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Covid-19 Diligence Briefing

Our briefing for Friday May 29, 2020:

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

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

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

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

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

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

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Citi Breaks with Rivals on Whether Work From Home is Permanent

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

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Poorly-Timed Healthcare Buyouts Bruise KKR and Blackstone

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

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Private Equity Requests for Flexibility may Backfire During Pandemic

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

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

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday May 28, 2020:

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

Finance CEO’s Worry Markets are too Optimistic About Economy

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

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Hedge Funds Seek Distressed Debt Mavens Amid Pandemic Turmoil

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

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

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

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Home Trading Triggers Bank ‘Black Hole’ Surveillance Alerts

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

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

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

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Private Equity in the Covid-19 Crisis

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday May 27, 2020:

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

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

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

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

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Australian Investment to Stay at Home After Pandemic, IFM Says

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

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

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

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

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

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Frozen UK Property Funds Face Existential Crisis

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

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

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday May 26, 2020:

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

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

Hedge Funds Plan Extreme Lengths to Protect Stars After Lockdown

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

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Asset Managers Forced to Disclose Pandemic Failures Under New Stewardship Code

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

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Hedge Funds Target France as Short-Selling Bans Lifted

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

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Rich Chinese Investors Snapping up Luxury Homes from Singapore to Sydney

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

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

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

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

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday May 25, 2020:

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

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

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

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

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

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Consultants Revisit how to Assess Managers Amid Pandemic

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

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

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

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

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

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Sculptor Credit Funds Draw Cash After Deep March Losses

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Friday May 22, 2020:

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

Full Disclosure? Hedge Funds Navigate COVID Health Questions

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

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

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

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Bored Day Traders Locked at Home Are Now Obsessed with Options

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

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

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

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

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

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

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday May 21, 2020:

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

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

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

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Has Fund Governance Improved Since the Financial Crisis?

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

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Forescout sues Advent to Complete $1.9 Billion Merger

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

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The Coronavirus Crisis Will Make the Big Private Capital Managers Bigger

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

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The Funds Investors are Dodging in the Dividend Drought

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

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Northern Trust to Shutter Money-Market Fund After Redemptions

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday May 20, 2020:

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

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

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

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

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

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

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

Covid-19 – Due Diligence And Asset Management

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

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

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

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

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

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

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

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

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

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

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

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

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday May 19, 2020:

  • United States President Donald Trump has told the World Health Organization (WHO) via a letter that he will permanently pull funding if the world health body does not “commit to major substantive improvements over the next 30 days.” Those improvements according to President Trump include demonstrated independence from China. "I cannot allow American taxpayer dollars to continue to finance an organization that, in its present state, is so clearly not serving America's interests," the President wrote. The WHO confirmed they received President Trump’s letter and was “considering the contents”. European leaders defended the WHO while speaking at the World Health Assembly asking for a global united front against the coronavirus pandemic.

  • In Canada as provinces slowly start their reopening in phases, one situation that will not change anytime soon is the closure at the Canada-United States border. During his news briefing on Tuesday, Prime Minister Justin Trudeau confirmed the agreement has been extended another 30 days after it was set to expire on May 21st. The agreement both countries committed to back in March has the border temporarily closed to non-essential travel, only allowing commercial traffic and essential workers who cross for work.

  • According to United Kingdom government figures, the number of unemployment benefits jumped to the highest rates on record in the early weeks of the coronavirus pandemic. Unemployment related benefits jumped by a whopping 69% to 2.1 million between March and April, the biggest month-to-month increase since records began in 1971. In related news, the government’s environment secretary and Prince Charles have made a plea to the British public for furloughed workers to lend a hand to pick fruit and help farmers in order to “supplement their income”. The environment secretary noted the UK usually receive help from other countries such as Romania and Bulgaria to help harvest strawberries, salads and vegetables.

  • The leaders of Germany and France agreed to a one-off $500 billion-euro fund to help the European Union (EU) recover from the coronavirus pandemic. German Chancellor Angela Merkel and France President Emmanuel Macron’s funding effort will add further cash to an array of financial measures already carried out by the EU.

  • The Philippine government has warned its citizens shopping malls might be closed again after the weekend saw hordes of people shopping and ignoring safety protocols. The news comes as the country just began loosening its two-month lockdown, although its largest cities – Manila and Cebu – remain in lockdown.

  • Wuhan China’s Municipal Health Commission has stated they have conducted 1.3 million coronavirus tests since May 12th. Wuhan started conducting city-wide tests after health officials detected several locally transmitted cases. The city was ground zero of the coronavirus epidemic and had experienced a strict 76-day lockdown. It was announced last week that China had originally promised to test all 11 million people of Wuhan in 10 days. They have since backed off that slightly ambitious timetable, noting there will a 10-day timetable in testing different districts of the city, but those tests will not necessarily start on the same day.

Covid-19 – Due Diligence And Asset Management

Eleven Hedge Fund Traders Scored Big During Worst of the Crisis

Brief: A small group of hedge funds managed to overcome the fast and furious market rout in March as the coronavirus pandemic sent countries around the world into a lockdown. For them, the sell-off brought riches that some haven’t seen since … well, since the last financial crisis. Notably, these profits were derived from a wide variety of investment approaches, from macro and credit to long/short equity and oil. The crisis beaters were the exceptions. Most hedge funds, including those run by industry titans such as Ray Dalio and Michael Hintze, failed in their mission to protect investors from the market turmoil. Three in every four hedge funds lost money, with some down as much as 40% in March, according to data compiled by Bloomberg.

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Asset Managers Told to Adapt for Survival in Post Covid World

Brief: Asset managers have been warned they must rapidly adapt their business models to claw back investor flows and profits lost as a result of the Covid-19 pandemic, with businesses advised to ramp up their digital distribution capabilities, accelerate cost saving plans and bolster their range of alternative assets. According to a report by Boston Consulting Group, asset managers are facing a “new chapter of economic turmoil in 2020 which is likely to prompt a winner-takes-all phenomenon” not seen since the aftermath of the global financial crisis. “Overall, the market storm of early 2020 has only intensified the industry’s challenges, as asset managers find themselves in uncharted territory,” said Lubasha Heredia, a New York–based BCG partner and co-author of the report.

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JPMorgan’s Jamie Dimon says the Coronavirus Crisis is a ‘Wake-Up Call’ to Tackle Economic Inequality

Brief: JPMorgan CEO Jamie Dimon said in a memo to stakeholders on Tuesday that the coronavirus pandemic is a "wake-up call" to build an "inclusive economy" that recognizes the financial situations of all parties involved.Dimon said: "This crisis must serve as a wake-up call and a call to action for business and government to think, act, and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years."The bank chief said he looked forward to sharing more ideas on how to create an "inclusive economy" that is stronger, more resilient, and offers "widespread access to opportunity." Dimon said: "From the reopening of small businesses to the rehiring of workers, let's leverage this moment to think creatively about how we can mobilize to address so many issues that inhibit the creation of an inclusive economy and fray our social fabric."

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U.S. Financial Conditions are Easing at Fastest Pace in History

Brief: American financial conditions have loosened at the fastest pace since at least 1990, belying mounting investor skepticism that a V-shaped economic recovery will follow the pandemic-induced crash. A Bloomberg measure of market health across bond, stock and liquidity indexes has staged a revival like never before -- bouncing back to early March levels, when recorded coronavirus cases globally were around 90,000 versus more than 4.8 million today. All told, this gauge of animal spirits has improved from the nadir by 5.4 standard deviations in just 37 trading days, a feat that took 50 days back in 2008. Explaining why investors are getting their mojo back is the easy part. Thank historic policy stimulus, indications that the collapse in the investment and consumption cycle has bottomed, as well as the global race for an experimental vaccine.

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Most Investors Don’t Think this Rally is for Real, According to Widely Followed Wall Street Survey

Brief: More than two-thirds of professional investors doubt that the stock market jump off the March lows is the start of a legitimate new bull market, according to the Bank of America Fund Manager Survey for May. Amid a surge that has seen the S&P 500 rise 32% since the March 23 trough, some 68% of survey respondents called the move a “bear market rally.” The term implies that even though the surge tops the 20% benchmark that would signal a new bull market, the fundamentals tell a more pessimistic story. The Bank of America poll is among the most widely followed surveys of investors on Wall Street. That said, respondents still see the near-term “pain trade,” or the one that catches most investors off guard, as the market going higher. Current sentiment is consistent with an S&P 500 level of 3,020, or about 2.3% higher than Monday’s close, according to Michael Hartnett, chief investment strategist at Bank of America Global Research.

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Citigroup Launches New ESG Investment Banking Group

Brief: Citigroup Inc (C.N) said on Tuesday that is launching a new business unit within its corporate and investment bank dedicated to environmental sustainability to strengthen its commitment to an area that has grown increasingly important to corporate clients and investors. The New York-based company said its Sustainability & Corporate Transitions group will be led by Banking, Capital Markets and Advisory (BCMA) Chief Strategy Officer Bridget Fawcett and Keith Tuffley, who has lead the unit’s sustainability efforts so far. “The current Covid crisis will elevate the importance of ESG to our clients, as they increasingly focus on more sustainable and resilient strategies and on recovery plans that help drive the just transition to a net-zero emissions future,” global BCMA heads Tyler Dickson and Manolo Falcó said in a memo to bankers sent on Tuesday. Companies have become more focused on environmental, social and governance (ESG) factors in recent years as activists and investors put pressure on them and companies that put these considerations at the forefront are rewarded.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Friday May 15, 2020:

  • United States President Donald Trump announced his government’s new plan of creating a vaccine dubbed “Operation Warp Speed”. During the news briefing on Friday, President Trump would love to see this team develop a vaccine by year’s end, which outpaces the outlook given by most health officials. Moncef Slaoui, the ex-head of GlaxoSmithKline’s vaccines division and four-star Army General Gustave Perna will lead the effort. President Trump also stated the White House will likely make an announcement related to the World Health Organization (WHO) next week. The American administration had halted funding to the WHO last month after saying a review was needed in how they handled the coronavirus outbreak, especially in regards to China.

  • During a news briefing on Friday, Canadian Prime Minister Justin Trudeau announced his Liberal government would extend the emergency wage-subsidy program to the end of August. The program that covers 75% of an eligible company’s payroll to a maximum of $847 per week per employee was set to expire May 31st. The original program was set to cost $73 billion. The federal government’s finance minister did not make clear how much the expanded program will cost.

  • According to a Financial Times article, the financial hub of the United Kingdom is drawing up detailed plans for when its workers return. Canary Wharf will be introducing one-way routes, daily deep cleaning, limiting elevator capacity and eliminating soft furnishings. Canary Wharf is home to the European headquarters of Barclays, Citigroup and HSBC and many other businesses.

  • Europe’s largest economy is now officially in a recession. Germany’s economy shrank by 2.2% in the first three months of the year, its largest quarterly drop since the 2009 global financial crisis. The numbers were released just as the country tries to return a new state of normalcy. Most German states will be reopening bars and restaurants this weekend, and the country’s soccer league – the Bundesliga will be returning as well, although without any fans in the stands.

  • Restaurants, bars and cafes were allowed to reopen in Australia’s most populous state on Friday. The easing of restrictions in New South Wales, which includes Sydney, was welcome news as the country learned earlier in the week of its unemployment numbers. Close to 600,000 jobs were lost last month due to the coronavirus. The Australian Bureau of Statistics said 2.7 million Australians either lost their job, had their hours reduced, or left the labour force in April.

  • Brazil’s health minister Nelson Teich handed in his resignation on Friday after less than a month on the job. Teich is another name added to the list of those who disagreed with President Jair Bolsonaro’s handling of the coronavirus pandemic. President Bolsonaro has been pushing in recent days for wider use of hydroxychloroquine as a treatment for COVID-19, the same drug United States President Donald Trump pushed earlier. Teich resisted this and also disagreed on the pace of reopening the country, saying he wasn’t consulted before Bolsonaro issued a decree allowing gyms, beauty parlours and hairdressers open for business. The next health minister hired will be Brazil’s third during the coronavirus outbreak in the country.

Covid-19 – Due Diligence And Asset Management

BlackRock CEO Fink told Trump U.S. Needs Infrastructure Spending

Brief: BlackRock Inc. Chief Executive Officer Larry Fink said he told President Donald Trump the U.S. needs to spend on infrastructure to generate jobs, as the country navigates the next steps to rescue a coronavirus-addled economy. “I’ve told the U.S. president, and I’ve told this to many other politicians now, that an infrastructure build is really important,” Fink said Thursday in a live-streamed interview with Sergio Rial, CEO of Banco Santander SA’s Brazil unit. The U.S. government has rolled out unprecedented spending to shore up the economy, but business leaders and politicians are already focusing on what new revival efforts should look like. Trump tweeted in March that a $2 trillion infrastructure bill would be a good way to create jobs. Fink also said in the interview that BlackRock, the world’s largest asset manager, has been talking with central banks in the midst of the dual public health and financial crisis.

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Bain Capital to Target $9 Billion for New Buyout Fund

Brief: Bain Capital is planning to raise about $9 billion for its next flagship global buyout fund, as the U.S. alternative asset manager seeks to tap demand from yield-hungry investors, people familiar with the matter said. The Boston-based firm has started discussions with new and existing investors about the fund, which it aims to close later this year, according to the people, who asked not to be identified because the information is private. Bain’s last flagship fund closed in 2017 at $9.4 billion, which included $8 billion from investors and another $1.4 billion from the firm’s own partners. Similar internal commitments could increase the eventual size of the new fund by a further 10% to 15%, the people said. Buyout firms have been on a fundraising spree as institutional investors reach for better returns in an environment of low interest rates and poor performance from stock-picking fund managers.

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European Hedge Fund and Trading Groups Call for Short Selling Ban to be Lifted

Brief: Europe’s trading and hedge fund firms are calling for a removal of the temporary short selling bans issued in several countries from March, in response to the market volatility triggered by the coronavirus pandemic. The trade bodies calling for the repeal represent hundreds of top firms — including the likes of Citco, Man Group, State Street, Guotai Junan Securities, Citadel Securities Europe, Bridgewater Associates and Marshall Wace — who say a removal of the ban is crucial to improving market efficiency and preventing further damage to investor portfolios as a result of the pandemic Their plea comes after the European Securities and Markets Authority said on 15 April that the short-selling ban would remain across Austria, Belgium, France, Greece and Spain until 18 May, with the possibility of a further extension.

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Coronavirus Crisis Herald Major Changes to the Hedge Fund/Prime Broker Dynamic

Brief: With the broader hedge fund industry facing multiple challenges around rising costs, squeezed profits, and a shifting regulatory backdrop, the prime brokerage sector will need to juggle future disruptions and sweeping changes in client activity as a result of the coronavirus pandemic. In a new market commentary, Anthony Bennett, head of prime brokerage at Capco, a global technology and management consultancy dedicated to the financial services industry, examined the potentially far-reaching fallout of the Covid-19 crisis on the hedge funds/PB relationship, with future success possibly hinging on the degree of diversification within a PB’s business. Gauging perspectives through recent conversations with leading prime brokers, Bennett suggested primes have largely weathered Q1’s historic volatility and de-risking and “passed the initial tests” of the recent crisis.

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Coronavirus: US Hedge Fund Davidson Kempner Eyes Virgin Atlantic Deal

Brief: A prominent American hedge fund has emerged among a pack of suitors eyeing a deal to prop up Virgin Atlantic Airways as it races to secure the funds it needs to survive the COVID-19 crisis. Sky News has learnt that New York-based Davidson Kempner Capital Management is one of the prospective investors which held talks with Virgin Atlantic bosses this week. The airline, which is seeking more than £500m in debt and equity funding following a collapse in revenue, wants to stitch together a deal this month. Sources said that Davidson Kempner was on a list of financial investors in discussions with Virgin Atlantic which also includes Apollo Global Management, Cerberus Capital Management and Greybull Capital, the former owner of Monarch Airlines. Davidson Kempner, which manages well over $30bn in assets, is among the hedge funds negotiating a financial restructuring of the US department store chain Neiman Marcus.

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A 3.5 Billion Hedge Fund Lures Clients with Rare Fee Discount

Brief: Selwood Asset Management, one of the fastest growing hedge fund firms in London, is enticing new clients with a type of fee structure that hasn’t been seen in the industry since the last financial crisis. The firm will waive its cut of some new clients’ profits until assets in its flagship fund reach their previous peak, a threshold known as the high-water mark, according to people with knowledge of the matter. That means Selwood won’t collect a performance fee until the fund has gained 8%, said the people, who asked not to be identified because the information is private. Selwood typically charges performance fees ranging from 13.5% to 30% for its main fund. Discounts like this are rare even for existing clients in an industry that’s notorious for charging high fees. Selwood, whose assets have grown to about $3.5 billion from $85 million at its launch in late 2015, is trying to raise as much as $250 million to take advantage of trading opportunities created by the coronavirus sell-off, the people said. New investors will have to lock their money up in the fund for as long as 12 months. A representative of Selwood 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 Thursday May 14, 2020:

  • In the United States, Republican Senator Richard Burr will be stepping down as chairman of the Senate Intelligence Committee while he’s under investigation for stock trades he made ahead of the market downturn in March. President Donald Trump publicly took Dr. Anthony Fauci to task for comments he made while in front of senate members earlier in the week. President Trump accused Dr. Fauci, one of his top medical aides in the White House coronavirus task force of wanting “to play all sides of the equation”. Trump particularly didn’t like Fauci’s suggestion of caution around reopening schools too quickly, calling his assessment, “not an acceptable answer”.

  • In Canada as promised Ontario Premier Doug Ford laid out his government’s plan on the next stage in reopening the province. Starting May 19th, retail stores outside of shopping malls can begin reopening with physical distancing measures. Construction projects, seasonal activities such as golf courses and healthcare settings will also be allowed to resume, some as early as Saturday May 16th. During a Thursday news briefing, Quebec Premier Francois Legault announced the delayed reopening of greater Montreal area schools until September. Retail stores in the Montreal area are still set to reopen on May 25th and Premier Legault believes this could still happen if more people start wearing masks, although he won’t make the use of face coverings in public mandatory.

  • The United Kingdom hit a new record for the number of coronavirus tests performed in one day. Over 126,000 tests were deployed on Wednesday and Prime Minister Boris Johnson says the government’s goal was to hit 200,000 tests a day by the end of the month. The government’s transport secretary, Grant Shapps has also urged Britons who are travelling to work again to avoid public transport. Shapps even went as far to say it was citizens “civic duty” to walk, cycle or drive instead.

  • France’s President Emmanuel Macron has summoned a Paris based drug maker for a meeting. Sanofi CEO Paul Hudson was interviewed by Bloomberg News and said the United States would be given priority to a vaccine if discovered by the drug company due to their funding of vaccine development and production. Hudson quickly walked back those comments on Thursday promising if Sanofi did discover a vaccine, it would be made available in all countries.  President Macron has been vocal that any vaccine found as treatment for COVID-19 should be treated as “public good for the world and not subject to the laws of the market.”

  • Italian Prime Minister Giuseppe Conte has threatened to leave the European Union after criticizing the EU’s proposed tourism plan that could allow so-called green corridors between countries within the block. These green corridors would allow fellow EU nations making side deals for tourism paths, based on countries having low coronavirus outbreaks. Italy, being one of the hardest hit countries in the world due to the virus, would obviously be on the outside looking in on these green corridor deals. Tourism represents 13% of Italy’s GDP.

  • Japanese Prime Minister Shinzo Abe lifted the state of emergency ahead of schedule for 39 of the country’s 47 prefectures. The state of emergency remains in effect for Tokyo, Osaka, Kyoto, Hokkaido and three other prefectures. The state of emergency was supposed to be in place until May 31st. Prime Minister Abe said he and experts will meet next week to decide if the emergency measures can be lifted in the remaining eight prefectures. Japan has more than 16,000 confirmed cases and about 680 deaths due to the coronavirus.

Covid-19 – Due Diligence And Asset Management

Ray Dalio on Covid-19 Effect: We’ll Reconsider How ‘To Divide the Pie’ and ‘There are Reasons it won’t be good for Capitalists’

Brief: PresidentDonald Trump and his administration are confident that the U.S. economy will quickly rebound after the coronavirus pandemic is contained — but some experts are not so sure. Count hedge fund billionaire Ray Dalio among the skeptics. “We’re not going to go back to normal,” Dalio tellsCNBC Make It.  But he also has hope. “Soon we are going to reconsider how we are going to divide the pie and there are reasons that it won’t be good for capitalists,” Dalio says. Dalio sees the closest parallel to the world’s current economic situation as the Great Depression, which lasted from 1929 well into the 1930s, and is regarded as the worst economic crisis in American history. Much like with the Great Depression, Dalio predicts that the impending downturn will require a recovery period that could last several years, even as long as five years, he says.

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Jefferies to Spin out Quant Hedge Fund with Some Staff Leaving

Brief: Jefferies Financial Group Inc. is spinning out its systematic hedge fund Quantport, with some staff leaving the firm. Jefferies may retain an interest in the new venture, and the shakeup was in the works before the pandemic, according to a person familiar with the matter. The New York-based fund, which had regulatory assets under management of $3.7 billion as of January, started as part of Jefferies’ proprietary trading desk, before overseeing external money from 2010. Led by Vlad Portnoy, it trades market-neutral strategies in equities and futures. The news was reported earlier by eFinancial Careers. The past few years have seen a number of systematic funds shut as growing competition and muted market swings eroded gains from their strategies. This year’s historic volatility has also been challenging, as the fallout from the coronavirus upended the price patterns underpinning many quant models.

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Brookfield is Sitting on $60 Billion to Help it Weather the Pandemic

Brief: Cash is king in times of crisis, according to Brookfield Asset Management Inc.’s chief executive officer, and the alternative-asset manager has more than US$60 billion to weather the coronavirus pandemic. If a business isn’t prepared for situations like the COVID-19 outbreak that’s rattled markets, it’s often too late once such a crisis hits, Bruce Flatt said in a letter to shareholders Thursday. “In reflecting on what really matters to our business, it is liquidity, liquidity and liquidity, in that order,” he wrote in the letter. “The most damaging thing for any business owner is to find yourself out of business and unable to participate in the recovery, or in a position of needing to issue shares which dilute the owners, and therefore make it impossible to ever recover from undue dilution at the wrong time.”

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CQS Spins off Equity Hedge-Fund Arm as Hintze goes back to Roots

Brief: Billionaire Michael Hintze’s CQS is spinning off its nascent equities hedge-fund business into a stand-alone firm as it focuses on core credit strategies that have been hammered by the pandemic. Paul Graham, the firm’s head of equities, will leave CQS to lead the spinoff as chief executive officer, according to people with knowledge of the matter. CQS will take an equity stake in the business and allocate some capital to it, said the people, asking not to be identified because the information is private. The abrupt move comes after sharp losses at the firm’s main hedge funds in March amid the virus-fueled sell-off. Its long-short equities business hasn’t yet started a fund and the firm was recently looking to build out its share-trading offerings under plans initiated by former CEO Xavier Rolet.

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Private Equity Firms Have a ‘Fair Amount of Dry Powder,’ Carlyle Group Co-Founder says

Brief: The co-founder of one of the biggest players in private equity said the industry is in “reasonably good shape” and there will be opportunities to buy companies in the coming months.  David Rubenstein, a co-founder of the Carlyle Group, said on CNBC’s “Closing Bell” that his firm and other private equity companies are waiting on the right opportunities as the economic impact of the pandemic puts stress on companies around the world. “We have a fair amount dry powder, as do the other large private equity firms. We see a lot of opportunities,” Rubenstein said. “But we don’t think that, if you don’t move in a week or two or three or a month, that you’re going to miss the best opportunities.”

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How Far will Asset Management Pay Fall?

Brief: Johnson’s latest projections have 2020 incentive compensation at traditional asset management declining by 20 to 25 percent. The pay cuts come as assets under management have fallen across the board, with investors fleeing stocks and bonds and rushing into money market funds or cash. Hedge funds, whose average performance is down less than the overall markets, have also suffered asset declines. Their incentive compensation is expected to be down between 15 and 20 percent this year from 2019. Johnson noted that while macro and event-driven funds have been able to capitalize on the market impact of the pandemic, most strategies have taken a hit. Assets are at a multi-year low, according to the firm. Private equity, which has the highest paid professionals in asset management following rapid growth in recent years, will also undergo pay cuts. Johnson Associates expects large private equity firms to cut incentive compensation by 5 to 10 percent, compared to 2019.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday May 13, 2020:

  • After seven weeks of lockdown, people in England could return to some workplaces, and exercise more than once a day and with one person outside of their house, as long as social distancing measures are used. Some construction sites have resumed work and automaker Ford announced plans to restart production at two factories inside the United Kingdom. Other sporting activities such as tennis, fishing, boating and lake swimming also resumed. The easing of these restrictions apply only to England as the semi-autonomous governments of Scotland, Wales and Northern Ireland are sticking with the “stay home” message as the virus progresses through different stages in different parts of the country.

  • Two United States agencies have accused China of trying to steal coronavirus research by hacking into American organizations that are studying the disease. The FBI and the Cybersecurity and Infrastructure Security Agency issued the joint warning on Wednesday, but did not name the organizations targeted, or say whether any of the attacks were successful. Elsewhere in the United States, Federal Reserve Chairman Jay Powell stated additional policy measures may be needed form the US central bank, along with other fiscal authorities to prevent greater long-term damage to the American economy.

  • In Canada, as the number of confirmed cases approach 40,000+ in the province of Quebec, Premier Francois Legault has urged Quebecers to follow social distancing guidelines and wear a mask when outside. Previously the government had only advised people to wear a mask outside in situations when respecting the two-metre social distancing guidelines were impossible. Prime Minister Justin Trudeau noted in his Wednesday news briefing the country would like to see another one-month extension of the Canada-United States border restrictions. The agreement in place right now has all non-essential travel across the border shutdown. The current agreement is set to expire on May 21st, and Canada would like that extended to June 21st

  • Germany’s Interior Minister is hoping for unrestricted travel within the European Union by June 15th. Speaking with journalists the minister said Germany has agreed with France, Austria and Switzerland to gradually ease its border controls with the goal to completely end the restrictions by mid-June.

  • Brazilian state and city governments continue to clash with their President on the handling of the coronavirus pandemic. As the death toll rises above 12,000 in the country, states and cities are proceeding with lockdowns. This remains in direct contrast to the will of President Jair Bolsonaro who continues to say Brazilian governors are destroying the economy and Brazilians should be free to go about their everyday lives. Bolsonaro criticized state governors on Tuesday for ignoring his decree that gyms, barbershops and beauty salons should be treated as essential services.

  • Amid fears of a second wave at ground zero of the coronavirus epidemic, authorities in Wuhan, China are about to embark on a very ambitious plan. Chinese media reported over the next 10 days, authorities in Wuhan are planning to test all 11 million residents for the coronavirus. No official announcement has been made and it’s unclear how such a vast testing campaign would even be carried out in such short order.

Covid-19 – Due Diligence And Asset Management

David Tepper says this is the Second-Most Overvalued Stock Market he’s ever seen

Brief: Billionaire hedge fund investor David Tepper told CNBC on Wednesday the stock market is one of the most overpriced he’s ever seen, only behind 1999. His comments sent stocks to a session low. He also said some Big Tech stocks like Amazon, Facebook and Alphabet may be “fully valued.” Before Wednesday’s sell-off, it was “maybe the second-most overvalued stock market I’ve ever seen,” Tepper said on CNBC’s “Halftime Report.” “I would say ’99 was more overvalued.” “The market is pretty high and the Fed has put a lot of money in here,” the founder of Appaloosa Management said. “There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.” The S&P 500′s forward price-earnings ratio based on estimates for the next 12 months has ballooned to above 20, a level not seen since 2002.

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Carlyle, Singapore’s GIC Sued over Collapsed AmEX Stock Buy

Brief: Carlyle Group Inc. and Singapore sovereign-wealth fund GIC Pte. are using fake excuses to renege on buying a 20% stake in American Express Global Business Travel, according to a lawsuit unsealed in the U.S.A unit of Centares Management LLC claims Carlyle’s losses from the coronavirus left it with a whopping case of buyer’s remorse and prompted its attempt to scrap the stock purchase, which had valued the travel entity at $5 billion when it was announced in 2019. Centares leads a group of investors in the deal, including the Qatar Investment Authority and several Carlyle entities. “The Carlyle Group’s losses do not provide defendants with a basis to withdraw from the transaction,” Juweel Investors Ltd., a subsidiary of New York-based Centares, said in the lawsuit unsealed Monday in Delaware Chancery Court. The investment fund “cobbled together a series of pretextual and transparently false excuses to justify their refusal to close” the deal, Juweel said.

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Goldman Sachs, Citi, HSBC Among Banks Telling Staff to Stay at Home

Brief: The UK government’s plans to ease lockdown restrictions may have caused confusion and criticism, but some of the world’s largest investment banks have a clear message to their London employees — stay at home. According to internal memos seen by Financial News and people familiar with the matter, banks including Citigroup, Goldman Sachs, HSBC, JPMorgan and Morgan Stanley have told employees that their current remote working arrangements, which have forced them to radically overhaul their staff base, will remain in place for the foreseeable future.Others including Barclays and Deutsche Bank will ask a small proportion of staff to return in the coming weeks. Investment banks with huge, global operations are grappling with how to get their employees back into the office safely as various local authorities loosen restrictions on their populations, but Prime Minister Boris Johnson’s lockdown exit plan has largely failed to prompt any changes at finance firms.

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Wall Street Bonuses set to Fall by as Much as 30% in 2020

Brief: Wall Street bonuses for 2020 could fall by as much as 25%-30% due to the deep cuts to revenues recorded by banks and hedge funds earlier this year as a result of the novel coronavirus, according to a report published Wednesday by compensation consulting firm Johnson Associates Inc. While most compensation is expected to be down, 2020 is likely to be a year with “wide, wide variations in incentive outcomes between stronger and weaker competitors,” according to the report by Alan Johnson, whose predictions are closely watched by financial professionals. The outbreak of the novel coronavirus has led to widespread shutdowns in the U.S. economy, causing gross domestic product to decline at a 4.8% annualized rate in the first quarter and forcing some 33.5 million Americans to file for unemployment benefits.

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Diversity Gaining More Traction as Firms eye Recovery after Crisis

Brief: One of my favourite memes recently is the one where the world is sending us back to our rooms to reflect on what we’ve done. The act of being sent back to our rooms, to a place where we have to reset and reprioritise is an opportunity that many business leaders are seizing. Although you might think that the “nice to have” of inclusion and diversity would drop off the business agenda in a time of crisis, it is gaining more traction at firms that want to ensure they innovate and reposition themselves for recovery. Decades of research has shown that diversity brings greater levels of innovation, fosters creativity and improves financial performance. Multiple voices lead to new ideas, services and products and encourage out-of-the-box thinking.

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Byron Trott’s BDT Capital Raises $9.1 Billion for Latest Fund

Brief: BDT Capital Partners raised $9.1 billion for its third investment fund, exceeding the amount it had initially sought, according to a regulatory filing Tuesday. The fund has about 200 investors and will focus on buying stakes in family-owned businesses, said a person familiar with the strategy who asked not to be identified because the information is private. More than 90% of the investors have their own businesses or significant family office operations, and about a third are based outside the U.S., the person said. Byron Trott founded Chicago-based BDT in 2009, after an investment-banking career that included working with Warren Buffett and the Pritzker and Koch families, as well as other prominent investors. The firm has about $25 billion under management. So far, the coronavirus pandemic hasn’t stopped private equity firms from raising fresh funds. On Monday, U.K.-based Hg said it would stop accepting new money after bringing in $11 billion for three buyout funds, and KKR & Co. said last week that it had raised $10 billion over the past two months. In all, private equity firms are sitting on about $1.5 trillion of capital to invest…

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday May 12, 2020:

  • The battle between science and the economy rages on in the United States. Dr. Anthony Fauci, a key member of the White House’s coronavirus task force, was speaking with senators on Tuesday cautioning against states and cities opening too quickly from the pandemic. In California, Elon Musk restarted his Tesla electric car plant, despite local orders against manufacturing. Musk who is quite vocal on social media, took to twitter asking if anyone was arrested for defying the order, let it be him only, and not any of his employees for returning to work. President Donald Trump weighed in the online conversation, also taking to twitter in support of Musk stating, "California should let Tesla & @elonmusk open the plant, NOW,. "It can be done Fast & Safely!"

  • In Canada, Ontario Premier Doug Ford hinted at good news coming for the people of the province on Thursday. During his news briefing on Tuesday, Premier Ford said in the coming days Ontario will hit stage one of the province’s three-stage framework, which was introduced a few weeks ago. Stage one would allow for the reopening of seasonal businesses, low-risk businesses and essential services. The province has seen close to 21,000 coronavirus cases, with the current majority (62%) concentrated in the Greater Toronto Area, Canada’s most densely populated region.

  • The Bank of England didn’t completely rule out cutting interest rates to negative levels, a step it has never taken before, to protect the country as much as possible from the economic impact of the coronavirus. Speaking in an interview, deputy governor Ben Broadbent said, “The committee is certainly prepared to do what’s necessary with our remit. With the risks still tilted to the downside, yes, it’s quite possible that more monetary easing will be needed over time.”

  • In a televised national address, Indian Prime Minister Narendra Modi announced a $266 billion stimulus plan to help the country’s stalled economy due to the coronavirus pandemic. Not many details were given, but Prime Minster Modi said the package will provide support to industry, small and medium size businesses, the self-employed, farmers and others who have been hit by India’s almost eight-week lockdown.

  • The Philippines will be tweaking their lockdown procedures as they try to balance the health of their people with the economy. President Rodrigo Duterte announced Metro Manila, Laguna province south of the capital and Cebu City in the Visayas will be under a modified enhanced community quarantine from May 16th to May 31st. This change will allow manufacturing plants and public transport to restart in those areas, albeit under a limited capacity.  The stay-at-home orders imposed on the central and southern parts of the Luzon island, and several provinces in Visayas and in Mindanao will be lifted after May 15th.

  • South Korean officials are navigating mobile phone data, credit card statements and closed-circuit TV footage as they try to identify people who visited nightclubs that are now at the centre of a new coronavirus outbreak in the country. More than 100 new cases have been linked to Seoul nightclubs and bars. To make matters worse, some of the nightclubs in question are homosexual bars, where the lifestyle is still considered taboo in the country, making people afraid to come forward and be tested for fear of persecution and discrimination.

Covid-19 – Due Diligence And Asset Management

Hedge Fund Cheyne Raising Cash for Debt Oversold in Pandemic

Brief: London-based hedge fund Cheyne Capital is planning a new vehicle to buy up debt that’s been excessively punished by the coronavirus selloff, the latest in a number of investment firms targeting distressed credit. The firm is seeking to raise 300 million euros ($325 million) and will launch the fund as soon as next month, according to people with knowledge of the matter. Cheyne will buy up bonds and loans that it deems are now cheap and sell them once they’ve recovered, said the people, who asked not to be identified because the information is private. A spokeswoman for Cheyne declined to comment on the new vehicle. Investment firms around the globe that target distressed debt are seeking to make the most of the chaos wrought by the coronavirus pandemic by setting up new funds. Oaktree Capital Group LLC, Highbridge Capital Management and Chenavari Investment Managers are among those who are raising capital to invest in discounted debt.

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JPMorgan to Raise up to $3 Billion for Real Estate Credit Fund

Brief: JPMorgan Chase & Co.’s asset-management arm has launched a new fund to take advantage of dislocations in the public and private real estate credit markets, according to a person familiar with the matter. JPMorgan Asset Management is looking to raise $2 billion to $3 billion from institutional investors for the Real Estate Credit Opportunity Fund, according to the person, who asked not to be identified because the information is private. The vehicle will target 10% to 15% net returns investing in bonds and pools of loans tied to commercial real estate, according to documents viewed by Bloomberg. The fund will invest in strategies including structured credit, rescue loan origination and both performing and non-performing loan acquisition, the documents said. A JPMorgan Asset Management spokesman declined to comment.

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Kohlberg is Sued Over Deal Soured by Pandemic

Brief: Covid-19 is threatening another mergers and acquisitions process. Kohlberg & Co. is trying to back out of its $550m agreement to buy Decopac, claiming the company has suffered a material adverse effect, according to a lawsuit. Snow Phipps, a New York middle market private equity firm, has sued Kohlberg, alleging the firm has acted in bad faith, has breached its stock purchase agreement to buy Decopac and refused to secure financing on the terms it initially set out, according to a lawsuit filed 17 April in Chancery Court in Delaware. Snow Phipps is seeking specific performance to make Kohlberg complete the sale, the filing said. Kohlberg, of Mount Kisco, NY, agreed on 6 March to buy Decopac, which supplies and markets cake decorating products. Snow Phipps claims that Kohlberg knew about Covid-19 and the seriousness of the virus when it signed the agreement.

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PIMCO Outflows Drag Down Allianz AUM

Brief: Assets under management at Allianz SE fell 6.2% in the first quarter, as subsidiary Pacific Investment Management Co. recorded net outflows of €43 billion ($47.5 billion). Total AUM was €2.13 trillion as of March 31, an increase of 1.4% for the year, an update said Tuesday. Group revenue grew 20% for the quarter and 5.7% for the year, to €42.6 billion. Net income dropped 17.9% for the quarter and fell 27.7% for the year ended March 31, to €1.48 billion. Third-party assets under management — made up of Allianz Global Investors and PIMCO — fell 7.7% in the first quarter to €1.56 trillion. Third-party AUM grew 0.6% for the year. Third-party net outflows were €46.4 billion in the first quarter. That compared to €20 billion and €18 billion in net inflows for the quarters ended Dec. 31 and March 31, 2019, respectively.

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Scaramucci’s SkyBridge Looks to Dalio, Marks to Boost Returns

Brief: SkyBridge Capital, the investment firm founded by Anthony Scaramucci, is turning to some of the biggest names in the hedge fund industry to boost returns after its portfolio lost almost a quarter of its value this year. The firm is investing $100 million each in Ray Dalio’s Bridgewater Associates and Howard Marks’s Oaktree Capital Group, according to a letter sent to clients on Monday. The fund-of-funds will allocate an additional $90 million to Dan Loeb’s Third Point. Scaramucci said all three performed well in the last financial crisis and in other periods of market dislocation. “We believe our investors will be better served -- in good and bad markets -- by greater diversification across different strategies and across different managers,” he wrote. “We learned hard lessons in March, and we are taking decisive corrective action.” SkyBridge’s flagship fund lost nearly 24% in the first four months of the year. After investing heavily in credit hedge funds, the fund posted most of the losses in March as the coronavirus fueled a market sell-off. Clients have asked to redeem 9.3% of capital for June 30, an amount Scaramucci called “manageable.”

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TIAA Offers Buyouts to 75% of U.S. Employees, Including Nuveen

Brief: TIAA-CREFis offering a voluntary separation program for 75% of its U.S. employees, which includes employees ofNuveen, TIAA's investment manager.The 25% of employees not eligible for the program "involve certain groups that are involved in processes and technology necessary to conduct business, and some critical client support roles," TIAA said in an emailed statement. The program offers 45 to 91 weeks' salary, depending on length of service and salary, 100% of last year's bonus and six months of outplacement assistance, the email said. "As we navigate through these unprecedented times, we are exploring a variety of measures to reduce costs while managing our business and continuing to serve our clients. As part of that process, we have introduced a voluntary separation program for our employees, which is designed to give our people the ability to decide what's best for them," the company said in the statement…

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday May 11, 2020:

  • United Kingdom Prime Minister Boris Johnson’s plan for the country to get back on its feet was met with confusion and criticism. Government officials had to do some damage control on Monday after citizens were left confused by Johnson’s televised address to the nation on Sunday. For instance, people weren’t sure how many people could meet together outdoors, or when businesses should return to work. The UK will have three phases to the easing of their lockdown; the first starting this Wednesday. People will be allowed to leave their households as often as they want for exercise and leisure, but still maintain social distancing. Workers in construction and manufacturing sectors should actively be encouraged to go to work, but those taking public transit are urged to wear masks to limit spread of the virus. Stage two, which will not take place before June 1st, will include phased reopening of primary schools and non-essential shops.

  • In the United States, three senior officials guiding the country through the coronavirus pandemic are now in self-quarantine after coming in contact with two White House staffers who tested positive for the disease. Dr. Anthony Fauci, the director for the National Institute of Allergy and Infectious Diseases, Robert Redfield, the director of the Centers for Disease Control and Prevention, and Stephen Hahn, Commissioner of the U.S. Food and Drug Administration will all be monitoring themselves for any symptoms over the next two weeks. President Donald Trump and Vice President Mike Pence are being tested daily, and so far have tested negative. Elsewhere in America, parts of upstate New York will be allowed to reopen once their state shutdown expires this Friday. Governor Andrew Cuomo though noted New York City isn’t there yet, having hit just four of seven metrics an area must meet before they are allowed to start the reopening process.

  • The Canadian federal government will be offering bridge financing for big Canadian businesses across all sectors, except for banks. The bulk of the details were not delivered, but Prime Minster Justin Trudeau made the announcement during his Monday news briefing. Employers with annual revenues of more than $300 million can apply for support whose credit needs aren’t being met through conventional financing. Trudeau insisted this program was of the bridge loan variety, not a “bailout” and the government is a “lender of last resort.”

  • After two months of strict lockdown, France was allowed to emerge on Monday. Reports noted the shops on Paris’s famed Champs-Elysees were only half open and the notorious traffic jams in France’s capital city were absent. Government has encouraged businesses to continue allowing employees to work from home and are promoting bicycles and other modes of transport, as opposed to buses, trains and subways if possible.

  • With unemployment doubling in the country, Russian President Vladimir Putin unveiled his plan for citizens to head back to work as early as Tuesday. Putin emphasized the lifting of restrictions would be gradual and the world’s largest country (in terms of land) would need to tailor their approach to local conditions. Moscow will keep its lockdown measures in place until May 31st. Russia has recorded nine straight days of 10,000 or more new cases, and now have the third most cases in the world trailing only the United States and Spain.

Covid-19 – Due Diligence And Asset Management

Hg said to Top $11 Billion for its Largest Ever Buyout Funds

Brief: Hg will soon stop accepting new money for three of its buyout funds after raising $11 billion for its largest ever pool of capital, according to people familiar with the matter. The U.K.-based private equity firm, which focuses on software and service businesses, will divide as much as $10 billion equally between its second large-cap fund, known as Saturn, and its ninth mid-cap fund, known as Genesis, said the people, who asked not to be identified discussing private information. An additional $1.5 billion has been raised for the firm’s third small-cap fund called Mercury, the people said. Hg’s first investment from Saturn will go to increasing its stake in Norwegian cloud software developer Visma Group, the people said. Last April, private equity firm Cinven Group sold its stake in Visma to Hg and co-investors, valuing the business at more than 6.5 billion euros ($7 billion) at the time. Hg has been invested in Visma since 2006 when it led the company’s delisting from the Oslo Stock Exchange.

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Scott Minerd sees ‘Moral Obligation’ Arising from Virus Bailouts

Brief: Scott Minerd, the chief investment officer of Guggenheim Investments, thinks that government support of corporate America in the wake of the coronavirus pandemic will ultimately lead to the creation of a “new moral obligation” to help U.S. companies access credit. “Corporate borrowers are most likely on the way to becoming something akin to government-sponsored enterprises like Fannie Mae and Freddie Mac,” he wrote in a note dated May 10. “Many companies, including Boeing, Southwest, and Hyatt Hotels, have likely gained access to financing simply on the strength of the government’s intentions to intervene in credit markets.” Minerd, who on Friday warned that markets were sending a clear message that negative rates would soon be here, said he thought yields on 10-year Treasury notes could fall to -50 basis points in the intermediate term.

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BlackRock and Pimco Take Lead Role in Managing Federal Reserve’s Coronavirus Stimulus

Brief: The Federal Reserve’s giant programme of corporate bond buying is about to kick in. It will hand a critical new role in propping the struggling economy to a business with increasing clout in the financial world: money management. The central bank has tapped BlackRock to help it direct money into both new and already issued corporate bonds, assisting the Fed in its recently adopted role as lender of last resort for businesses. The Fed is expected to launch the programme in coming days. The Fed also has given Pacific Investment Management Co., or Pimco, the job of helping it purchase commercial paper, or companies’ short-term borrowings. That programme is already up and running. The two firms could eventually invest hundreds of billions of central bank dollars.

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Future Air Travel: Four-Hour Process, Self Check-In, Disinfection, Immunity Passes

Brief: Once airports and borders open again and people are able to fly freely — a process already in play as airports of all sizes around the world ready strategies to ensure healthy air travel — how much are you ready to change your flying habits?  As much as was required after 9/11? Less? More? Considering some of the changes already happening and the many more recommended before airports can reopen safely to commercial routes, experts are referring to the coronavirus pandemic as ‘the new terrorism,’ triggering the biggest crisis the airline industry has ever faced. Let’s start with the entire process of checking in for flights, which some calculate that it could take up to four hours and involving social distancing, sanitation of passengers and luggage, wider spaces for various lines and waiting to board. Nine out of 10 experts expect slower turnarounds between flights due to the need of thorough cleaning of cabins and following of sanitary measures at airports.

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Carlyle, GIC Back Away from AmEx Global Business Travel Deal

Brief: Private-equity firm Carlyle Group Inc. and Singapore sovereign-wealth fund GIC Pte. Ltd. are backing away from a deal to take a 20% stake in American Express Global Business Travel, whose revenue has plummeted as a result of the coronavirus pandemic, according to people familiar with the matter.The deal, announced in December, values the company at $5 billion including debt. It was scheduled to close Thursday but representatives for Carlyle and GIC informed AmEx Global Business Travel on Wednesday they wouldn't participate in the closing, the people said. AmEx Global Business Travel, which is 50%-owned by American Express Co., offers airfare and hotel-booking services mostly to large and midsize businesses. In 2014 the credit-card giant sold the other half to a group led by investment firm Certares. Carlyle and GIC, along with a group of others, agreed to purchase a portion of that stake last year.An entity acting on behalf of the sellers filed a motion this past week in Delaware Chancery Court against Carlyle and GIC, calling for it to compel the duo to proceed with the purchase.

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Michael Hintze’s CQS is Experiencing a Nightmare

Brief: CQS is facing its worst crisis since Michael Hintze founded the London-based credit-driven multistrategy firm in 1999. At least three of its funds are among the worst-performing hedge funds this year after posting massive losses in March alone, when the global financial markets were in free fall. Other funds have posted smaller declines. These huge losses have raised questions about the future direction of the firm, which was managing $20 billion at the beginning of the year. In March alone, the CQS Directional Opportunities Fund, which Hintze manages himself, lost more than 33 percent, according to a document from investment bank HSBC that tracks hedge fund returns. As a result, it was down 35 percent for the quarter. 

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Contact Castle Hall to discuss due diligence

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

Our briefing for Friday May 8, 2020:

  • The United States Department of Labor confirmed what many already feared: April 2020 was by far the most sudden and largest decline of jobs since the government began tracking data in 1939. The American economy lost 20.5 million jobs last month, and the unemployment rate soared to 14.7%. The last time unemployment numbers were that high was during the Great Depression when it peaked at 24.9% in 1933.

  • North of the border in Canada, the numbers were not much better. Statistics Canada noted two million jobs were lost in April, causing the unemployment rate to spike to 13%, compared to 7.8% in March. Since comparable data started being recorded in 1976, the April unemployment rate was the second highest on record. December 1982 remains the highest at 13.1%. The province of Quebec has the highest unemployment rate among all provinces at 17%, and unfortunately it won’t get much better for the time being. This is due to Montreal’s planned reopening being pushed back for the second time. Elementary schools, daycares and retail stores that have entrances to outside streets will have to wait until May 25th to possibly reopen.

  • As United Kingdom citizens eagerly await to see what Prime Minister Boris Johnson’s Sunday news conference has in store for the country, government officials seem to be making sure people temper their expectations. The country’s environment and culture secretaries warned there will be no dramatic overnight change to its lockdown restrictions once next week rolls around. The UK is closing in on 212,000 cases and has 31,000+ deaths due to the coronavirus.

  • The mayor of Milan, Italy made an angry television appearance on Friday threatening to pass measures of shutting down the city once again. Mayor Giuseppe Sala called television footage “disgraceful” as it showed crowds of people gathering in open spaces of the city and apparently ignoring public health rules aimed at preventing a second wave of the virus. Italy only loosened some of Europe’s toughest restrictions on Monday May 4th. “Either things change today, or tomorrow I’ll be here in Palazzo Marino and I’ll pass measure to close the Navigli, I’ll stop takeaway services and then you can explain to the people who work in bars why the mayor isn’t allowing them to do business,” said Sala.

  • As promised, Australia’s Prime Minister Scott Morrison unveiled his government’s plan to emerge from the coronavirus pandemic. Prime Minister Morrison announced a three-step plan to reopen the country’s economy by July. The first stage includes family and friends allowed to visit each other while restaurants, stores and cafes can reopen. The second stage will allow larger gatherings of up to 20 people, while organized community sporting events and beauty parlors can resume operations. The final stage will allow gatherings of 100 people and interstate travel will be permitted to resume.

Covid-19 – Due Diligence And Asset Management

Credit Funds in India see Big Outflows on Franklin Mutual Stock

Brief: Indian credit risk funds suffered large redemptions in April after Franklin Templeton’s shock decision to wind up $4.1 billion of such plans triggered fresh turbulence in the nation’s debt market. The category saw a net withdrawals of 192 billion rupees ($2.5 billion) last month, up from outflows of 55.7 billion rupees in March, according to data released Friday by the Association of Mutual Funds in India. “The Franklin event intensified redemptions in credit funds that we saw in March,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in. “There’s a clear flight to safety as flows to gilt funds have jumped and a good chunk would have moved to deposits.” Equity funds received a net 62.1 billion rupees, the smallest inflow this year, as the world’s most expansive lockdown to curb the spread of coronavirus infections stalled economic activity and disrupted processes at mutual funds and their distributors.

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Macquarie Group Ready to Invest, Despite Crisis

Brief: Macquarie Group chief executive Shemara Wikramanayake has signalled the bank could pounce on assets that come up for sale in the pandemic crisis, after slashing dividends and warning of a highly uncertain outlook. As the banking group on Friday delivered an 8 per cent slide in profit to $2.7 billion, it also highlighted a strong balance sheet and $20 billion in "dry powder" for investment by its infrastructure-focused managed funds. Markets cheered the result, with Macquarie shares gaining 5.7 per cent to $105.19 amid predictions the bank would emerge from the crisis in relatively good shape, despite taking a short-term hit. The company known as the "Millionaires' Factory" on Friday also released its remuneration report for the financial year, which showed Ms Wikramanayake was awarded $18.1 million for the year, her first full 12 months as CEO, up from $17 million last year. She was not the highest paid senior executive at Macquarie, with head of Macquarie Asset Management Martin Stanley awarded $18.9 million for the year after a surge in profit in his division.

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A Swedish Real Estate Mogul Has His Bond Investors Very Worried

Brief: Bondholders in one of Sweden’s biggest property firms say they fear their investment might soon be labeled junk after learning of a criminal probe with wide-reaching ramifications. The company in question is Samhallsbyggnadsbolaget i Norden AB, also known as SBB. Its chief executive, Ilija Batljan, was this week detained by police for questioning amid reports of insider trading tied to a recent acquisition. The news sent SBB’s share price and bonds plunging. The episode has struck a nerve in a market already shaken by panic selling. Back in March, 35 credit funds slammed shut to halt a client exodus as the bond market tanked. Real estate bonds played a big role in the rout, and the financial watchdog has since signaled concern over the sector’s dominance in credit markets, following its conspicuous growth.

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Brookfield to Create $5 Billion Retail Revitalization Program

Brief: Brookfield Asset Management Inc. (“Brookfield”) (TSX: BAM.A, NYSE: BAM) today announced the launch of a Retail Revitalization Program (“the Program”) to bring much needed capital and assist with the recapitalization of retail businesses with operations in the major markets in which Brookfield operates globally. The Program, which will be funded by Brookfield and its institutional partners, will focus on non-control investments in retail businesses to assist with their capital needs during this period of dislocation. Brookfield is targeting $5 billion to be put toward this Program. This Program will be led by Ron Bloom, Managing Partner and Vice Chairman of Brookfield’s Private Equity Group, who was a principal architect of the restructuring and rejuvenation of the automobile industry on behalf of the U.S. government during the 2008 financial crisis. “This initiative is being designed to assist medium sized enterprises in getting back on their feet. We believe this is a critical component to getting the economy moving again, and we would like to partner with companies and entrepreneurs that can draw on our capital and expertise to stabilize and grow their business,” stated Bloom.

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The Pandemic is Transforming the Wealth Management Industry, UBS says

Brief: The Covid-19 pandemic has sparked dramatic changes to the wealth management industry, making clients more cautious, more digitally savvy and more interested in sustainable investments, according to a UBS Group AG executive in Hong Kong. “The whole pandemic has transformed the business and also the way we operate,” said Amy Lo, co-head of Asia Pacific wealth for the Swiss bank. “The world has become more digital, less global and more local.” Lo says clients across the region have become more cautious, concerned about preserving their wealth and re-balancing portfolios as the global economy heads into its steepest contraction since the Great Depression. “Diversify and navigate volatility,” is the goal for many clients, said Lo, whose firm manages more than $400 billion in the region. UBS’s investments in its digital platform are paying dividends amid the pandemic, allowing clients to interact with the bank through online conferences, chats, and trading, she said.

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Amundi Lifts Pandemic Hiring Freeze

Brief: Amundi, Europe's largest listed asset manager, has lifted a hiring freeze it imposed shortly after the onset of the coronavirus pandemic, making it one of the first major investment firms to ease recruitment related restrictions. A spokesperson for the Paris-headquartered asset manager, which put a hold on making new hires globally at the end of March, toldFinancial Newsit has "resumed recruitment on a case-by-case basis". Amundi, which employs around 4,500 people and manages €1.5tn globally, previously told FNthat the onset of the Covid-19 outbreak and subsequent government containment measures put in place hadprompted it to pause new hires. The lifting of Amundi's hiring freeze comes as predictions point to an uncertain future for those working in the financial services sector. According torecent figures from recruitment firm Morgan McKinley, jobs available in the City have dropped by 51% since March 2019 – a drop which has coincided with the onset of the Covid-19 pandemic.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Thursday May 7, 2020:

  • The coronavirus pandemic has made two months ago feel like two years ago. Nowhere is this more evident than the unemployment numbers in the United States. In the beginning of March, the country was experiencing its lowest unemployment rate in 50 years. Fast forward to Thursday where another 3.2 million Americans filed for insurance benefits. One in five Americans have now tried to claim unemployment benefits since mid-March. CNN is reporting the Trump Administration will not implement the Centers for Disease Control and Prevention (CDC) guidelines for reopening the country after asking for it. A senior CDC and administration official were sourced in the report, noting a 17-page recommendation from the CDC went to White House task force officials who found it “overly prescriptive” and that their guidance was too much ‘one size fits all’.

  • During a Thursday news briefing, Canadian Prime Minister Justin Trudeau announced a $4 billion plan to boost pay for essential workers. The final details of the plan are still being worked out with the provinces who will be responsible for deciding which workers are eligible. British Columbia’s Premier John Horgan revealed his province’s plan on its next phase in reopening the province, which could include healthy people able to hold small gatherings once the Victoria Day long weekend rolls around in two weeks. A range of businesses including non-urgent health care, stores, libraries, parks, salons and restaurants could also resume by the middle of May, assuming they can meet public health guidelines.

  • The Bank of England has forecasted the coronavirus will push United Kingdom’s economy into its deepest recession in 300 years. The country’s output has plunged 30% in the first half of the year, but the central bank has no plans to launch a new stimulus package.

  • France plans to start easing its two-month lockdown as of Monday May 11th. Edouard Phillipe, the country’s Prime Minister noted some special restrictions will remain in place for the Paris region as the number of COVID-19 cases remain high and is densely populated. Social distancing guidelines will be enforced on public transport as 400,000 businesses plan to reopen in the country, while secondary schools and parks in the capital will remain closed. France has had 25,000 deaths due to the coronavirus pandemic.

  • Russia’s coronavirus cases have overtaken France and Germany to become the fifth most in the world with close to 180,000. Despite this, President Vladimir Putin has backed a plan by Moscow Mayor Sergei Sobyanin to gradually begin lifting restrictions after May 12th, which would allow certain industrial facilities to begin working. Those taking public transport would be required to wear a mask and gloves.

  • The World Health Organization (WHO) is considering a new mission to China to seek the source of the coronavirus pandemic. A WHO epidemiologist said without knowing where the animal origin is, it’s hard to prevent an outbreak like this from happening again. During a Thursday news briefing, a Chinese foreign ministry spokeswoman didn’t directly answer if the country would allow WHO officials in for their fact-finding mission.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Post Best Month in Six Years, Led by Equities

Brief: Hedge funds rose 4.2% in April, the most in data going back to January 2014, as U.S. stocks rebounded to their best return in more than 30 years. Equity managers led the gains, posting a 6.5% advance in the month, according to preliminary figures from the Bloomberg Hedge Fund Indices. So far this year, hedge funds are down 6.7%. That still has outpaced the S&P 500 Index, which sunk about 9% for the first four months of the year, including reinvested dividends, as the coronavirus outbreak and measures to contain it rocked global markets. But equities were less volatile in April, with the S&P 500 jumping almost 13% -- its best month since 1987.

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Neiman Goes Bankrupt, Idled by Virus and Crushed by Debt

Brief: Neiman Marcus Group Inc. filed for bankruptcy after efforts to manage its crushing debt load unraveled amid the spreading coronavirus pandemic. Creditors will take control of the luxury department store chain, according to plans outlined in a Chapter 11 petition filed in Houston. The move gives the Dallas-based chain a break by letting it stay in business while management works out a recovery plan. The company, led by Chief Executive Officer Geoffroy van Raemdonck, said it has support from a substantial majority of its creditors, who agreed to put up $675 million to get Neiman Marcus through the court process. They’ll also provide $750 million in exit financing. When the company emerges from bankruptcy in early autumn, management expects to see about $4 billion cut from its existing debt load -- the legacy of a 2013 leveraged buyout by current owners Ares Management Corp. and the Canada Pension Plan Investment Board. Neiman listed debt obligations of about $5.5 billion in its filing.

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Paul Tudor Jones Reportedly Buys Bitcoin as an Inflation Hedge, Compares Crypto to 70s Gold Trade

Brief: Legendary trader Paul Tudor Jones is reportedly buying bitcoin as an inflation hedge as central banks around the globe print money to relieve coronavirus-battered economies.Jones, one of Wall Street’s most-successful and seasoned hedge fund managers, revealed in a message that one of his funds holds a low single-digit percentage infutures on the cryptocurrency, Bloomberg Newsreported. He compared it to the gold trade in the 1970s, according to the report. Bitcoin futures trading on the CME jumped 5% on Thursday. Jones, founder and chief executive at Tudor Investment Corp., told CNBC in March thathe thought the stock market could be higher by Juneif coronavirus cases began to peak. The investor said at the time that he expected stocks to endure a choppy April but that, ultimately, equities would again climb.

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JPMorgan Mulls Shrinking Office due to Coronavirus Crisis

Brief: JPMorgan could join the ranks of big investment banks shrinking their office space as its investment banking boss predicts a portion of its staff may continue to work from home after the coronavirus crisis. Daniel Pinto, who runs JPMorgan's corporate and investment bank, told Citigroup analysts that he could "envision a scenario" where employees continue to work from home on a rotational basis, according to a note seen by Financial News, as the coronavirus looks set to permanently impact how large financial services organisations work. Pinto suggested that such a move would fall in line with the bank's sustainability targets "as well as reducing square footage" of its office space. He cautioned that the bank would need new methods of measuring employees productivity in such a scenario. Around 90% of JPMorgan's corporate and investment bank employees are currently working from home - compared to a firmwide figure of 75% - and the experience could change the way the bank does business, the note said.

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Home Working Conduct During Lockdown is now a Concern for Financial Services, says KPMG Vice Chair

Brief: Conduct issues created by home working with a flatmate who works for a competitor firm has become such a worry for financial services firms that employees' living conditions could be scrutinised in the future,  according to KPMG’s vice chair for financial services Kay Swinburne. Swinburne made the comments about conduct issues emerging as a result of homeworking during the coronavirus lockdown, at the City Week Covid-19 Operational resilience for financial institutions webinar series on May 5. “We’re also finding some very strange ones where you suddenly realise there are people sharing houses in a way that normally wouldn’t cause difficulty,” Swinburne said. “If you have several young investment bankers sharing a house in Chelsea it’s a problem when they’re trading portfolios they shouldn’t have knowledge of.”

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Coronavirus: Goldman Sachs in Talks to Buy Invesco Holdings

Brief: Goldman Sachs is in talks to buy a big portfolio of company stakes being sold by the asset manager Invesco in a race to shift illiquid holdings whose value has been hit by the coronavirus pandemic. Sky News can reveal that a unit of Goldman Sachs Asset Management (GSAM) is closing in on a deal to acquire the positions, which include a holding in Oxford Nanopore, a gene sequencing specialist. City sources said that an agreement to buy the private company stakes, which are nominally valued at hundreds of millions of pounds, could be finalised within weeks. One added that a team within GSAM which manages private equity portfolios was leading the transaction at the Wall Street giant.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Wednesday May 6, 2020:

  • United Kingdom Prime Minister Boris Johnson announced Wednesday the initial plans to ease the country out of its lockdown will start this coming Monday. The prime minister will make a televised address on Sunday with more details on what the first steps will look like. Johnson also announced his government’s new goal to conduct 200,000 tests a day by the end of May after meeting its goal of 100,000 tests at the end of last month.

  • In the United States, the government coronavirus task force went from being phased out by the end of the month, to being continued “indefinitely” in the span of a 24-hour period. The confusion began on Tuesday when Vice President Mike Pence said they were phasing out the health-focused panel in favour of a group focused on reopening the economy. President Donald Trump then noted on Wednesday the task force would instead adopt a new focus on vaccines and is considering naming a person who will lead the way on treatment and vaccine efforts. CNN is reporting by this weekend, 43 states will be in some form of reopening.

  • In Canada, British Columbia Premier John Horgan will be the latest province to outline their plans of what a new normal will look like as they ease some of their restrictions. The country has 62,000+ coronavirus cases, with 4,100+ deaths. British Columbia accounts for 2,232 of the known cases, along with 121 deaths.

  • A Financial Times article is reporting German Chancellor Angela Merkel is having some issues having leaders of its 16 federal states moving in lockstep as they try to determine their next move. Merkel had a conference with its country’s regional leaders on Wednesday aimed at having a coordinated exit from the lockdown.  An “emergency brake” was created, allowing restrictions to be reintroduced if the pandemic flares up again. However, some regional leaders have already decided to go it alone, opening restaurants and hotels this month without waiting instruction from Berlin.

  • Spain’s parliament voted in favour of a two-week lockdown extension. The vote continues giving the government sweeping powers to rule by decree and set limitations on citizens mobility throughout the country if they choose to do so. This is the fourth two-week extension parliament has allowed. The country has started easing its lockdown restrictions and Prime Minister Pedro Sanchez argued the state of alert is a tool to be used right now as a shield against the pandemic.

Covid-19 – Due Diligence And Asset Management

BlackRock’s Fink Delivers Grim Outlook With Tax Hikes for Corporate America

Brief: BlackRock Inc. Chief Executive Officer Larry Fink had a stark message for a private audience: As bad as things have been for corporate America in recent weeks, they’re likely to get worse. Mass bankruptcies, empty planes, cautious consumers and an increase in the corporate tax rate to as high as 29% were part of a vision Fink sketched out on a call this week. The message from the leader of the world’s biggest asset manager contrasts with the ebullient tones of a stock market that has snapped back from recent lows. Even among Wall Street luminaries, Fink speaks with particular clout. He has been advising President Donald Trump on how to navigate the effects of the coronavirus pandemic. And BlackRock is playing a key role in the Federal Reserve’s efforts to stabilize markets, helping the central bank buy billions of dollars in assets.

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Bank Bosses Urge Regulatory Pass Through the Covid-19 Crisis

Brief: City grandee Lord Blackwell has called for leniency from the UK's regulators as financial services workers navigate the "great pressure" of the Covid-19 crisis. Lord Blackwell, the chairman of Lloyds Banking Group, said staff at the UK lender "are having to make many decisions under great pressure every day": "My... ask of regulators is to recognise that, under this pressure, some of our colleagues, while trying their hardest, may not get every detail of the compliance requirements right and to be tolerant of some errors so long as bank staff are genuinely trying to do the right thing," he said, during a session of the City Week Covid-19 Webinar series on May 6. His comments come as UK banks facecalls to speed up lending to businessesunder the UK government's various coronavirus business interruption schemes, introduced to help companies weather the coronavirus crisis.

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Volatility Clobbered These Hedge Funds – and More Shocks Mean Some May go Under

Brief: The wild swings in market volatility has been a blessing for many hedge funds this year. But for others, it's been a curse. The Cboe Volatility index, the fear tracker known as the Vix, has more than halved in the six weeks since it hit an all-time high on 16 March. Long-volatility funds have reaped big rewards — the Cboe Eurekahedge Long Volatility Hedge Fund Index returned about 40% in the first three months of 2020. Yet systematic volatility-focused hedge funds, which theoretically should be profiting at times like these, have instead endured performance meltdowns. In March, 9 out of the 38 volatility and options funds ranked in Société Générale’s Nelson Report, published last week, posted declines. Losers include Chicago-based hedge fund Wolverine Asset Management. Named after the fictional co-leader of the X-Men superhero team in Marvel Comics, Wolverine has lately more resembled Dr. Doom. The firm's volatility-focused Wolverine Intrinsic Fund was down 13.7% in March and 12% in the first quarter, according to the Nelson Report.

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Natixis Joins French Equities with $140 Million Hit

Brief: Natixis SA joined its French peers in taking a hit from equities trading as market turmoil and dividend cancellations following the outbreak of the coronavirus forced it to mark down assets. Equities trading revenue was more than erased by a 130 million-euro ($140 million) writedown when companies started to pull their dividends, contributing to a 204 million-euro net loss for the first quarter. Income from debt trading rose 46%, the bank said late Wednesday, beating peers BNP Paribas SA and Société Générale SA as well as the Wall Street average. The quarter ends a brief respite for Chief Executive Officer Francois Riahi, who had been trying to draw a line under a series of missteps since taking over in June 2018, including trading losses on Korean securities, a liquidity scare at its H2O Asset Management subsidiary and oversight problems. The bank put aside 193 million euros for credit losses, mainly to account for loans to oil and gas companies.

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Fiera Capital Limits Redemptions on $1.1 Billion Credit Fund

Brief: One of Canada’s biggest money managers is freezing redemptions in a large debt fund and warning that some borrowers may miss interest payments. Fiera Capital Corp. has called investors to inform them it has gated its Diversified Lending Fund, which has about C$1.5 billion ($1.1 billion) under management, according to people familiar with the situation. The fund is managed by chief investment officer Francois Bourdon and two others. The fund invests in the residential and commercial construction sector through limited partnerships (LPs) with various partners that specialize in lending solutions. The fund also puts money into partnerships that offer private loans to companies and other types of loans.

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Citadel Waiving Redemption Fees for Fund Clients Seeking Cash

Brief: Ken Griffin’s Citadel will allow investors to pull a total of $1 billion from its main hedge funds without incurring fees or penalties, a sign that clients are grappling with the economic fallout from the coronavirus pandemic. The move, an exception from the firm’s usual practice, is aimed at providing relief to those invested in Citadel’s flagship Wellington and Kensington funds, according to an investor letter seen by Bloomberg. Such clients are primarily institutions like pension funds. Citadel manages about $30 billion. “In the wake of the unprecedented conditions created by the Covid-19 pandemic, we recognize that our investors may have different capital needs, both in size and timing, than originally anticipated at the beginning of the year,” according to the Citadel letter dated Monday. “In response to these potential demands, we are offering $1 billion of additional liquidity to investors in our multi-strategy funds on June 30, 2020 without being subject to any redemption fees or other restrictions.”

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Contact Castle Hall to discuss due diligence

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

Our briefing for Tuesday May 5, 2020:

  • In the United States, it’s a case of good news and bad news. First, the good news. The country saw its daily death toll stay around 1,000, the first time they have been around that number in a month as New York state, the country’s epicentre for the virus, has seen a decline in their numbers. Now the bad news: with many states easing restrictions, including California this Friday, multiple media reports are citing an influential coronavirus model that is predicting as many as 3,000 deaths a day in America by June 1st. California is the country’s largest state with close to 40 million people.

  • In Canada, Quebec Premier Francois Legault has pushed back its government’s plan to reopen its largest city from May 11th to May 18th. Stores in Montreal with entrances to outside streets were going to be permitted to open on May 11th, but the city’s public health director has not seen a flattening of the curve yet. The island city had 350+ new cases and 45 deaths a couple of days ago. In total, Montreal has seen over 16,000 confirmed cases and over 1,400 deaths, most of those deaths are seniors in long-term care homes.

  • The United Kingdom now have the grim distinction of having the most deaths due to COVID-19 in Europe, surpassing Italy. Government figures have coronavirus related deaths in the UK at 29,427 while Italy’s latest official figure is 29,316. Secretary of State Dominic Raab tried to downplay the latest numbers saying, “I don’t think you can make the international comparisons you are making at this stage – at least, I don’t think you can make them reliably.”

  • Doctors at a Paris hospital are saying they’ve found evidence of a patient being admitted in December who was infected with COVID-19. The patient was first diagnosed with pneumonia on December 27th when they actually had coronavirus, which was discovered after a recent retest of the swab taken at the time. The first official reports of the coronavirus in France were reported on January 24th, 2020 from two people who had a history of travel to Wuhan, China.

  • Similar news is circulating in Sweden with their chief epidemiologist telling local media they could have had their first case in November or December. The country’s first official case wasn’t noted until January with a woman returning from a trip to Wuhan.

  • The Philippines telecommunications body has ordered the country’s leading broadcaster, ABS-CBN Corp. to cease operations on Tuesday. President Rodrigo Duterte has repeatedly threatened to block the renewal of the station’s license after the broadcaster refused to air his campaign commercials during the 2016 presidential election. Government opposition lawmakers have noted the decision Is poorly timed with the country in the midst of a pandemic and the media playing an important role to inform the public.

  • Australian and New Zealand government officials are in meetings to establish a COVID-safe travel zone between the two countries, which would allow residents to travel freely between the two nations without a need to quarantine. Australian Prime Minister Scott Morrison invited New Zealand Prime Minster Jacinda Ardern to join a national cabinet meeting. This marked the first time a New Zealand head of state had attended an Australian national cabinet meeting, or similar gathering since World War II. Both countries are in fairly good shape in regards to the coronavirus. New Zealand hadn’t reported any new cases in the past two days, while Australia recorded only 14 news cases between Sunday and Monday.

Covid-19 – Due Diligence And Asset Management

Goldman Sachs CEO: Return to Work Will be Gradual

Brief: Goldman Sachs Group Inc is working on a strategy to gradually return staff to working in offices worldwide, the bank’s chief executive told staff on Tuesday in an internal memo viewed by Reuters. Goldman Sachs staff in Hong Kong, mainland China, Sweden and Israel have already started returning to work in phases, according to the memo, which was verified by a Goldman spokeswoman. “However, in certain cities, such as New York and London, it will take longer before we start to slowly increase the number of people in our offices,” stated the memo, which was signed by Chief Executive Officer David Solomon, President John Waldron and Chief Financial Officer Stephen Scherr. 

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Virus Lockdown Takes Toll on Frazzled Compliance Teams

Brief: The thought of a single banker spilling company secrets on a personal phone is a compliance worker’s worst nightmare. The Covid-19 lockdown and the sudden surge in makeshift home-working setups has multiplied those fears by hundreds of thousands. The coronavirus outbreak is taking its toll on the City’s compliance workers tasked with tracking the behaviour of employees scattered throughout the UK. The crisis has placed huge pressure on already stretched financial services compliance teams to get the right systems and controls in place. And it’s reigniting old tensions with bankers in the front line. Financial News spoke with several senior compliance officers and traders. All asked to remain anonymous to avoid a backlash from their colleagues or regulators.

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Victoria’s Secret Partnership with Sycamore Partners Implodes after Coronavirus

Brief: Sycamore Partners was all set to acquire a majority stake in Victoria's Secret. For the lingerie brand's parent company L Brands, it was all part of the plan to spin off one of its most recognizable properties.But now, after a global pandemic and a lawsuit filing, the deal with Sycamore has officially fallen apart, according to a statement retail holding company L Brands sent out Monday In a statement sent to Business Insider, L Brands announced that it had come to a "mutual agreement" with Sycamore to "terminate" the company's previously agreed-upon sale of Victoria's Secret. Private equity firm Sycamore Partners had previously been interested in acquiring a 55% stake in the apparel and lingerie brand for $525 million. The private equity firm valued Victoria's Secret at $1.1 billion in February.

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ESG Has Been a Win for Stocks, Not so Much for Bonds Amid Covid-19

Brief: The market convulsions caused by the coronavirus pandemic and efforts to halt its spread might offer some answers to one of fund managers’ biggest questions: What’s the affect on financial performance of investing in companies that make a positive contribution to society and the environment? Allianz Global Investors, which oversees about $615 billion for clients, offered some insights with an analysis of how its sustainable and responsible investment mutual funds performed. The asset manager reviewed the “downturn resilience” of its funds and found that the vast majority of its sustainable strategies outperformed broad market benchmarks in the first quarter. In the past decade, fund managers who consider environmental, social and governance issues alongside regular financial metrics have gone from outliers to the mainstream with more than $30 trillion of assets now managed using a broad definition of the ESG approach.

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Hong Kong’s Exchange Fund Sees Record $11 Billion Quarterly Loss

Brief: Hong Kong’s wealth fund suffered a HK$86.1 billion ($11 billion) loss in the first quarter, its biggest ever, as stocks tumbled globally. The Exchange Fund, managed in its current form by the Hong Kong Monetary Authority since 1998, lost HK$111.5 billion on its portfolio of domestic and foreign stocks, while bonds gained HK$54.4 billion in the quarter, according to a presentation by HKMA Deputy Chief Executive Howard Lee to lawmakers Monday. The HK$4 trillion fund acts as a backstop to ensure the stability of Hong Kong’s currency and as a stabilizer in times of crisis. It joins other funds around the world in posting losses at the start of the year as markets tumbled due to the coronavirus outbreak. The MSCI global stock index slumped 22% in the first three months of the year. The fund clawed back some losses in April, seeing gains of about HK$30 billion to HK$40 billion, according to Lee.

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Ultra-Rich Families With Cash on Hand Pile Into Private Debt

Brief: Michel Andre Heller is looking to lend when credit is tight. The London-based real estate adviser to a billionaire family from the Middle East is lining up deals of as much as 5 million pounds ($6.2 million) for U.K. residential developments and more than double that amount alongside other investors for bigger properties, such as hotels or offices. The private debt market “is more than trickling along for us,” Heller said. “From a family office perspective, you don’t want to take on too much risk, but you still want to deploy capital.” As the coronavirus upends financial markets, family offices with money to spend are boosting private debt and credit holdings to take advantage of cheaper valuations and avoid the volatility of stock markets. Meanwhile, central banks are keeping economies afloat with cheap-money policies and negative yields, making assets that used to preserve and grow family fortunes less effective.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday May 4, 2020:

  • In the United States, the aviation industry was taking repeated hard hits on Monday. America’s Treasury Secretary Steven Mnuchin said during a Fox Business Network appearance that it was “too early to tell” if international travel would open up before the end of the year. The comment raises concerns the US travel ban outside of the country could stay in place for a considerable length of time. The second hit came from one of the richest men in the world. Warren Buffett exited his investments in Delta, United, American Airlines and Southwest. Buffett told his investors during Berkshire Hathaway’s annual meeting he believes the airline business will be transformed in a major way due to the pandemic. Finally, aviation maker General Electric will cut 10,000+ aeronautical jobs, or 25% of its workforce spanning from Ohio to Europe.

  • As the number of worldwide coronavirus cases are now over 3.5 million, Canada’s health minister is urging a cautious reopening as provinces in the country continue to slowly reopen its businesses and public spaces. Ontario, Quebec, Alberta, Saskatchewan and Manitoba are the latest provinces that are easing their COVID-19 related restrictions on Monday. Canada has exceeded 60,000 coronavirus cases.

  • With the United Kingdom indicating their lowest death total from the virus in a month, some government officials are turning their attention to where the coronavirus first started. In a radio interview, the country’s defence minister Ben Wallace said China has questions to answer on how quickly they made the rest of world aware of the extent of the coronavirus. The UK join the United States and Australia who have been vocal in the past about China’s role in the spread of the virus. However, Wallace also noted the post-mortem on China’s response will have to come after the pandemic is under control and it should be in everyone’s interest to be as transparent as possible.

  • Italy received some well-deserved good news on Monday as citizens were allowed to visit relatives for the first time in a long time. The country is emerging from its nine-week lockdown, the longest coronavirus related lockdown in the world. Four million construction workers are allowed to return to work on Monday and restaurants were allowed to reopen for takeaway service. Italy has suffered close to 29,000 deaths, the most in Europe.

  • Russia is emerging as one of the world’s new hotspots as the country reported back-to-back days of 10,000+ infections. The country’s total is over 145,000 with close to 1,400 deaths.

  • A number of countries ranging from Canada, France, Saudi Arabia and China have pledged €7.5 billion to a global effort in fighting the coronavirus. One country absent from the list is the United States who seem intent on going their own way in fighting the coronavirus. France’s President Emmanuel Macron is hopeful America will change its mind and join the global cause.

  • The Philippines have barred all passenger flights for one week as of Sunday to help contain the spread of the coronavirus and help reduce pressure on quarantine facilities that are housing thousands of Filipino repatriates. For instance, a media report notes 20,000 repatriated citizens are undergoing mandatory quarantine in Manila. Philippine airlines had already extended domestic and international flight suspensions to mid-May.

  • Japan has extended its state of emergency until May 31st. Prime Minster Shinzo Abe first made the declaration on April 7th for six specific regions, before extending it to the rest of the country shortly thereafter. The country’s state of emergency measures are lax though compared to other parts of the world. Officials can’t compel citizens to comply and there are no punishments for failure to do so. A media report notes only 13% of Japanese employees are working from home during the pandemic as the country’s traditional work culture seems to be taking precedence over the pandemic.

Covid-19 – Due Diligence And Asset Management

Hedge Fund Stock Exposure is the Highest in at Least Three Years

Brief: Hedge funds have seen their net stock exposures jump to the highest in at least three years in a spate of short covering and bullish bets on cyclical companies. U.S. long-short funds have assumed a more risk-on posture amid the $4.6 trillion trough-to-peak rally across some of the industries most exposed to the coronavirus fallout, according to Credit Suisse Group AG. The data through April 30 sheds light on how professional speculators are tip-toeing back into the likes of financials and industrials which have been trading at multi-year discounts. Now, violent rotations between riskier equities and defensive names could inject fresh pain on this breed of stock picker. The S&P 500 is heading for a three-session slump led by cyclical sectors following a barrage of poor data and renewed U.S.-China tensions. Fund managers are grappling with “the opposing pulls of deteriorating fundamentals set against Fed-inspired optimism,” said Mark Connors, global head of risk advisory at Credit Suisse, in a report dated Friday.

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Private Equity Firms Expect to Restart Deploying Capital in Three to Six Months, says Survey

Brief: Most private equity firms are currently concerned about restructuring costs and re-engineering their portfolios impacted by the coronavirus pandemic, however a new survey suggests deal activity can restart in three months’ time. Nearly 90% of buyout groups said they expect to deploy capital in the next three to six months, responding to a survey by consultancy firm New Street Group. But for now they are working on shoring up their holdings’ balance sheets. More than 70% of respondents to New Street said they plan on investing into their existing portfolio. Meanwhile, a failure to source funding and increasing pressure to meet operating expenses is expected to lead to a rise in demand for specialists. New Street said it is likely that firms will look to bring on chief restructuring officers and other CFOs who can restructure companies.

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Wall Street sees the Economic Pain, opts to Look Past it

Brief: Is Wall Street blind? The global economy is in shambles, the coronavirus pandemic has killed more than 237,000 worldwide and 30 million Americans have lost their jobs as collateral damage in the fight against COVID-19, with the tallies all rising by the day. Yet, the U.S stock market just rocketed to its best month in a generation. While it’s most definitely wild, Wall Street is also a collection of investors who are continually looking ahead, setting prices for stocks at the moment based on where they expect corporate profits and the economy will be a quarter or two into the future. From February into late March, investors sent the S&P 500 down by nearly 34%, anticipating that the number of jobless workers would explode and the economy would tumble into recession. Then in April, as gruesome economic figures confirmed those fears, investors instead focused on a few strands of optimism for the future.

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Investors Realigning Their Focus

Brief: Asset owners and money managers are adapting their engagement efforts as the workers and suppliers of their portfolio companies feel the impact of the coronavirus crisis. Investors said they have refocused their engagement activities to ensure that executives at their portfolio companies are protecting the health and the safety of workers and are not, for example, keeping non-essential employees at retail, office or even mining sites unnecessarily.  Investors added they are putting pressure on top executives to continue to employ workers and honor existing contracts by paying for goods already produced to keep smaller suppliers in business. Some asset owners are working with portfolio company executives to help them access governmental loans and subsidies for workers who have been furloughed.

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Chicago Equity Partners to Shutter, Return Capital

Brief: Chicago Equity Partnersis closing and returning assets to its institutional clientele. The active manager is in the process of winding down the firm's operations, although a timetable for the firm's closure has not been set, said Daniel Gagnier, a spokesman for the firm. Chicago Equity Partners publicly announced the move in an April 17 update to its SEC ADV filing noting that "CEP has decided to wind up its operations, including liquidating all private funds. CEP has notified its clients of its decision and provided a description of the process." Affiliated Managers Group acquired a 60% stake in CEP in October of 2006. AMG spokesman Jonathan Freedman declined to comment.

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The Site-Visit Fetish

Brief: Unless you’re the Governor of Georgia, you know we are not going back to normal. But where are we going? If you’re an allocator, probably nowhere. Contrary to the beliefs of some right-wing ideologs, Covid-19 is highly contagious and is killing people. It will continue to kill people for some time.  I begin with the assumption that Boards of Trustees and sponsoring organizations recognize that a critical part of their fiduciary duty is to ensure the people to whom they have delegated the management and administration of their pool of beneficial assets are fully not dead. This means they must be healthy. Given the current pandemic and its long tail, I cannot imagine a Board or Trustees or sponsor permitting its CIO and investment staff to participate in non-essential external business meetings. 

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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 forFriday May 1, 2020:

  • With the United States federal guidelines of social distancing expiring on April 30th, many states are moving towards a gradual reopening starting today. The largest state making a move on Friday is Texas with Governor Greg Abbott’s executive order superseding local orders. This will allow businesses like retail stores, malls, restaurants and theatres to reopen at a 25% capacity. Other states are allowing salons and gyms to open while some are easing restrictions on outdoor activities such as opening parks, and golf courses.

  • In Canada, Ontario Premier Doug Ford will allow some business to reopen on Monday May 4th as long as they meet strict public health measures. Those business allowed to reopen include garden centres and nurseries, lawn care and landscaping, essential construction projects, and golf courses can open for maintenance, but not for the public. Nova Scotia is also following similar easing of restrictions, allowing for parks and trails to reopen, as well as other outdoor activities to resume such as fishing. Elsewhere, Tiff Macklem will inherit the unenviable job of playing a lead role in leading the country out of the economic crisis the coronavirus created. Macklem was named the new Bank of Canada head and will replace Stephen Poloz as his term ends June 2nd.

  • Matt Hancock, the United Kingdom’s Health Secretary announced during a Friday news conference the government hit its goal of 100,000 coronavirus tests by the end of the month, stating 122,347 tests were deployed on Thursday, the last day of April. The government had pledged to hit the 100,000 test per day milestone earlier in the month when they were criticized their testing abilities were not comparing with other countries such as Germany.

  • A third of France is currently in a “red category” zone, which means they would not be released from their lockdown if this is still the case once May 11th arrives.

  • India said on Friday they would extend its nationwide lockdown for another two weeks after May 4th. However, the government would allow for “considerable relaxations” in lower risk districts that are colour coded as outlined in their plan to fight the virus. India’s health ministry said the country has just over 35,000 cases and close to 1,150 deaths due to the coronavirus.

  • Australian Prime Minister Scott Morrison said his government will consider relaxing coronavirus-related mobility restrictions next Friday. Growth in new infections have slowed to less than 0.5% per day in the country as compared to 25% at its peak a month ago.

  • Ending the week on a positive note with the story of UK Captain Tom Moore. The war veteran turned 100 on Thursday and Mr. Moore had a goal of raising £1,000 for the NHS Charities Together. Moore gained worldwide attention as he walked laps in his garden for the cause. His touching story filled a school hall with 120,000 birthday cards, including happy birthday messages from the Queen of England and Prime Minister Boris Johnson. As for Moore’s goal of £1,000 for the charity; he did slightly better with the fundraising currently topping £32 million! 

Covid-19 – Due Diligence And Asset Management

Trump Weighs China Stock Ban for $50 Billion of Federal Savings

Brief: President Donald Trump is exploring blocking a government retirement fund from investing in Chinese equities considered a national security risk, a person familiar with the internal deliberations said. The Thrift Savings Plan -- the federal government’s retirement savings fund -- is scheduled to transfer roughly $50 billion of its international fund to mirror an MSCI All Country World Index, which captures emerging markets, including China. The Federal Retirement Thrift Investment Board overseeing the fund made a decision in 2017 that the money should be moved by mid-2020. Opponents of the transfer in recent weeks have engaged in a last-minute effort to stop it.

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Apollo, Employees Face $1 Billion in Clawbacks on Rout

Brief: Apollo Global Management Inc. faces the prospect of having to hand back earlier profits from several of its funds as its holdings were hit hard by the economic fallout from the coronavirus pandemic. The firm, together with some current and former employees and partners, were potentially on the hook to give back $965.4 million in profit taken as of the end of March, New York-based Apollo said Friday. Apollo is the first major alternative asset manager to suggest it may have to pay back profits, known as clawbacks -- a possible harbinger for an industry that’s thrived over the past decade. Many of its biggest bets have been on economic bellwethers such as the travel, energy and retail sectors that have been devastated by the outbreak.

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Think Wall Street’s Back to Normal? Not so Fast, Options Markets Say

Brief: Options investors are preparing for more volatility ahead despite last month’s sharp rebound in U.S. stocks, reflecting doubts that markets will be quick to return to their former highs in the middle of the coronavirus pandemic. Market turbulence has plunged alongside stocks' climb since late March, with the Cboe Volatility Index , known as "Wall Street's fear gauge," last at 37.19 on Friday after peaking above 80 in mid-March. The S&P 500.SPXrose 12.7% in April, its biggest monthly percentage gain since 1987, and has climbed more than 27% from its March 23 closing low.In another bullish sign, the front end of the S&P 500 volatility term structure, which plots volatility expectations over time, is no longer inverted, suggesting that worries over a near-term stock reversal are subsiding.

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“Very Negative” Stance Powered Pershing Square Gains – But Ackman Does not See Protracted Slump

Brief: Pershing Square CEO Bill Ackman’s “very negative view” and “good sense of timing” powered the firm’s stellar USD2.6 billion gain last month but the high-profile activist hedge fund manager does not fear a protracted 1930s-style depression as a result of the Covid-19 shutdown. Pershing Square Capital generated the remarkable return in March with a USD27 million credit hedge as the impact of the coronavirus pandemic sent global markets into a tailspin. In a podcast interview released this week, Ackman explained how growing concerns over the Covid-19 spread early in the year, and the subsequent economic implications of the US shutdown, formed the basis of his lucrative bet.

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Leaked UBS Document Offers Road Map for How City may Return to the Office

Brief: A UBS consulting unit's advice to clients on returning to work gives an eye-opening road map for how the new normal in City working life might play out. A 13-page document put together by UBS's Capital and Consulting services division, seen by Financial News, recommends that firms come back to work in phases, prioritising key employees over others. Top of the list are traders, which are in the “highest operational risk category”, it said. While UBS's unit advises hedge funds, it lays out a model for returning to work in the wake of the pandemic that could be applied to any financial services organisation. Traders, portfolio managers and analysts should be brought back into the office during what the document describes as "risk level two", when new cases of Covid-19 have been trending down for two weeks, schools re-open or some lockdown restrictions are lifted.

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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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