protect the health of our people.” The UK’s Office for Budget Responsibility stated the country could be facing a 35% drop in output for the second quarter of 2020 if the lockdown remains in place for three months.

  • As health care front line workers have been praised throughout the world for their work during the coronavirus pandemic, a Bloomberg report notes something much different in India. The report indicates healthcare workers have been verbally and physically abused by its fellow citizens who believe they could catch the coronavirus from them due to their close contact with the infected. Government officials have also extended their curfew until May 3rd as confirmed cases continue to rise.

  • According to a study released on Monday, Brazil likely has 12 times more cases than what is being officially reported by the government. The large gap in numbers is due to a combination of little testing and long wait times to confirm results. The government has focused on testing only serious cases rather than all suspected cases. The country is closing in on 24,000 confirmed cases with 93,000 tests still being processed for results. Brazil also has the issue of having President Jair Bolsonaro at the helm, one of the few world leaders left who continues to downplay the seriousness of the coronavirus.

Covid-19 – Due Diligence And Asset Management

General Atlantic Teams up with Tripp Smith for $5bn Distressed Fund

Brief: Private equity firm General Atlantic is teaming up with veteran credit investor Tripp Smith to launch a roughly $5bn fund that will provide financing to companies hit by the new coronavirus pandemic, according to people familiar with the matter. General Atlantic, which typically takes minority equity stakes in rapidly growing companies, is forming a joint venture with Smith’s credit-focused firm Iron Park Capital Partners LP, the people said. Atlantic Park, as they have dubbed the venture, will provide structured equity and debt financing to previously healthy companies now facing distress because of the pandemic. Founded in 1980, General Atlantic has $35bn in assets and offices around the world. Under chief executive Bill Ford, the firm has made its name by investing in successful technology companies, such as Alibaba Group Holding, before their initial public offerings.

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GAM Accelerates Cost Cutting Plans Amid COVID-19 Uncertainty

Brief: Swiss asset manager GAM has stepped up its cost cutting initiatives after recording outflows as it gets hit by the Covid-19 pandemic. The firm has now unveiled plans to make at least CHF65m ($67m) in cost cuts by the end of 2020. This is more than twice the amount of cost cuts originally targeted by the end of this year. In February, GAMannounced a strategy overhaulthat was centred on three pillars – efficiency, transparency and growth. According to that policy, the firm aimed for CHF30m in cost savings by the end of 2020. The firm’s assets under management (AuM) totalled CHF112.1bn at the end of March 2020, versus CHF132.7bn at the end of 2019.

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Hedge Fund Managers are Claiming Bailouts as Small Businesses

Brief: Free money. That’s the enticing prospect hedge funds and other trading firms are pondering after realizing they too might be able to participate in a historic U.S. stimulus package to keep small businesses alive through the coronavirus pandemic. Since early April, law firms have hosted Webinars and sent out alerts, and accounting firms have reached out to clients, all with the goal of explaining how they might be able to tap into the Paycheck Protection Program. The $349 billion package administered by the Small Business Administration provides loans to cover payroll, rent and utilities for up to eight weeks. The loans can convert to grants if recipients retain or rehire their workers.

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AMP Capital Wholesale Property Fund Rejigs Withdrawals

Brief: AMP Capital's wholesale Australian property fund is moving asset valuations from quarterly to monthly, has fixed the distribution payouts for this year and is altering withdrawals during the COVID-19 pandemic. The fund, which currently allows monthly redemptions, allows only 5% of the funds' total net asset value for withdrawals every quarter. It has deferred its April 15 withdrawal date to May 15. The fund's constitution allows it to widen payment times beyond the 12-month processing time. "It's not considered in the best interests of all investors to maintain monthly redemptions in the current economic environment. However, the changes we have announced provide investors with an ability to redeem up to 20% of their holding in the short term, with full payment made for any redeemed units over and above this threshold within 12 months," AMP Capital said in a letter to investors last week.

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One of Canada’s Largest Private Lenders Halts Redemptions

Brief: One of Canada’s largest private lenders is freezing redemptions. Bridging Finance Inc. said in an letter to investors Monday that it has gated its funds indefinitely “to maintain investor value and limit pandemic effects.” The non-bank lender has C$1.6 billion ($1.2 billion) in assets under management with the most of its direct lending funds invested in collateral-based bridging loans, inventory and accounts-receivables financing. Request for redemptions spiked to about 15% of the assets from the usual 5%, which prompted the gating, Chief Executive Officer David Sharpe said by phone. The news was first reported by the Globe and Mail newspaper.

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Abraaj Founder Arif Naqvi Contracts Coronavirus

Brief: Founder of the once-mighty Middle Eastern private equity firm Abraaj has tested positive for COVID-19, it emerged on Monday. Naqvi has said that he is undergoing treatment at a private hospital and that he is “on the road to recovery”. “Today is my fourth day in the hospital and I am praying that they [hospital staff] will let me go home soon; my cough is definitely better, my oxygen saturation is heading in the right direction,” he said. Naqvi said that he was still low on energy but understood that it was due to the fact that his body was taking up a lot of strength to recover from the virus. He praised the doctors and nurses at the hospital for taking care of him.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday April 13, 2020:

  • Over the weekend, United Kingdom Prime Minister Boris Johnson was released from a London hospital and is recovering at Chequers, a home that usually serves as a country retreat for the Prime Minister. Johnson isn’t working while he recovers as Dominic Raab continues to serve as deputy leader in his absence. England has now surpassed over 10,000 deaths due to the coronavirus with Raab warning citizens that there is still a long way to go and the country have yet to pass the peak of the virus.

  • The United States now own the grim distinction of having the most deaths due to the coronavirus, passing Italy over the weekend. The White House also had to do some damage control on Monday stating the government has no intention of firing lead immunologist Dr. Anthony Fauci calling it “chatter” and “ridiculous”. Dr. Fauci made the media rounds over the weekend stating on CNN that he and other health experts wanted the government to shut down in February, but government officials weren’t ready to do so. President Donald Trump then took to Twitter, retweeting a former Republican congressional candidate calling on Dr. Fauci to be fired.

  • In Canada as the number of cases reached over 25,000, the attention has turned to some of the country’s most vulnerable: seniors in long-term care homes. Over the past several days, media reports have displayed some deplorable conditions at a Quebec seniors’ home where 31 residents have died since mid-March. The government said at least five of those deaths were linked to COVID-19. The province’s health officials are now inspecting all private long-term care facilities to see what measures are being taken amid the pandemic. There have also been other outbreaks at senior care facilities in British Columbia and Ontario since the outbreak began.

  • Italy’s strict social distancing measures, which have been in place since March 9th, will be extended until May 3rd. While the country has seen improvements, Italy’s death toll is now over 20,000.

  • France’s President Emmanuel Macron has also extended his country’s lockdown until May 11th as their death toll closes in on 15,000.

  • Spain though has lifted some of its restrictions on Monday, allowing those who cannot work from home like construction and manufacturing industry workers to return. Shops, bars, restaurants, and other businesses deemed to be non-essential remain closed.

  • Media reports are noting Japan’s Prime Minister Shinzo Abe’s “stay home” tweet over the weekend has rubbed a lot of his citizens the wrong way. The reason being is the government’s social distancing policy is voluntary and doesn’t come with compensation for poorer workers who can’t afford to “stay home”.

Covid-19 – Due Diligence And Asset Management

Leon Cooper says Gov’t Shouldn’t Let Companies go Bankrupt Because of Coronavirus

Brief: Billionaire investor Leon Cooperman told CNBC on Monday the U.S. government should offer financial assistance to companies struggling with the economic effects of the coronavirus pandemic. “If the government lets all these companies go bankrupt and they do disgorge labor, the government is going to have to basically pay a lot of unemployment benefits,” Cooperman said on “Fast Money Halftime Report.” “Instead, they make low-interest rate or interest-free loans to these companies that are experiencing [a] liquidity crisis, the companies fix themselves up and they come back.” 

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Polar Capital AuM Dips 12% Hit by Covid-19

Brief: British investment manager Polar Capital has revealed that its assets under management (AuM) dropped 12% on a year-on-year basis to £12.2bn at the end of March 2020.The firm attributed the fall to the impact of the pandemic and a sharp fall in the oil price, which led to a fall in global equity markets. The AuM dipped by £1.9bn in the three months ended 31 March 2020. The firm’s AuM as of 31 March 2019 was £13.8bn.

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SoftBank Sees $12.5 Billion Loss as Startup Bets Backfire

Brief: SoftBank Group Corp. forecast a 1.35 trillion yen ($12.5 billion) operating loss for the fiscal year ended in March, a sign of how badly Masayoshi Son’s bets on technology startups have been battered in recent months. The Japanese company expects to record a 1.8 trillion yen loss from its Vision Fund and another 800 billion yen in losses from SoftBank’s own investments. It has written down the value of investments in companies, including office-rental startup WeWork and satellite operator OneWeb, which filed for bankruptcy last month. Son’s conglomerate has taken one blow after another since the implosion of WeWork’s initial public offering last year and SoftBank’s subsequent bailout. It bet heavily on sharing-economy startups, which allow people to split the use of offices or cars, but those investments have been particularly hard hit as the coronavirus pandemic curbs unnecessary human interaction.

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AEW Core Property Trust Suspends Redemptions

Brief: Organized as a Maryland corporation, AEW Core Property Trust (U.S.) is an open-ended U.S. core real estate vehicle managed by Boston-based AEW Capital. Like other real estate funds, the trust is concerned about liquidity during the Wuhan coronavirus (COVID-19) pandemic. At December 31, 2019, the open-ended fund had US$ 9.5 billion of gross property value and net asset value equating to US$ 7.2 billion. AEW Capital informed investors that its suspending fund redemption requests. The fund is concerned about a rapid withdrawal, causing the portfolio’s value to drop sharply. 

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EJF Capital Asks to Borrow From Clients Amid Credit Market Turmoil

Brief: EJF Capital LLC, the multibillion-dollar credit-focused investment firm, is asking clients for a loan to avoid additional losses in one of its private funds, according to a recent company letter seen by Reuters. Sent to investors in the $206 million EJF Trust Preferred Fund LP, the letter said recent coronavirus-driven turbulence in short-term funding markets made continuing to use such debt a challenge, risking deeper fund losses if positions had to be liquidated to pay it back.

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Billionaire Cliff Asness’ Hedge Fund AQR Hit with $43B COVID-19 Losses

Brief: Billionaire investor Cliff Asness has spent his quarantine watching $43 billion disappear. Asness’ AQR Capital — which managed $186 billion at the end of 2019 — has updated its Web site to reflect that its assets under management as of March 31 now stand at $143 billion. It’s unclear how much of the massive 23 percent drop in assets is due to investor withdrawals versus investment losses, but the notoriously outspoken Asness, 53,has been sufferingfrom redemptions amid sagging performance since last year. Returns have worsened this year for some of Asness’ funds as the coronavirus pandemicbatters the economyand the stock market, according to AQR’s Web site.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday April 9, 2020:

  • United Kingdom Prime Minister Boris Johnson was moved out of the intensive care unit (ICU) of a London hospital Thursday evening and was described as being in “extremely good spirits”.  Johnson had been in St. Thomas Hospital’s ICU unit since Monday evening when his coronavirus symptoms took a turn for the worse. Downing Street officials noted Johnson is now back in the ward unit of the hospital and is being closely monitored. Meanwhile, deputy leader Dominic Raab noted the government will not consider lifting its lockdown of the country until the end of next week at the earliest. The UK have over 65,000 confirmed cases and close to 8,000 deaths due to the coronavirus.

  • As the United States are suffering from their deadliest week so far due to the coronavirus, a new model forecasts fewer projected deaths. The model shows just over 60,000 might succumb to the disease by August, much lower than 100,000-200,000 forecasted just a few weeks ago. The updated model though assumes social distancing measures, such as school closures and businesses remain closed until August. This may be difficult as the newest unemployment numbers were released on Thursday with 6.6 million more Americans filing for benefits this week. This brings the total number to 16.8 million, or about 11% of the country’s workforce unemployed.

  • Canada was dealing with some grim realities on Thursday. During his media briefing, Canadian Prime Minister Justin Trudeau outlined the country’s projected numbers for the coronavirus. Trudeau said there could be nearly 32,000 cases by this time next week (currently 20,000+) with between 500-700 deaths. Over the course of the pandemic, Canada could have anywhere between 11,000-22,000 deaths even with strong control measures in place. Similar to America, those strong measures will be hard to keep  with the first wave possibly lasting into the summer, with other outbreaks erupting after that, and likely no vaccine. The Prime Minister called this the challenge of the generation and cited “this will be the new normal until a vaccine is developed.” Government officials also announced the country’s worst monthly job loss ever, with more than a million Canadians finding themselves unemployed in March.

  • Germany will be the first country in the world to carry out large-scale antibody testing for the coronavirus. The tests will be split into blood donations, one of four distinct areas that saw outbreaks of the virus and a representative study of the broader population. The aim of the study is to find out how many Germans are immune to the virus.

  • In what could be an alarming trend in a virus that is so new, 74 people in South Korea who had been diagnosed as recovered from the coronavirus have tested positive for it a second time after being released from hospitals. The director for the country’s disease control and prevention said some of the patients didn’t show any symptoms before the follow-up tests turned positive, while others did show respiratory symptoms. So far, none of these patients have seen their illness worsen to serious conditions.

Covid-19 – Due Diligence And Asset Management

Mnunchin Says U.S. Economy Could Open in May, Defying Experts

Brief: U.S. Treasury Secretary Steven Mnuchin said on Thursday that the American economy could start to reopen for business in May, despite many medical experts saying that closures and social distancing measures will need to stay in place for longer to defeat the coronavirus. Asked on CNBC whether he thought President Donald Trump could reopen the U.S. economy in May, Mnuchin said, “I do.” “As soon as the president feels comfortable with the medical issues, we are making everything necessary that American companies and American workers can be open for business and that they have the liquidity they need to operate the business in the interim.” U.S. economists have cautioned against bringing large numbers of people back to their workplaces too quickly.

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Morgan Stanley CEO James Gorman Recovers from COVID-19

Brief: Morgan Stanley’s (MS.N) Chief Executive Officer James Gorman said he has fully recovered from the illness caused by the novel coronavirus, according to a video that was sent to the bank’s employees on Thursday. Gorman released the 10-minute video to staff by email in which he said he had tested positive for coronavirus and had been fully cleared by doctors more than a week ago. Gorman is currently undergoing self-isolation at home and working remotely, according to the video. A Morgan Stanley spokesman confirmed the contents of the video, adding the development was not considered to be material because Gorman was not incapacitated at any time.

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UK Accounting Watchdog Postpones Break-Up of Big Four

Brief: The UK’s accountancy watchdog has paused its plans to separate the Big Four accountancy firms, as the profession tackles the disruptions caused by the Covid-19 downturn. In astatementfrom the Financial Reporting Council on April 9, the watchdog said it would stop all “demands on, requests from and meetings with audit firms on operational separation”. The pause will be reviewed in one month’s time. The decision to put the break-up on hold comes shortly after the FRC wrote to the leaders ofDeloitte, EY, KPMG and PwC outlining its separation plans. In a statement at the end of February, Claire Lindridge, the FRC’s director of audit firm monitoring and supervision had said the firms would be expected to ensure their “audit practice is properly ring fenced”, so that “financial results are clear and transparent”.

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BlackRock’s Fink Vows No Layoffs Due to Impact of Coronavirus

Brief: BlackRock Inc. won’t layoff any employees this year as a result of the coronavirus, according to chief executive officer Larry Fink. The world’s largest asset manager will also pay full-time wages to the people staffing its facilities, including cafeteria and maintenance workers, even if they can’t come to work, Fink said Wednesday in a post on LinkedIn. More than 90% of BlackRock employees are working remotely. The firm employs more than 16,000 people worldwide. The announcement comes as global companies grapple with major changes to their businesses, with the pandemic spurring an unprecedented shift to working from home. Fink said last month he had “never experienced anything like this” in more than four decades working in finance, but expected the economy to recover eventually.

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Hedge Fund Billionaire Paul Singer Reportedly Warned his Employees of Coronavirus More than a Month Before US Officials Started to Prepare

Brief: Paul Singer, billionaire founder of the $40 billion Elliot Management hedge fund, apparently warned his staff of the coronavirus' ramifications well before many other leaders appeared concerned. On February 1, according to a memo seen by Bloomberg News' Katia Porzecanski, Singer told employees to prepare for at least a month of self-isolation at home. That meant making sure they had "access to sufficient food, water, and medicines." His memo came well before many US officials warned of such drastic effects. New York State, for example, did not close bars and restaurants until March 16, the same week the Centers for Disease Control warned against gatherings of more than 10 people.

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Eyeing Defaults, U.S. Direct Lender Colchis Capital to Shut Funds

Brief: San Francisco-based Colchis Capital Management LP, a pioneer backer of online direct lending platforms, is winding down its main funds as disruptions caused by the novel coronavirus have started to hit its consumer and real estate loans, according to materials reviewed by Reuters. “The largest risk to the Colchis Income Funds is unemployment for our consumer loans and weakness in the housing market for our bridge real estate loans,” Colchis Chief Investment Officer Robert Conrads wrote in a letter to investors on March 31. “Moreover, there is no consensus as to the timing or strength of the recovery in employment and economic conditions.”

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday April 8, 2020:

  • United Kingdom Prime Minster Boris Johnson remains in the intensive care unit of a London hospital, although his condition is said to be “improving”, according to Downing Street officials. The noted improvements have Johnson sitting up in his bed and engaging positively with staff. Meanwhile, the country has close to 7,100 positive cases for the virus and 938 people died, the largest daily increase so far in the UK.

  • United States President Donald Trump has seemingly turned his frustration to the World Health Organization (WHO). During a media briefing on Tuesday, the President said WHO mishandled the coronavirus, stating they were too close to China, and was considering putting a freeze on funding to them. WHO Director-General Tedros Adhanom Ghebreyesus responded on Wednesday noting the focus should be on fighting the virus and urging critics to “please quarantine COVID politics.” President Trump might be looking to divert attention as his own health officials dire predictions of this being a really bad week for America seem to be coming true. The national daily total of deaths on Tuesday reached 1,858, according to Johns Hopkins University, a new record high.

  • Canadian Prime Minster Justin Trudeau again proposed new changes to his government’s wage subsidy program. After some start-ups and new businesses complained they could not show a 30% drop in revenues compared to this time last year, companies now can compare their lost revenue to what they made in January and February 2020 and will only need to show a 15% decline in March 2020. Trudeau and his government aim to have the wage subsidy program up and running in three weeks.

  • France’s first quarter output has fallen to its lowest level since the second world war. The country’s gross domestic product contracted by six per cent during the first three months of 2020. More than 10,000 people have died from the virus so far in France as it enters its fourth week of lockdowns.

  • In an attempt to curb the spread of coronavirus in Israel during Passover, the country has imposed a strict curfew over the next four days. The police and thousands of soldiers have been deployed to different travel checkpoints between cities. All businesses, including supermarkets have been closed and people are not allowed more than 100 metres from their home until Saturday morning.

Covid-19 – Due Diligence And Asset Management

Blackstone Raises $10.7 Billion for European Property Fund

Brief: Blackstone Group Inc. has finished raising a 9.8 billion-euro ($10.7 billion) fund that will target European real estate. The fund swells the firm’s uninvested capital for opportunistic property bets to about $30 billion just as the coronavirus roils markets worldwide. It’s also the largest private equity capital raising to complete since the pandemic’s outbreak, according to data compiled by Bloomberg. “Our scale and reach allow us to put capital to work strategically during this period of elevated volatility,” James Seppala, Head of Real Estate Europe, said in an emailed statement. “The significant demand for the fund is testament to the confidence our investors have in our ability to deploy strategic long-term capital to assets and businesses across Europe.”

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Hedge Fund: World is ‘Very Much Trapped in the Mother of all Global Financial Bubbles’

Brief: Universa Investments posted an astonishing year-to-date return of more than 4,000% in March following “one of the scariest months on record,” even as the firm issued a stark warning about a still-overinflated market. According to a client letter obtained by Yahoo Finance, Universa’s investors in the Black Swan Protection Protocol (BSPP) strategy saw a staggering +3,612% net return on capital in March, based on required invested capital at the start of the year. Year-to-date, the fund’s investors reaped an even more eye-popping +4,144% net return on capital. The contents of the letter were first reported by the Wall Street Journal. The hedge fund founded by Mark Spitznagel specializes in convex tail hedging and investing. Universa’s specific brand of tail-risk hedging limits losses from an outsized market event. When markets go down, this tail hedge acts like insurance for a portfolio. And since its inception, investors have seen a +239% net return on capital, according to the report. 

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Aurelius Management Cut Salaries by 25% as Covid-19 Hits Portfolio Companies

Brief: The management board of listed private equity group Aurelius Equity Opportunities has decided to reduce their total salaries for the second quarter of 2020 by 25%. In a letter to shareholders, chief executive officer Dirk Markus said the management wants to shoulder some of the burden and that over the coming weeks or months, they might have to make some difficult decisions for some portfolio companies. “Each and every loss of a portfolio company is unfortunate, but, to a certain extent, part of private equity in general and special situations investing in particular,” he said. He added that a number of the firm’s portfolio companies are struggling to stay on top of things and deal with dramatic changes in their respective markets.

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Howard Marks says it’s Time to Stop Playing Defense: ‘We’re Buying Today When We Find Good Value’

Brief: Investing heavyweight Howard Marks, who only a few months ago was telling investors to use extreme caution, now thinks the time for playing defense is over. In the latest chapter of his evolving market views, Marks said a number of conditions have changed recently that argue for more risk-taking as the coronavirus crisis evolves. “Given these new conditions, I no longer feel defense should be favored,” the Oaktree Capital founder said in the latest of his “memos” that are read widely on Wall Street. Specifically, he points notes that “the risks in the environment are recognized and largely understood.” Also, he pointed out that potential returns are rising, specifically citing the typical yield for high-yield bonds rising from 3.5% to about 9%. 

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Famed Hedge Fund’s Decline Deepens After Worst-Ever Loss

Brief: Hedge fund Lansdowne Partners, formerly revered as one of the world’s star stock pickers, was wrong-footed by the historic bull-run. It fared even worse in last month’s bear market. The firm’s main hedge fund run by Peter Davies and Jonathon Regis tumbled 13% in March’s rout, the biggest monthly decline since it started trading almost two decades ago, according to an investor update seen by Bloomberg. Its smaller Princay Fund suffered a 35% drop. The sharp losses pile pressure on London-based Lansdowne, which has seen an investor exodus after lagging both rising and falling markets since 2016.

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KKR Billionaires Henry Kravis and George Roberts Create $50 Million Coronavirus Relief Fund

Brief: The coronavirus pandemic has hit Wall Street hard as banks, hedge funds and private equity firms navigate an unprecedented business stoppage. As the biggest firms on the Street work to pump money into the economy, and manage their mammoth portfolios of assets through the tumult, they’re also putting big money towards relief efforts.KKR & Co, co-founded by billionaires Henry Kravis and George Roberts, has created a $50 million fund dedicated to supporting frontline workers and mitigating the financial hardship created by the pandemic.The fund will be used to help first responders and health workers, and in various financial relief efforts aimed workers and small businesses in the communities where it invests.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday April 7, 2020:

  • United Kingdom Prime Minister Boris Johnson remains ‘stable’ in the intensive care unit of London’s St. Thomas Hospital. Downing Street officials noted the Prime Minister received standard oxygen treatment for his coronavirus symptoms but is not on a ventilator. As England suffered their deadliest day yet, a Financial Times (FT) article notes the daily death toll from coronavirus was almost 80% higher than the hospital figures reported as the disease spread across the country. The FT reported on March 28th that the Department of Health and Social care cited 926 people died in hospitals. However, the latest figures show 1,649 people had died in English hospitals during that same time period; a 78% difference between those two numbers.

  • In the United States, the government struck a deal with 3M to import over 166M N95 respirator masks into America from abroad. This deal will allow 3M to continue selling its American-made N95 masks to Latin America and Canada after it was reported last week President Donald Trump was trying to stop 3M from doing so.

  • In trying to avoid possible issues like the U.S./3M situation in the future, Canadian Prime Minister Justin Trudeau noted in his Tuesday media briefing of domestically made medical production equipment. Citing global restrictions and spiking demand, Canada will look to build 30,000 ventilators while getting other companies to produce medical gowns and other personal protective equipment. Trudeau didn’t make clear when these materials would be available, such as the 30,000 ventilators, but suggested they could be ready in the weeks and months ahead.

  • In Dubai, the region has received its strictest lockdown measures yet as cases tripled in just over a week. Since Sunday, Dubai residents leaving their home for trips deemed “essential” now require a permit issued online by the Dubai police, with a new permit needed for each trip. A mask and gloves must also be worn while outside and these rules will be in effect for at least two weeks, subject to renewal.

  • The Australian government have given the green light to the anti-malaria drug touted by United States President Donald Trump. The drugs, hydroxychloroquine and chloroquine will be given to Australian Covid-19 patients in hospitals outside of clinical trials. The drugs are being used throughout the world as a treatment to ease symptoms of coronavirus, but studies on its efficiency have been mixed and limited due to the short-time period.

  • In Wuhan China, the city where the outbreak first began, the country’s state media is reporting the city’s 76-day lockdown will be lifted on Wednesday. China reported no new deaths from the coronavirus on Monday, the first time this has happened since late January

Covid-19 – Due Diligence And Asset Management

When Greed and Fear Collide: Wall Street is Already Calling Traders Back to the Office

Brief: On April 2, the day that coronavirus infections around the globe hit 1 million, managers inside JPMorgan Chase & Co. were emailing their latest plans for staffing New York-area trading floors amid the deadly pandemic. One worker on the sales team noticed a colleague wasn’t on the list and asked where he’d be “Corona Town, U.S.A.,” the person wrote back. Then one of the bank’s credit-trading leaders, Nicholas Adragna, weighed in: “The trading desk will be in the office unless they have a medical condition with a dr’s note.” More than 100 employees were on the message chain seen by Bloomberg, and some were horrified. It came soon after an outbreak of COVID-19 inside JPMorgan’s Madison Avenue headquarters, in which at least 16 people tested positive on a single trading floor.

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Global Health Fund Calls for $8 Billion to Begin COVID-19 Exit Strategy

Brief: A leading global health fund has asked international businesses and governments to provide $8 billion to support development and production of COVID-19 tests, drugs and vaccines. British-based Wellcome Trust said the initiative, dubbed COVID-Zero, is aimed at the private sector and it is urging chief executives of multinational companies to join the coalition and save lives. An initial $8 billion by the end of April - a fraction of the sums wealthy governments have injected into struggling economies - would be enough to develop new COVID-19 tests, drugs and vaccines and to begin scaling up production, the fund said.

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U.S. SEC’s Clayton says Companies Seeking Bailouts Must Disclose Plans, Communicate with Investors

Brief: The head of the U.S. Securities and Exchange Commission (SEC) said on Tuesday that companies in discussions about bailouts resulting from the economic impact of the coronavirus outbreak should disclose to investors where they stand. “We’re in a very different environment,” SEC Chairman Jay Clayton said in an interview on CNBC. “Companies are going to be talking about where they stand ... and their plans going forward is sensitive information. I encourage companies to disclose where they stand and limit speculation ... as we move forward.” Clayton added that companies must communicate with investors about plans for dividends, share buybacks and capital preservation.

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‘Pharma Bro’ Wants out of Prison to Research Coronavirus

Brief: Convicted former drug company CEO Martin Shkreli, known as “Pharma Bro,” wants to get out of prison so he can help research a treatment for the coronavirus, his lawyer said Tuesday. Defence attorney Ben Brafman said that he will file court papers asking federal authorities to release Shkreli for three months so he can do laboratory work “under strict supervision. His client — best known before his arrest for drug price-gouging and his snarky online persona — is housed at a low-security prison in Allenwood, Pennsylvania. “I have always said that if focused and left in a lab, Martin could help cure cancer,” Brafman said in a statement. “Maybe he can help the scientific community better understand this terrible virus.” In a research proposal posted online, Shkreli called the pharmaceutical industry’s response to the pandemic “inadequate” and said researchers at every drug company “should be put to work until COVID-19 is no more.”

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Scandal Follows Crisis After 35 Bond Funds Shuttered in Sweden

Brief: The liquidity crunch that shuttered 35 bond funds in Sweden last month has revealed some disturbing truths about the country’s credit market. As the spread of Covid-19 across Europe triggered a sell-off in corporate bonds, investors keen to withdraw their savings in Sweden suddenly learned they couldn’t. While the Swedish funds were legally entitled to suspend trading to ensure fair treatment for all their customers -- a process known as gating -- it now seems clear that investors weren’t aware of the risks they faced. The episode has sparked calls for funds to drastically adjust their marketing practices. “It’s reprehensible that some corporate bond funds have marketed themselves as an alternative to savings accounts,” said Frida Bratt, a savings economist at Nordnet Bank AB. But many investors “haven’t realized there’s a whole different risk level involved.”

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Coronavirus Had Ackman Consider Liquidating Portfolio

Brief: Activist investor Bill Ackman was so concerned about the potential impact of the coronavirus that he considered liquidating his hedge fund’s entire portfolio for the first time. Instead, the billionaire opted for another strategy: a lucrative credit hedge that earned his firm about $2.6 billion in profits when the market plummeted. Ackman said in a letter to investors in the fund, Pershing Square Capital Management, Monday that he used the proceeds from the credit bet to substantially boost investments in several portfolio companies. That included increasing his stake in Warren Buffett’s Berkshire Hathaway Inc. by 39%, and reinvesting in Starbucks Corp. in a new position valued at roughly $730 million.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday April 6, 2020:

  • United Kingdom Prime Minister Boris Johnson was moved to the intensive care unit of St. Thomas’ Hospital in London after his condition worsened Monday afternoon from complications due to the coronavirus. A spokesperson for the government noted Johnson remains conscious and was moved to the intensive care unit in case he requires ventilation to aid his recovery. Johnson was admitted to the hospital over the weekend as symptoms of a high fever and cough persisted since testing positive for the coronavirus on Friday March 27th. Dominic Raab, the country’s foreign secretary chaired cabinet meetings in Johnson’s absence on Monday and will deputize for the Prime Minister “when necessary”.

  • In the United States, coronavirus cases are closing in on 350,000 while the number of deaths are now over 10,000, according to Johns Hopkins University. The U.S. surgeon general says this week might mirror the levels of tragedy Americans felt during the September 11th attacks and the bombing of Pearl Harbor saying during an appearance on CNN, “this is going to be the hardest and the saddest week of most Americans' lives, quite frankly."

  • In Canada, the government started to roll out its new emergency benefit program starting in stages, based on the month people were born, starting from January to March.  The number of coronavirus cases in Canada sits close to 16,500 and 339 deaths. In Ontario, Premier Doug Ford noted around three million masks were ordered from the United States, but were being held at the border by American officials with 500,000 being released on Monday. Premier Ford said the province has just one week’s worth of protective equipment left for its front-line health care workers.

  • Europe seems to be turning a corner in the number of new cases reported. Italy’s total number of active diagnosed cases only rose by 2.1% in the last 24 hours and a daily decrease in intensive care bed usage lowered on Saturday; a first for the country since the outbreak began. Germany also saw a drop in cases for the fourth straight day, however Chancellor Angela Merkel is not talking about a date yet to ease social distancing restrictions, noting health of its citizens will always be the number one consideration.

  • In the Philippines, President Rodrigo Duterte is considering extending the lockdown of the country’s main island until April 30th to help bend the curve of the coronavirus outbreak.

  • Japan’s Prime Minister Shinzo Abe is set to declare a state of emergency for Tokyo and six other prefectures as early as Tuesday but insists there will be no hard lockdowns. The coronavirus is rapidly expanding in densely populated areas, including Tokyo and the state of emergency measures once enforced will be in place for a month.

Covid-19 – Due Diligence And Asset Management

JPMorgan CEO Dimon Calls ‘Bad Recession’, Mulls Suspending 2020 Dividend

Brief: JPMorgan Chase & Co’s top boss, Jamie Dimon (JPM.N), on Monday said he sees a “bad recession” in 2020, and that the largest U.S. bank could suspend its dividend if the coronavirus crisis deepens. Dimon, widely regarded as the face of the U.S. banking sector, is the most prominent voice on Wall Street so far to project that the economic cost of the coronavirus will not evaporate quickly, and said the bank’s earnings will be down “meaningfully in 2020.” But, Dimon said, even in the worst case scenario, the bank is strong and will continue lending to customers and will not need any relief from the federal government.

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Barrack Give Up on Rescue, Says ‘We’re Fighting Politics’

Brief: After pushing for weeks for government intervention to help asset-backed securities markets, Tom Barrack isn’t optimistic about his chances. “We’re fighting politics,” the founder and chairman of Colony Capital Inc. said in a phone interview from his Santa Barbara, California, home, where he’s riding out the Covid-19 pandemic with his family. “In an election year, nobody wants to be viewed as bailing out over-leveraged industries -- even if that’s not what is happening.” Barrack, 72, is no stranger to politics: His first job after graduation was at the law firm of Herb Kalmbach, President Richard Nixon’s personal attorney, and he later served as a deputy undersecretary in the Reagan administration before starting his business career. He has been close to President Donald Trump and remains friends with Steven Mnuchin, who he called one of the best treasury secretaries ever.

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Four Citadel Portfolio Managers Leave After Market Dives

Brief: Four equity portfolio managers were fired from Ken Griffin’s Citadel hedge fund last week, after one of the most volatile months for stocks on record. The four managers are Chris Connor, who ran a technology portfolio; Tio Charbaghi and Steve Bergman, who both ran baskets of industrial stocks; and Chip Fortson, who ran a book of financial stocks, according to people familiar with the firm. The managers all worked in the firm’s Global Equities group, which got a new head at the beginning of March, when Justin Lubell took on the role. He previously worked for Steve Cohen’s Point72 Asset Management. A spokeswoman for Citadel confirmed the firings, and declined to comment further. Connor declined to comment, and the others couldn’t be reached for comment.

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Seeking Coronavirus Relief, Investment Firm With Ties to Kushner Emails Kushner, Trump Admin

Brief: The co-founder of a huge private equity firm sent an email this week to Jared Kushner and other Trump administration policymakers seeking to relax rules on coronavirus relief money in a way that would benefit the company, according to sources familiar with the matter. Kushner's family real estate business has financial ties to the company, Apollo Global Management. A source close to Kushner says there was nothing remarkable about his receipt of the email, from Apollo co-founder Mark Rowan. Kushner gets hundreds of proposals from all sorts of people, the source said. But Apollo is not just any business: It made a $184 million loan in 2017 to Kushner Companies, the real estate company in which Jared Kushner, President Donald Trump's son-in-law and senior adviser, retains an interest.

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Hedge Fund Alden Global Forces Layoffs of ‘Essential Workers’ Mid-Pandemic

Brief: The hedge fund that’s vacuumed up almost 100 local newspapers hit its Southern California papers with another round of layoffs Thursday, cutting jobs that the state deems “essential” in fighting the pandemic. The Orange County Register, Riverside’s Press-Enterprise, Pasadena Star-News, and Long Beach Press-Telegram belong to the 11-paper umbrella group — called the Southern California News Group (SCNG) — that laid off numerous staffers from both the editorial and advertising sides, according to a source with knowledge of the situation. Controversial hedge fund Alden Global Capital owns the papers and forced the cuts, the source told Institutional Investor. SCNG leaders called an all-hands meeting Thursday evening after breaking the news to each laid-off employee individually. Leaders did not tell the remaining staff precisely how many people got cut. 

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PointState Hedge Fund Has $2 Billion Estimated Withdrawals

Brief: Zach Schreiber’sPointState Capitalhas suffered an estimated$2.1 billionof redemptions so far this year amid lackluster performance and as the coronavirus pandemic tears through markets. The hedge fund also forecast nearly$640 millionof withdrawals in the coming months, said a person familiar with the matter, who asked not to be identified because the details are private. It managed assets of around$5 billionat the end of last year, the person said. The outflows are estimates as of late March and could change. A spokesperson for New York-based PointState 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 April 3, 2020:

  • As worldwide cases of the coronavirus have now climbed over the 1 million mark, the United States have close to 250,000 cases and more than 6,000 deaths. New York state continues to be the hardest hit in the country with their death toll closing in on 3,000. The state had 562 deaths due to the virus on Thursday, their deadliest day yet.

  • In Canada, Prime Minister Justin Trudeau had to make a plea to the United States government to reconsider their stance via the Defense Production Act in his Friday media briefing. The US government is putting pressure on medical device maker 3M to create N95 masks for American purposes only, cutting out Canada and other Latin American countries. Trudeau noted, “There is so much trade that goes back and forth in essential services, and it could end up hurting Americans as much as it hurts anybody else. That is the point that we're making very directly and have been making for many days now to various levels of the American administration — and that message is getting through." Elsewhere in Canada, Ontario Premier Doug Ford had his province’s health experts lay out the worst-case scenario projections on Friday. Canada’s largest province could experience 3,000 to 15,000 deaths due to the coronavirus, with ramifications lasting from 18 months to two years.

  • Germany also found itself involved in the 3M/United States situation. Media reports from Germany noted 200,000 masks made by 3M and intended for Berlin police were diverted to the United States as they were being transferred between planes in Thailand.

  • In the United Kingdom, Matt Hancock, the country’s health secretary indicated he believes the daily death rate could peak on April 12th and Prime Minister Boris Johnson has urged citizens to stay indoors as they expect a warm spring weekend ahead. The country saw its death toll from the virus increase by 684 in one day and now sits at 3,600 + overall. The country’s first pop-up hospital and world’s largest critical care unit is now up and running. The NHS Nightingale has 500 beds but can increase its capacity to between 4,000-5,000. Even more impressive the facility was put together in just nine days.

  • Several states in Australia are placing checkpoints at their borders to prevent all but essential travel from neighbouring territories. Country officials are urging people to stay home over the upcoming Easter holiday as their daily increase in infections have fallen to 5% a day, compared to 25% and 30% just two weeks ago.

Covid-19 – Due Diligence And Asset Management

Money Managers Attempt to Calm Layoff Fears Amid Downturn

Brief: As firms brace for the financial impact of COVID-19, money managers and large banks with investment management staff, like Morgan Stanley, Goldman Sachs and T. Rowe Price Group, say they have no immediate plans to turn to layoffs amid the pandemic. For most firms it remains unclear how long this will be the case, however, as the coronavirus continues to wreak havoc on the economy and businesses, pushing U.S. unemployment claims to new highs. On March 26, Morgan Stanley CEO James Gorman told employees that there will not be a reduction in the workforce in 2020, according to an internal memo obtained by Pensions & Investments.

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Bridgewater’s Main Hedge Fund Loses About 20% in First Quarter

Brief: Ray Dalio’s flagship hedge fund at Bridgewater Associates ended the first quarter down about 20%, according to people with knowledge of the matter. Bridgewater extended this year’s decline after getting caught on the wrong side of the market sell-off that began in late February as a result of the rapidly spreading coronavirus. The firm’s Pure Alpha II strategy fell about 16% in March after posting smaller losses in the first two months of the year, said the people, who asked not to be identified because the information isn’t public. Dalio, who earlier this year urged investors not to miss out on an opportunity to benefit from strong markets, wrote in mid-March that the pandemic hit the firm at the “worst possible moment” because Bridgewater’s portfolios were tilted to benefit from a rise in the market.

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Billionaire Hohn’s Hedge Fund Suffers Record Monthly Loss of 19%

Brief: Billionaire activist investor Christopher Hohn’s hedge fund suffered its steepest ever monthly decline in March as the global market turmoil hit his stock bets. The Children’s Investment Fund lost about 19% during the month, the worst since it started in 2004, according to people with knowledge of the matter. The decline pushed the fund’s first-quarter loss to about 23%, the people said, asking not to be identified because the information is private. A spokesman for the London-based investment firm, which managed about $30 billion before March losses, declined to comment.

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Bank of America CEO Says Half a Million Customers Have Deferred Payments

Brief: Half a million of Bank of America Corp.’s 66 million customers have deferred loan payments because of financial fallout from the coronavirus. “The idea is to defer the payment, defer the impact,” Chief Executive Officer Brian Moynihan said in an interview Friday on CNBC. “We’re working with our customers who need help, who are losing their jobs. We have to preserve their ability to have cash flow.” The bank’s portal for small-business relief loans went live Friday morning and had 40,000 applications by the afternoon, according to a person familiar with the situation.

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Russian Fund Calls for Joint Efforts in U.S. in Tackling Coronavirus

Brief: A Russian state fund called on Thursday for promoting dialog between Moscow and Washington, which is crucial in tackling the global spread of coronavirus, as Moscow stepped up diplomatic efforts on the global stage in fighting the infection… The Russian Direct Investment Fund (RDIF) said it was the fund that took up half the cost. The fund said it has been consistently calling for dialog between Russia and the United States. Relations between the two countries have been strained in recent years by matters ranging from Syria to Ukraine to U.S. election interference, which has been denied by Russia.

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Ken Griffin’s Virus Plan Now Includes Emergency Trading Site in Florida

Brief: Citadel Securities this week opened an office in Florida to help ensure billionaire Ken Griffin’s giant trading firm can continue at full capacity during the coronavirus pandemic -- and cope with the explosion in volume the illness has spurred. The firm opened a new, temporary trading floor in Palm Beach on Monday with 24 people, according to a memo from the firm to employees seen by Bloomberg. The market maker debuted the facility two days before Florida’s governor announced astay-at-home orderfor the state of 21.5 million.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday April 2, 2020:

  • In the United States, a new record of 6.6 million Americans have filed for unemployment benefits in the last week. This shattered the record that was set only a week prior of 3.28 million. According to NBC News, the 6.6 million is actually a low number and could be much higher due to many applicants being unable to file a claim as state labour departments are overwhelmed.

  • As Canada has eclipsed more than 10,000 cases of COVID-19, Prime Minister Justin Trudeau again pleaded with Canadians to stay home. Multiple media reports have noted some citizens removing barriers of banned parks, sporting areas and continue to ignore social distancing measures outside, and in other public places, such as grocery stores.

  • The United Kingdom’s health secretary has committed to a new target of 100,000 tests a day by the end of this month for either current infection, or for the antibodies which show immunity. The country currently only tests 10,000 people per day while Germany has been testing about 500,000 per week.

  • Elsewhere in Europe, the number of deaths continue to rise. Spain has set another record for their most deaths in a 24-hour time span with 950 succumbing to the virus. Their total death toll is now over 10,000.

  • In France, the country now joins Italy, Spain and the United States as the fourth country to have at least 4,000 deaths due to the coronavirus and a fifth of all private sector employees are now seeking temporary unemployment benefits.

  • China responded to a Bloomberg article stating the country was concealing their true coronavirus numbers as a “despicable attempt to put political interests above human life.”

  • During a television address on Wednesday, Philippine President Rodrigo Duterte warned its citizens not to cause any trouble during their lockdown and said anyone abusing medical workers could face the following: "My orders to the police and military ... if there is trouble and there's an occasion that they fight back and your lives are in danger, shoot them dead. Is that understood? Dead. Instead of causing trouble, I will bury you." Duterte’s chilling comments came after media reports of disturbances and several arrests in the poorer areas of Manila as people protested about insufficient government food aid.

Covid-19 – Due Diligence And Asset Management

JPMorgan CEO Jamie Dimon Back at Work After Heart Surgery

Brief: JPMorgan Chase & Co (JPM.N) Chief Executive Officer Jamie Dimon has returned to lead the largest U.S bank, after recovering from recent heart surgery, according to an internal memo to employees seen by Reuters. Dimon, who is working remotely due to the widespread lockdown caused by the coronavirus outbreak, had an emergency heart surgery on March 5 to repair a tear to his aorta. In an email to employees on Thursday, Dimon said he was “happy to be back to work this week”. “I have been recuperating well and getting stronger every day,” said Dimon, who is widely seen as the face of the U.S. banking industry.

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Starboard Moves Ahead with GCP Proxy Fight Despite Outbreak

Brief: Starboard Value is pushing ahead with its second proxy fight since the outbreak of the coronavirus, arguing its board nominees for GCP Applied Technologies Inc. would be better able to navigate the company through the crisis. The New York-based hedge fund run by Jeff Smith, which owns 9% of GCP, has nominated eight directors to take control of the chemical maker’s board. It plans to push ahead with the fight because it believes its slate of directors have the right skills to turn around the company, according to a regulatory filing Thursday. “We recognize the Covid-19 crisis has created a difficult environment for many companies,” Starboard Managing Member Peter Feld said in a letter to shareholders. “GCP is no different and needs strong leadership and oversight during these challenging times. We believe the nominees we have put forth are uniquely capable to help govern the company through and after this crisis.”

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One Hedge Fund has Surged 36% This Year by Betting Against Cruise Lines and Airlines Depleted by Coronavirus

Brief: Amid a major market rout spurred by the coronavirus pandemic, one hedge fund has had outsized returns betting against companies hit hardest. Valiant Capital Management led by Chris Hansen has gained 36% year-to-date through the end of March, before fees, The Wall Street Journal's Juliet Chung reported Thursday, citing people familiar with the firm. In the same timeframe, US stocks have tanked — the Dow Jones Industrial Average lost 23%, its worst first quarter ever. The S&P 500 lost about 20%.  The $1.4 billion fund was able to profit in the wreckage by placing strategic bets against leveraged companies that it saw being hit the hardest by the coronavirus outbreak. The hedge fund shorted stocks of cruise lines, international airlines, and travel companies, according to the report.

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Global Economic Recovery Possible “Within Six Months”

Brief: It could take up to six months for the global economy to recover from the downturn caused by the coronavirus, a leading market commentator has warned. But a recovery would only take place on two conditions: if mass testing of the virus is introduced, and governments guarantee to support demand, according to Nigel Green, chief executive of financial advisory firm deVere Group. His prediction comes the day after the United Nations released its latest trade report, according to which the world economy will go into recession this year with a predicted loss of global income of trillions of dollars.

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The Asset Managers Most at Risk of Hemorrhaging Assets

Brief: Traditional asset management firms are expected to lose around a third of their assets under management as a result of the coronavirus pandemic, according to Fitch Ratings. The ratings agency projected an average decline in assets of between 29.9 percent and 36.9 percent for large, publicly traded U.S. firms, due to a combination of declining asset prices, fee pressures, and outflows. AllianceBernstein was projected to be the worst hit of the peer group analyzed by Fitch, with an expected AUM decline of 33.8 percent in the ratings agency’s best-case scenario.

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Howard Marks Warns Economy Could Contract at Record Rate

Brief: Oaktree Capital founder Howard Marks believes the coronavirus pandemic could have a “much wider” range of negative outcomes than the 2008 financial crisis.In a newmemooutlining the potential economic repercussions associated with the virus, Marks sought to determine whether asset prices had fallen “appropriately, too much or too little” over the last few weeks. “In the last six weeks the markets have seen the best of times and the worst of times,” the Oaktree co-chairman wrote in the memo, released Tuesday evening.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday April 1, 2020:

  • United States President Donald Trump’s dire warning during a media briefing seemed to be in lockstep with his health officials stating the next 14 days are going to be tough on America as they expect their numbers to skyrocket with coronavirus cases and deaths. The warning now has estimates of the coronavirus killing between 100,000-240,000 Americans even if people continue to practice social distancing. Multiple media reports are also stating American health care workers are told not to speak to the media without authorization, or risk being fired as they deal with the deteriorating conditions in many health care facilities.

  • In Canada, the two largest provinces are trying to enhance efforts to stop the spread of the coronavirus. In the country’s largest city, Toronto Mayor John Tory issued a 12-week plan that is “locking down the city as much as any municipal government could”, including asking people to shop for groceries once a week, and for anyone older than 70 to stay home as much as possible. Meanwhile, Quebec is banning non-essential travel into the western part of the province as of noon on Wednesday, including visitors from neighbouring Ontario. The usual exceptions of health-care workers, humanitarian support and supply chain workers will continue to be enforced.

  • The United Kingdom has seen 20,000 more cases of the coronavirus in just the last week. The Evening Standard reports there are at least 29,474 cases confirmed, compared to 9,529 at the same time one week ago. The Wimbledon Tennis Championships in England, seen as the crown jewel of professional tennis’ four major championships, has been canceled for the first time since the World War II era due to the coronavirus outbreak.

  • German Chancellor Angela Merkel announced restrictions on social contact will be extended until April 19th. The measures, which were first introduced on March 23rd included a ban on gatherings of more than two people.

  • Israel had to send in police to the Arab and ultra-orthodox suburbs of Tel-Aviv as riots broke out between the two religious minorities. The media reports note the ultra-orthodox Jewish population has refused to stop weddings, funerals and public prayers.

  • As the United States have announced double the cases of coronavirus as compared to China, a Bloomberg article is citing a U.S. Intelligence classified report that China has intentionally reported inaccurate stats on cases and deaths of coronavirus in the country.

  • In Brazil, President Jair Bolsonaro continues to be one of the world leaders on an island of his own when it comes to coronavirus. Over the weekend, Bolsonaro visited a market area just outside the Brazilian capital, and in a television interview questioning coronavirus related deaths stated, “I’m sorry, some people will die, they will die, that’s life.” State governors who are responsible for more than 200 of the 210 million Brazilians continue to ignore their President refusing to follow his demands of allowing people back to work, and a federal judge has banned Bolsonaro’s social media campaign of “Brazil can’t stop.”

Covid-19 – Due Diligence And Asset Management

Loeb’s Third Point Drops 11%: Hedge Fund Update

Brief: The $3 trillion hedge fund industry is under pressure amid market turmoil prompted by the spread of the coronavirus. A wide dispersion of gains and losses is expected to emerge as firms disclose their returns for March. Below are some of the winners and losers. Dan Loeb’s Third Point posted losses in its flagship hedge fund last month, according to people with knowledge of the matter. The Third Point Offshore Fund dropped 11%, bringing its loss this year to 16% percent, said the people, who asked not to be identified because the matter is private.

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Standard Chartered Commits $1bn to Covid-19 Fight

Brief: Standard Chartered has made $1 billion (€0.9 billion) of finance available for companies able to provide ventilators, face masks and other goods and services to help fight the Covid-19 pandemic. Companies in scope include healthcare providers, along with manufacturers and distributors in the pharmaceutical industry. Companies in non-related sectors that can switch their production to support the fight against the virus and Standard Chartered said it is also trying to identify companies who are considering changing to, or adding anti-virus products to their production line, but have not yet said they will.

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U.K. Property Fund Freeze Hits $25 Billion as Virus Rocks Values

Brief: The lockdown of U.K. property funds has now put about 20 billion pounds ($25 billion) out of investors’ reach as the coronavirus pandemic batters the economy and makes valuation of assets nearly impossible. BlackRock Inc., Schroders Plc and Legal & General Group Plc are among the latest firms to freeze some funds, telling their institutional clients that withdrawals are halted indefinitely because of the outbreak, according to company statements. The suspensions of these funds for professional investors, which have about 9 billion pounds of assets under management, follow previous decisions by a range of firms to lock up about 11 billions pounds of mom-and-pop clients’ cash.

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Private Equity Lobbyists were Involved in the Push for $500 Billion Coronavirus Bailout Fund

Brief: Lobbyists representing the private equity industry pushed the Trump administration and members of Congress to provide hundreds of billions of dollars in relief for businesses hammered by the spread of coronavirus. The American Investment Council, which lobbies on behalf of the private equity industry, spoke to congressional leaders from both sides of the aisle and Treasury Department officials, according to people with direct knowledge of the matter. These people declined to be named because the conversations were deemed private.

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CFTC Provides Further Relief to Market Participants in Response to COVID-19

Brief: The Commodity Futures Trading Commission’s Division of Swap Dealer and Intermediary Oversight (DSIO) today announced that it has issued additional targeted, temporary no-action relief to foreign affiliates of certain futures commission merchants (FCMs) in response to the COVID-19 (coronavirus) pandemic. The relief expires on September 30, 2020. “The CFTC will continue to provide targeted, temporary relief to market participants where appropriate,” said DSIO Director Joshua Sterling. “This action bolsters our efforts to facilitate orderly trading and liquidity in our derivatives markets during this volatile period. We encourage market participants to engage with the CFTC early and often as market developments continue to unfold.”

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This Crisis Will Unleash an Activist War

Brief: Although some have opined that shareholder activism appears unseemly during a global pandemic, a new survey shows that investors think this mindset won’t last for long. A recent survey by Boston Consulting Group found that 59 percent of the investors it polled think activists are coming for companies amid the devastation caused by the spread of Covid-19 — and that management should do more than sit and wait. These investors also think companies should "take proactive steps to mitigate activism risk by strengthening their businesses’ near- and medium-term fundamentals,” according to the survey, entitled “Investor Pulse on the COVID-19 Crisis.”

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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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