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Covid-19 Diligence Briefing

Our briefing for Wednesday September 30, 2020:

  • In the United States, seven former commissioners of the US Food and Drug Administration (FDA) wrote a commentary for the Washington Post condemning the White House’s pressure on the agency they once were the head of. “The White House has said it might try to influence the scientific standards for vaccine approval put forward by the FDA or block the agency from issuing further written guidance on its criteria for judging the safety and benefits of a potential COVID-19 vaccine,” they wrote. The former commissioners, who had served under both Democratic and Republican administrations, said actions like these were undermining close to 115 years of work the FDA has put in to build public trust. The group of seven said if people doubt the safety of any COVID-19 vaccine, they won’t get immunized.
  • With 625 new COVID-19 cases confirmed on Wednesday, Canadian health authorities are saying the country’s most populous province situation is about to get worse, before it gets better. The new forecasting from Ontario’s provincial government say the region could see 1,000 cases per day during the first few weeks of October. The number of new cases are doubling every 10 to 12 days, which will account for the “remarkably high surge” in the coming weeks. Health officials will wait to see if measures such as closing strip clubs and limiting hours of operation for bars and restaurants will help limit the spread of the virus before possibly implementing any further restrictions.
  • In a televised address on Wednesday, United Kingdom Prime Minister Boris Johnson, flanked by his chief medical and scientific advisers implored its citizens to observe social-distancing rules. The plea was made on a day where the UK confirmed over 7,100 new cases and Johnson said he would “not hesitate” to enact further restrictions to slow the spread of COVID-19 in the country. Prime Minister Johnson’s comments are seen as a show of defiance to Conservative MPs who are becoming increasingly worried about the economic damage caused by further restrictions. 
  • Spain and its government are planning new national coronavirus rules that will impose tougher restrictions on country hotspots, such as Madrid. The government plans to reintroduce rules restricting people’s movements and gatherings in urban areas with high levels of infections and hospitalizations. The new controls come just over three months after Spain emerged from a tough three-month lockdown. As of Tuesday night, the health ministry confirmed 10,000 active cases in Spain, with a third of them in Madrid, the country’s capital city. 
  • A Bloomberg article notes India’s recent explosion in COVID-19 cases is thanks in large part to super-spreaders. The conclusion is based on a study conducted by United States researchers and published in the journal “Science”. A group of patients that included about 8% of India’s confirmed cases later led to almost two-thirds of its total infections. The research was based on tracing more than three million contacts in the southern states of Andhra Pradesh and Tamil Nadu through August 1st. Researchers said COVID-19 transmitters tended to spread the virus during prolonged close contact on buses and other forms of transportation. In settings such as these, there was a concerning 79% chance of an infection occurring.
  • In Japan, the government announced a plan on Wednesday to offer vacations against COVID-19 free of charge to all of its citizens. The government is expected to spend ¥670 billion up until June 2021 to secure sufficient supplies of a COVID-19 vaccine, whether it be domestically, or abroad. The government has already signed basic agreements with U.S. drugmaker Pfizer and British drugmaker AstraZeneca PLC to secure vaccines when they become available. On top of the funds to purchase COVID-19 vaccines, Japan will also ensure local governments have the funding to provide vaccinations to their residents.

Covid-19 – Due Diligence And Asset Management

Hedge Funds May Escape Fed Blame Over Market Mayhem in March

Brief: Hedge funds can rest easier for now. Federal Reserve Vice Chairman for Supervision Randal Quarles said he doesn’t think the investment firms deserve the lion’s share of blame for tumult that swept financial markets in March -- contrasting statements from other policy makers that the funds’ overly leveraged Treasury trades were a crucial factor. “Our view is that was not a significant source of the pressure that we were seeing in the Treasury market,” Quarles, who also heads the Financial Stability Board of global regulators, said Tuesday during a University of Maryland webinar. Still, he added that market watchdogs lack the “granular data” to fully substantiate that assessment. The comments are significant because Quarles has been leading an effort by global central banks to examine whether hedge funds and other non-bank financial firms should face more oversight. Hedge funds have feared that regulators would clamp down on them since June when the Bank for International Settlements called the firms’ rapid unwinding of so-called basis trades “a key driver” of the March turmoil. The transactions involve buying Treasury securities using leverage via repurchase pacts while simultaneously selling futures contracts.

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Morgan Stanley Said to Start Search for New London Headquarters

Brief: Morgan Stanley has begun looking for a major new London headquarters, countering fears the coronavirus crisis will crush demand for office space in the world’s financial capitals. The U.S. lender has contacted a handful of developers as it assesses options for a potential move from its current premises in Canary Wharf, people with knowledge of the process said. The bank wants at least 600,000 square feet (about 55,740 square meters) of space and will likely focus on options in the east London financial district as well as developments in the City of London, the people said, asking not to be identified as the process is private. The search is at an early stage and is unlikely to result in a deal until late next year at the earliest, with no certainty a move will take place at all, the people added. A spokesman for Morgan Stanley declined to comment. Morgan Stanley would become the latest in a series of major investment banks to move to new premises in London as firms seek modern, efficient buildings that can help attract and retain staff, and keep a lid on costs. While the search for a potential new building comes several years before the bank’s current leases expire, there’s a scarcity of large new development plots in the capital, and putting up a building on such a scale would take years. The lender currently occupies about 800,000 square feet of space across two buildings in Canary Wharf. One option being considered is to move into a single large new premises, bringing all of its London staff together. 

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M&A Spikes in Record Third Quarter as Boards go on Pandemic Deal Spree

Brief: Mergers and acquisitions came back with a bang in the third quarter as executives rushed to revisit deals left on hold at the height of the coronavirus pandemic and boardrooms regained confidence after a roller-coaster year. A deal frenzy in September led to a record third quarter with more than $1 trillion worth of transactions around the world, mostly focused on coronavirus-resilient sectors such as technology and healthcare, according to Refinitiv data. The third-quarter spike, however, failed to take up all the slack after a lacklustre start to the year. M&A deals overall were down 21% at $2.2 trillion in the first nine months of 2020, with U.S. transactions coming in at $800 billion, a 43% slump from the same period last year. "The way out of this crisis is through M&A and we have started to have really engaging conversations with CEOs and boards around strategic positioning post-COVID," said Alison Harding-Jones, Citigroup's C.N head of M&A for Europe, the Middle East and Africa (EMEA) and vice chairman of EMEA banking, capital markets and advisory.

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Most Executives Think Covid-19 Changed Their Companies Forever

Brief: Many of the changes to global business triggered by Covid-19 will prove lasting. A survey released Wednesday by the IBM Institute of Business Value identified a “culture shift” at corporations worldwide, and concluded that “executives must accept that pandemic-induced changes in strategy, management, operations and budgetary priorities are here to stay.” One big dividend from this culture shift: Two-thirds of respondents said they’ve been able to complete initiatives that encountered resistance in the pre-Covid work world. The survey of almost 3,500 executives in 22 countries found cash flow along with cost and liquidity management among the highest priorities through 2022. About 60% said they were accelerating the digital transformation of their organizations. Three-quarters plan on building more robust IT capabilities. The digital transformation is expected to increase the actual number of jobs, “but the skills required for those jobs are going to be very different,” said Jesus Mantas, senior managing partner of IBM Services. That means potentially millions of workers who can’t transition to the new world of work could be left behind. In a move away from the recent practice of just-in-time delivery, 40% of executives highlighted the need for spare capacity in their supply-chains.

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Sarasin & Partners Poised for Further Growth After Weathering Covid Storm

Brief: Sarasin & Partners, a global thematic investment manager which invests responsibly on behalf of charities, private clients and institutions, has seen its assets under management (AuM) rise by 5.4 per cent (from GBP14.7 billion at the end of 2019 to GBP15.5 billion as at 9 September, 2020) over the course of a highly volatile 2020. This follows a period of significant growth for the Sarasin Group in the prior year, when a GBP338 million net investment inflow, coupled with strong market performance, which helped grow Sarasin & Partners’ AuM by 19 per cent over the course of 2019. Managing partner Guy Matthews attributes the robust performance and AuM growth to its strong foundations, solidified by the completion of a four-year restructuring and reinvestment programme and the maintenance of a commitment to continue investing in people, processes and technology. “While much of our immediate focus has turned to the pandemic and addressing operational continuity and client service excellence, we want to take this success and build it out even further,” says Matthews. A primary factor behind the AuM growth has been strong investment performance for its thematic global equity and multi-asset capability – successfully enhanced under head of global equities Jeremy Thomas and head of multi-asset Phil Collins respectively.  Sarasin’s global thematic approach to investing, which has underpinned the group’s equity selection process since 1996, along with its commitment to stewardship, has been further refined to both capitalise on long-term secular megatrends shaping the global economy such as ageing, digitalisation, automation, evolving consumption and climate change, and all the while integrating responsible stewardship principles such as embedded ESG analysis and active ownership.

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Hedge Fund Launches at “Historically Low” Levels Despite Q2 Recovery, but Liquidations Ease Following Covid Crash

Brief: The rate of new hedge fund launches grew between April and June following the coronavirus-fuelled first quarter slump, as hedge fund performance recovered – but the number of new roll-outs over the past 12 months remains “historically low”, Hedge Fund Research says. New hedge fund launches totalled an estimated 129 in the second quarter. That number was a sharp increase on Q1 which proved the highest quarterly launch total since 153 funds were rolled out in Q2 2019, according to HFR’s latest Market Microstructure Report. But the number of estimated fund launches during the preceding four quarters reached just 404 – an “historically low” figure - stemming in part to the Covid-19 pandemic which drove down Q1’s launch total. At the same time, the industry appears to be recovering from a spike in hedge fund liquidations, which reached a four-year high in the three-months between January and March this year. An estimated 178 funds liquidated in Q2 2020, down from 304 liquidations the previous quarter. But just as virus volatility has driven fund launches to fresh lows, fund liquidations over the past four quarters are at an “historically high” 821.

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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 September 29, 2020:

  • As the coronavirus has now claimed over one million lives worldwide, United States President Donald Trump announced the federal government will be distributing 150 million rapid tests. One hundred million of those tests will be sent to states with the President wanting governors to use them in nursing homes, assisted living facilities and schools, so in-person instruction can either resume or continue full-time. However, once the tests are obtained by the states, it will be at the governor’s discretion on how they want to distribute. America has surpassed 100 million COVID-19 tests in the last week, but public health experts say even more testing is needed as the country moves into the autumn and winter months.

  • In Canada, Quebec, the province hit hardest by COVID-19 are ordering new restrictions to help curb the “more complex” second wave. Premier Francois Legault announced the curbing of social gatherings and limiting bar and restaurant service to takeout only for the next 28 days, as of this Thursday. The restrictions will be in place for Quebec’s largest city Montreal and two other regions. Businesses and schools in the three regions will remain open. 

  • In the United Kingdom, thousands of students across the country have been forced into a two-week isolation just weeks after arriving for their academic year due to outbreaks across several campuses. For instance, 1,700 students in a northern England university were asked via email to self-isolate in their residences for the next two weeks, regardless of whether or not they have symptoms. Officials claim the outbreaks are linked to illicit parties, while students claim it is unfair to blame them when they received little support from schools, or the government.

  • German Chancellor Angela Merkel claimed the country could be facing 19,000 new infections per day by Christmas unless more efforts are made to curtail the virus. Chancellor Merkel issued new rules on social gatherings – a maximum of 50 people can gather in public or rented premises and those rules will only apply in areas where there has been 35 or more coronavirus cases per 100,000 people over the last week. Germany has seen its daily COVID-19 case count rise from 300 in late July to 2,400 in late September.

  • Philippine President Rodrigo Duterte has extended the partial COVID-19 restrictions in the capital region of Manila until October 31st in order to keep the spread of the virus in check. The country continues to have the highest COVID-19 case count in Southeast Asia with over 307,000 confirmed infections and close to 5,400 deaths. People must still wear masks, face shields and observe one-metre social distancing, while children, elderly and pregnant women are urged to stay home. President Duterte also appealed to the country’s telecommunications firms to “do a better job” as public schools are set to resume classes remotely on October 5th. Many areas of the Philippines have been struggling with preparations due to access, availability and speed of data services.

  • In China, the capital of Beijing has ordered importers of frozen foods to avoid countries suffering from severe COVID-19 outbreaks after several incidents of imported seafood tested positive for the virus. While health authorities, such as the World Health Organization (WHO) and America’s Centers for Disease Control and Prevention (CDC) have claimed the possibility of obtaining COVID-19 through food supply is low, China has for the most part, stopped domestic transmission of the virus and are on high alert for any possible resurfacing.

Covid-19 – Due Diligence And Asset Management

Airline, Hotel Industry Reps Both Say Their Rebound Depends on the Return of the Travel Business

Brief: U.S. airlines received $25 billion of payroll stimulus help from the government back in April. Now that relief is set to expire this week, the near future for the industry is little improved, and now its workers are desperate for another $25 billion in government help. Delta Air Lines, United Airlines, and American Airlines all have plans to lay off or furlough tens of thousands of airline employees this week if Congress doesn’t agree on another relief package. Air travel has yet to return to even half of the pre-pandemic daily levels, and the International Air Transport Association (IATA) in July pushed back its target to 2024 for when air travel will return to pre-pandemic levels. Much has been made about whether Americans are ready to travel again and feel safe doing so, but industry representatives say the issue isn’t passenger comfort level or pleasure travel: it’s the dearth of business travel. (Business passengers typically comprise 75% of airline profits.) Over the Labor Day weekend, airlines on average saw 50% passenger capacity from one year prior, which was actually an improvement over the past few months. But they only saw 25% of the revenue from one year prior, due to blocked-off seats, slashed ticket prices, and lack of business travelers.

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Haywire Signals Leave Investors Guessing on Business Cycle

Brief: The once-in-a-century pandemic is wreaking havoc on the market’s tried-and-tested barometers for the business cycle. At first glance, Wall Street looks like it’s teeming with the kind of greed usually reserved for the end of an economic expansion. Corporations globally have already issued a record $2.7 trillion of debt. Private-equity firms are borrowing to pay lavish dividends. Tech stocks are at dot-com-era valuations. Yet that’s the wrong interpretation, according to market players like the strategists at Morgan Stanley and fund managers surveyed by Bank of America Corp. They reckon an economic recovery is just getting started, and once the virus is controlled it will power the cross-asset rally in earnest. That makes it a confusing time for anyone allocating assets based on where we are in the cycle. “You’ve got this early cycle and late cycle melding going on,” said Kevin Gaynor, founder of Rational Research and former head of international economics at Nomura Holdings Inc. “You’ve got a really simple answer for that: it’s interest rates.” Lower borrowing costs have helped juice market valuations since the March maelstrom as investors tried to front-run a recovery. The danger now is that risky assets are priced for the best-case scenario, offering none of the premiums that might be up for grabs at the start of an economic upswing.

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Rich Finance Workers to Flee Britain over Virus and Brexit Fears

Brief: The City is bracing for Brexit — but not the one you think. Some of the finance sector’s richest are planning to leave the UK as a double-whammy threat of a second Covid-19 wave and the Brexit fallout forms “a dark cloud” over the country, according to wealth, property and tax advisers. Wealth manager London & Capital’s clients, who include hedge fund managers, have indicated that the UK is the “least attractive” place to live amid the pandemic, according to Iain Tait, the head of its private investment office. Tait, who advises around 100 wealthy individuals with assets totalling around £1.25bn, said some of his clients were considering moving out of the UK to avoid a second lockdown and the ramifications of the impending end of the Brexit transition period. “There’s definitely been a pickup in enquiries that might give high-net-worth families greater optionality, if this pandemic and the potential for lockdowns continue,” Tait said. “[Clients] want to continue to have lifestyle and business optionality, both post-Brexit and [without] a continuing Covid cloud over one’s family life,” he added. “It’s a mixture of the two, which together form a pretty dark cloud [over the UK for] high net worths that we work with.”

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How do Family Offices Manage Risk Amid Pandemic?

Brief: Anyone longing for a return to a more predictable economic era? A time when a rise in interest rates immediately triggered more overseas investment, leading to an inevitable strengthening of a country’s currency? Well, get prepared for a rather long wait, as ultra-low rates and aggressive central bank monetary supply – not to mention the ongoing geopolitical uncertainty around the US election – signals anything but a move to more conventional times. It is not like we have not been here before. What we are currently living through draws parallels with the post-World War I period, which led to hyperinflation and a prolonged global recession. The difference this time, other than inflation currently being kept down due to ultra-low interest rates, is that this environment will likely be concentrated into a much shorter time period, as opposed to the decade of pain experienced after 1923.   If the macro was not enough to think about, there is also a particular global health pandemic fundamentally disrupting traditional working practices. This begs the question, with remote working looking likely to be here for some time and markets bracing themselves for a second wave of volatility, just how does a family office, set in its ways, manage risk right now?

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CFTC Charges Georgia Man with Fraudulent Scheme to Profit from COVID-19

Brief: The Commodity Futures Trading Commission today announced that it has filed a complaint in the U.S. District Court for the Northern District of Texas against Kenzley Ramos, a Georgia resident, charging him with fraudulent solicitation, misappropriation, operation of an unlawful commodity pool, and failure to register with the CFTC.  According to the complaint, Ramos falsely promised individuals the ability to profit from the COVID-19 pandemic by trading in off-exchange foreign currency (forex) and binary options with guaranteed 300 percent weekly returns. This is the second enforcement action brought by the CFTC alleging misconduct directly tied to the pandemic. [See CFTC Press Release No. 8195-20 “We will continue monitoring our markets and will pursue any individuals who choose to use COVID-19 as part of their illegal schemes,” said Division of Enforcement Director James McDonald… The complaint alleges that from at least December 2015 until the present, Ramos fraudulently solicited individuals across the country by using online advertisements and aliases to further his ongoing scheme, incorporating COVID-19 into his solicitations earlier this year. He falsely represented himself as a highly successful and experienced binary options and forex trader who could profit from the coronavirus even while stock prices were falling.

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U.S. Pension Funds Sue Allianz After $4 Billion in Coronavirus Losses

Brief: Pension funds for truckers, teachers and subway workers have lodged lawsuits in the United States against Germany’s Allianz, one of the world’s top asset managers, for failing to safeguard their investments during the coronavirus market meltdown. Market panic around the virus that resulted in billions in losses earlier this year scarred many investors, but no other top-tier asset manager is facing such a large number of lawsuits in the United States connected to the turbulence. In March, Allianz ALVG.DE was forced to shutter two private hedge funds after severe losses, prompting the wave of litigation the company says is "legally and factually flawed". Together, the various suits filed in the U.S. Southern District of New York claim investors lost a total of around $4 billion. The fallout has also prompted questions from the U.S. Securities and Exchange Commission, Allianz has said. A spokesman for Allianz Global Investors said in a statement to Reuters: “While the losses were disappointing, the allegations made by claimants are legally and factually flawed, and we will defend ourselves vigorously against them.”

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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 September 28, 2020:

  • In the United States, House Democrats are preparing a new coronavirus relief package that will be a scaled down version of the one proposed back in May. Speaker Nancy Pelosi has instructed her committee chairs to put together a proposal with a topline of about $2.2 trillion - one trillion less than what the Democrats originally proposed back in May. However, this scaled back version is still almost one trillion more than the high-end Republicans are willing to agree to. A few weeks ago, the Trump administration said it would be willing to consider a proposal around $1.5 trillion. Even politicians are seemingly fed up with the process with one Democratic representative saying if this new proposal is nothing more than a messaging exercise by his party, it will be worthless. 
  • In Canada, the country’s most populous province had its highest daily COVID-19 case count since the outbreak began in late January. Ontario reported 700 new cases on Monday and Premier Doug Ford said the province is indeed experiencing its second wave, which will be more complicated and complex than the first wave. While Premier Ford has called the case count deeply concerning, he is not yet willing to move on any new public health measures, but a group of medical doctors and experts want the government of Ontario to return to Stage 2 of its reopening plan, which would put a halt to things such as indoor dining. Elsewhere in the country, Quebec is expected to move its two largest cities – Montreal and Quebec City from orange to its highest COVID-19 alert level – red. Both cities have experienced triple digit numbers in daily cases, and the province’s health minister has urged the public to stop socializing for the next month to help slow the spread of the virus. 
  • In the United Kingdom, Boris Johnson’s government has raised the prospects of even tougher coronavirus rules as they try to get the latest wave under control. Speaking on BBC radio, health minister Helen Whately was asked if the government was considering a “total social lockdown” and her response was that it couldn’t be ruled out. The Times are reporting new restrictions under consideration include a ban on different households mixing and shutting down pubs, bars and restaurants yet again.
  • In France, hospitals in the Paris and Marseille regions are delaying scheduled operations to free up space for COVID-19 patients. Coronavirus admissions in southern France have tripled since the beginning of September with 55 ICU beds occupied on September 1st and 170 by September 27th. Due to the situation getting more dire in the Marseille region, bars and restaurants will be closed for seven days as of Sunday night and will be reviewed upon completion. If the situation shows no improvement, the closures could be extended.
  • India surpassed six million coronavirus cases over the weekend. Concerns are now mounting the situation could get worse as the country approaches its autumn festival and wedding season. This will cause people to gather for religious ceremonies and social celebrations. India’s capital city of Delhi is also bracing for its pollution season, which is caused by farmers in the surrounding areas burning the stubble of their rice fields. Health experts have warned the pollution could worsen the conditions of people infected with the virus.
  • In Australia, the premier of Victoria state and the Prime Minister of the country seem to be at odds on a lockdown implemented almost two months ago. Over the weekend, Victoria state Premier Daniel Andrews announced the end of a night curfew in Melbourne sooner than originally expected as infections in the country’s second largest city slows. However, Prime Minister Scott Morrison is looking to urgently reboot Australia’s struggling economy and needs Melbourne to do so. “As it stands this lockdown is already longer than that faced by residents in many cities around the world, said Morrison. We remain deeply concerned about the mental health impacts of a prolonged lock down on Melbourne residents.” Premier Andrews has angered pro-business groups in the region with his plan to keep most businesses and restaurants closed until the state reduces its 14-day rolling average to 5 new cases per day. The figure is currently 20.3 as of Monday.

Covid-19 – Due Diligence And Asset Management

Foresight White Paper Reveals Significant Differences in Pandemic Resilience Across Infrastructure Sub-Sectors

Brief: A new study published today by Foresight Group (Foresight) into the resilience of infrastructure to global pandemics reveals that renewable energy, telecoms and primary care have proved to be the most pandemic resilient.The analysis, which examines 23 infrastructure sub-sectors spanning economic and social infrastructure, shows that while infrastructure as an asset-class has proved to be highly pandemic resilient, with many sub-sectors largely immune to the impact, there are substantial differences in the performance of various infrastructure sub-sectors. Foresight’s white paper “Infrastructure Pandemic Resilience: a true test of infrastructure’s defensive characteristics”, considers the resilience of infrastructure to global pandemics through five investment fundamentals: revenues; costs; financials; political and regulatory environments; and operations. The study was based on a proprietary pandemic resilience framework developed by Foresight, a leading independent infrastructure and private equity investment manager.

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Investors ‘Freaking’ Over Possible Contested Outcome of US Election

Brief: A disputed result in November’s US presidential election is now the number one concern for investors – even ahead of a second wave of Covid-19, according to a new global survey. The poll carried out by deVere Group, one of the world’s largest independent financial advisory and fintech organisations, asked more than 700 clients ‘What is your biggest investment worry for the rest of 2020?’ A contested U.S. election was the number one (72%); the impact of a Covid-19 second wave (18%) and U.S.-China trade war (5%). The remaining 5% was made up of other geopolitical issues, including Brexit. 735 people resident in the UK, North America, Europe, Asia, Africa, Latin America and Australasia took part in the poll. Of the poll’s findings, deVere Group CEO and founder, Nigel Green said, “Investors around the world are beginning to freak about the U.S. presidential election. “But not about whether Trump or Biden wins, rather over the looming possibility of a disputed outcome. “President Trump is already questioning the legitimacy of the election, heightening the chances of a contested result and an ensuing constitutional crisis in the world’s largest economy.

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Geopolitics and Investment in Emerging Markets After COVID-19

Brief: As investors ponder the impact of the world’s greatest economic crisis since the Great Depression, emerging markets (EMs) face a swift reversal of fortune. Some of the fastest-growing economies in the world have been brought to a virtual standstill, reeling with the effects of an exogenous shock to demand, a public health emergency, and nascent infrastructure with which to combat the pandemic.While multilateral development banks and international financial institutions have moved swiftly to address critical funding shortfalls, the COVID-19 pandemic has dealt severe challenges to the EM growth model — and to the livelihoods of people within these countries. As governments in emerging markets and developing economies (EMDEs) have less fiscal space at their disposal — but harbour an ongoing need for spending on relief and stimulus measures — credit downgrades from the ratings agencies may be inevitable.Yet, even in the wake of downgrades, this juncture of COVID-induced distress might open up a propitious opportunity for international investors and companies to invest in infrastructure in EMDEs.

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Eurozone Recovery Could Face More Setbacks

Brief: The next stage of the eurozone's recovery from the impacts of the COVID-19 outbreak could be challenging, according to a report by S&P Global Ratings. The rating agency and research firm revised its forecast for eurozone gross domestic product downward to 7.4% this year, from the 7.8% it estimated in June. The firm said the eurozone will see a 6.1% rebound in 2021, up from the 5.5% it forecast in June. "We are lowering slightly our expectations for unemployment, which we forecast will peak at 9.1% in 2021," said Marion Amiot, senior European economist, in a news release. S&P's report said the eurozone's unemployment rate will gradually reduce to 8.4% in 2022 and 7.8% in 2023. The unemployment rate is currently 8.1%, up from 7.6% in 2019. European economies are operating at around 5% below their pre-COVID-19 output levels and are estimated to return to pre-COVID-19 levels only in 2022. The eurozone recovery is currently considered to be shaped like a check mark, with flat growth expected to follow the 2021 rebound, according to the firm's analysis. "The eurozone is now entering a tricky transition period from gradual withdrawal of government support toward implementation of the European Union's economic reform program. Liquidity, households' behavior and demand will be crucial in enabling the European economy to weather this transition, and much could go wrong along the way," Ms. Amiot said.

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Hedge Funds Are Slow-Walking Wall Street’s Return to the Office

Brief: As the finance world tiptoes back into the office, some of the biggest hedge funds are opting to keep their workers at home into 2021. While Wall Street firms including JPMorgan Chase & Co. and Citigroup Inc. ramp up attendance at their global headquarters, staff at Bridgewater Associates, D.E. Shaw & Co. and Two Sigma Investments are unlikely to be back until next year, according to people familiar with the matter and company officials. Banks often have their own buildings, but hedge funds usually work in shared locations with less control over how the lobby and elevators are managed. Some are choosing to wait and learn from how others’ returns pan out, a position helped by the fact that productivity has stayed high, according to the people. Two Sigma, which has about 1,500 U.S. employees, told workers they won’t be required to return before July 4, one of the people said, asking not to be named because the information isn’t public. Those who miss being at their desks can go in from January. Still, some hedge funds are pushing ahead. About 40% of Capstone Investment Advisors’ New York staff is in the office. To give employees time for creative thinking, the firm has created “meeting-less Wednesdays.”

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Emerging Markets on Edge as Goldman and Deutsche Bank Flag Risks

Brief: Emerging markets are heading toward the end of the third quarter with more reasons to be cautious than optimistic. Developing-nation stocks, currencies and bonds had their worst week in the five days through Friday since the coronavirus pandemic rocked global markets in March. The gap between implied volatility in emerging-market currencies and their Group-of-Seven peers is at the widest since June amid concerns over renewed lockdown measures and delays to further U.S. fiscal stimulus. Emerging-market exchange-traded funds suffered the biggest weekly outflow since early July as assets tumbled. Manufacturing reports from China, India, Brazil and South Africa that are being published this week are potentially less decisive for investors than the global sentiment toward risky assets. Investors are bracing for higher price swings around the U.S. November elections, with the first presidential debate between Donald Trump and challenger Joe Biden scheduled for Tuesday. And they’re being encouraged to move to the sidelines. Deutsche Bank AG is taking a “more defensive stance” on emerging-market credit as it expects increased volatility from the U.S. election to fuel a selloff in risky assets. Never mind that the wave of central-bank stimulus and investors’ hunger for yield had lifted developing-nation dollar debt for five months.

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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 September 25, 2020:

  • United States Senator Elizabeth Warren (D-Mass.) and Representative Ro Khanna (D-Calif.) have penned an inquisitive letter to the Defense Department’s acting inspector general Sean O’Donnell on Friday questioning the use of $1 billion in Cares Act stimulus funding for purposes other than coronavirus relief. According to Warren and Khanna, the Defense Department has repurposed funds intended to aid with pandemic resources and channeled them into funding drone technology, body armor and dress uniforms. The stimulus package which was set aside in March was intended to be used to “prevent, prepare for, and respond to coronavirus.” The letter also questions whether the defense contractors that were subsidized by the stimulus package had also received coronavirus relief loans from the Small Business Administration.

  • Prime Minister Justin Trudeau today announced that Canada will spend $440 million to ensure that COVID-19 vaccines are available world-wide and will not be available only to the wealthiest countries. Canada, along with 64 of the world’s richest nations, has joined the international COVID-19 Vaccine Global Access Facility, dubbed COVAX. Meanwhile, the federal government has already committed over $1 billion to gain private access to millions of doses of potential coronavirus vaccines that are currently undergoing late-stage testing. The 6th and most recent deal between the federal government and pharmaceutical company AstraZeneca will see Canada receive up to 20 million doses of its vaccine, however, if the vaccine is not approved for use, the cost incurred by the government is almost entirely non-refundable.

  • The United Kingdom has seen its largest single-day increase in new cases of COVID-19 since the pandemic began. The country recorded 6,634 infections on Thursday, soaring past any number seen before the country was put on a nationwide lockdown. The news comes as the rest of Europe is experiencing a resurgence of the virus. The U.K. is pointing to increased testing to explain the extraordinarily large number of new cases, Health Secretary Matt Hancock is insisting that the country is still in better shape than when the virus first emerged. Government estimates are suggesting that nearly 100,000 people were being infected daily at the start of the pandemic, “now we estimate that it’s under 10,000 people a day getting the disease,” Hancock said. “That’s too high, but it’s still much lower than in the peak.”  

  • Similar to the situation in the U.K., France has also broken a daily record for new cases of COVID-19. Just over 16,000 new cases were confirmed on Thursday, marking the fourth time that record has been broken over the past 14 days. The French government has announced a new round of lockdown protocols which will see all restaurants and bars closed in Marseille and a strict diminishment of business hours for those in Paris. The announcement is met with distain from local politicians and businesses, with some dissenters suggesting that they should ignore the government regulations altogether. Prime Minister Jean Castex is calling for “responsibility” and said, “what I don't want is that we go back to March,” when forms were required for leaving French households.

  • There was an unlikely occurrence in South Korea on Friday after an apology was sent to President Moon Jae-In from North Korean leader Kim Jong Un. The letter from the North’s United Front Department said that Un was “greatly sorry” for the shooting death of a South Korean official in North Korean waters. A man was shot and burned, according to South Korean reports, as he was caught floating on a raft and suspected of defecting. The letter claims that the incident was “unexpected” and “unfortunate,” it also explains that such actions were taken due to North Korean guidelines on coronavirus management. The anti-coronavirus rules in North Korean include “indiscriminate shooting” at anyone who approaches the border without consent.

Covid-19 – Due Diligence And Asset Management

'Headwinds outnumber tailwinds' for the global economy in 2021 and a vaccine is the answer, JPMorgan says

Brief: The global economy is emerging from the depths of the coronavirus crisis. US earnings have smashed expectations and central banks are on permanent stand-by to step in and provide support. And yet the headwinds to the economy easily outnumber the tailwinds, JPMorgan EMEA chief executive Viswas Raghavan says. The coronavirus, which has claimed almost a million lives around the globe and unleashed the worst recession in recent history, has elicited an unprecedented response from the world's central banks and governments. At least $7 trillion in cash to shore up national economies, plus billions in employment protection schemes and other benefits have washed into the financial system, while interest rates are near, or even below, zero to encourage consumption and ward off total economic collapse.

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COVID-19 Private Sector Global Facility announced at SDG Business Forum

Brief: The United Nations Development Programme (UNDP), the United Nations Global Compact (UN Global Compact) and the International Chamber of Commerce (ICC) have established the COVID-19 Private Sector Global Facility, a global initiative and collaboration bringing together public and private sector partners to help local communities recover better from the pandemic. Deutsche Post DHL Group, Microsoft Corp. and the PwC network (“PwC”) have already joined the COVID-19 Private Sector Global Facility, and the initiative is open for other like-minded private sector organizations that want to contribute. The Global Facility is a response to corporate calls to action for private sector leaders and governments to work together to address the negative impacts of the coronavirus pandemic. The initiative has been established to better coordinate their responses, helping to ensure that immediate stimulus efforts flow into the real economy. The Global Facility will operate at both the global and national levels. It aims to co-create solutions that are tailored to the phase of the COVID-19 pandemic in a given area and the specificities of the local private sector and government context.

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Manager due diligence in times of Covid-19

Brief: A lively debate is currently taking place amongst allocators as to whether onsite due diligence and face-to-face meetings are still necessary given the current environment. The simple answer must be a resounding: yes, absolutely. Due diligence, both investment and operational, has always been an integral part of a well-structured investment process. Those of us who have been around since pre-2008 can certainly attest to the fact that a lot has changed since, and the days are long gone when it was possible for managers to simply refer to their stellar track records and assume that investments would be forthcoming without any other questions being asked. Investors have learnt that having a detailed understanding of a strategy is just the beginning and that the operational framework in which a strategy is implemented is also of great importance.

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Deal Or No Deal: M&A Litigation In Light Of COVID-19

Brief: The COVID-19 pandemic has caused significant challenges to M&A transactions. Negotiations have crumbled, closings have been delayed and overall M&A activity has declined. While uncertainty remains about when M&A activity will return to normal, it appears that M&A litigation will increase in the coming months. Cases are being filed across the country as buyers and sellers who entered into M&A deals prior to-or in the early stages of-the pandemic seek legal relief to enforce or excuse obligations under their respective agreements. One of the more talked about disputes involves Victoria's Secret owner, L Brands, who sued Sycamore Partners after Sycamore terminated the parties February 20, 2020 merger agreement based on the material adverse effect (MAE) provision.

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Goldman Sachs picks the emerging market currencies to back when ‘the dust settles’

Brief: Goldman Sachs has marked out the Mexican peso as its top emerging market (EM) currency pick “once the dust settles” from the coronavirus pandemic. In a note Thursday, Goldman strategists suggested that while it may be too early to engage with high-yield EM bets, with risks still prevalent and the dollar on the move, it is not too early to start thinking systematically about opportunities once the crisis subsides. Co-Head of Global Foreign Exchange Kamakshya Trivedi and Head of EM Cross-Asset Research Caesar Maasry, along with a team of strategists, identified the peso as the most attractive among “high cyclical beta, high carry longs.” It was closely followed by the South African rand (ZAR) and Russian ruble (RUB).

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COVID-19 Forces One of the Biggest Surges in Technology Investment in History

Brief: Companies spent the equivalent of around US$15bn1 extra a week on technology to enable safe and secure home working during COVID-19, reveals the 2020 Harvey Nash/KPMG CIO Survey. This was one of the biggest surges in technology investment in history – with the world’s IT leaders spending more than their annual budget rise2 in just three months, as the global crisis hit, and lockdowns began to be enforced. The largest technology leadership survey in the world of over 4,200 IT leaders, analyzing responses from organizations with a combined technology spend of over US$250bn, also found that security and privacy is the top investment during COVID-19, and cyber security (35%) is now the most “in demand” technology skill in the world. This is the first time a security related skill has topped the list of global technology skills shortages for over a decade. Four in 10 IT leaders report that their company has experienced more cyber attacks, with more than three quarters of these attacks from phishing (83%) and almost two thirds from malware (62%), suggesting that the massive move to home working has increased exposure from employees.

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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 September 24, 2020:

  • Two days after hitting 200,000 deaths from the COVID-19 pandemic the United States is seeing major upticks in cases in more than 20 states. The University of Washington's Institute for Health Metrics and Evaluation (IHME) newest calculations suggest that the country could lose another 150,000 people to the virus in the next three months as flu season quickly approaches. Midwestern states are seeing the majority of increases while infection numbers have gone down in only 7 states over the past week. Dr. Robert Redfield, director of the Centers for Disease Control and Prevention said that “the preliminary results on the first-round show that a majority of our nation – more than 90% of the population – remains susceptible.” Although the vaccine created by Johnson & Johnson is in Phase 3 trials, experts suggest that it likely won’t be available to the public until spring 2021 at the earliest.

  • The government in the Canadian province of Ontario is in the process of unveiling their fall pandemic preparedness plan to avoid forcing another lockdown if cases in the province skyrocket in the coming months. The documents suggest that the province is looking to isolate individual areas as opposed to going through with a large-scale lockdown similar to that seen at the beginning of the pandemic in March. With 386 new cases on Wednesday, Ontario is seeing its highest number of new cases in four months, causing lawmakers to rethink their reopening plans. According to the preparedness documents, individual businesses, high-traffic area’s or high-risk events will be targeted, while environments deemed safe will continue to operate. The plan is scheduled to cost roughly $2.2billion with most of the funds being allocated to increased testing, contact tracing and health care operations.

  • The UK Department for Business, Energy, and Industrial Strategy (BEIS) is exploring the possibility of deliberately infecting volunteers with the novel coronavirus COVID-19 in order to better understand the effectiveness of a vaccine. In the aptly named “challenge trials,” volunteers would be given a vaccine and then exposed to the virus to document whether the vaccine proves effective in combating illness. The World Health Organization has said that these challenge trials prove to be much quicker than conventional testing and have seen positive results in previous attempts to cure smallpox, malaria and other infectious diseases. Despite ethical concerns, the subjects in the trials would only be able to participate under specific conditions. The study would only select “young and healthy adults as participants, starting with low doses, ensuring public engagement, and providing high-quality care and close monitoring.”

  • Spanish Prime Minister Pedro Sanchez has refused to return the country to a nation-wide lockdown. His decision has drawn the attention of a leading Spanish epidemiologist and former director of public health for Madrid, Juan Martinez. Martinez says that country “deserves” to put back in a strict lockdown and that the measures would “probably” be the only way to slow the recent surge of infections the country is currently experiencing. The city of Madrid and the island of Ibiza are two of the hardest-hit areas in Spain and remain primarily in a lockdown state. Residents are only allowed to leave their houses for emergencies or essentials with the army now being brought in to enforce regulations. In an interview on national television, Martinez said that a national lockdown should be a logical decision and “what should concern us is the number of people who are seriously ill and dying.”

  • The Japanese government will greatly increase the number of people allowed to enter the country come October. Starting in early September a small number of Japanese citizens were allowed to re-enter the country after closing the borders earlier in the year. Businesspeople and students from abroad have been able to return home as the country is becoming increasingly desperate to kickstart the economy. The borders will remain closed to tourists but may make exceptions for foreign students without government grants, people from low-risk countries and those coming for cultural activities, without giving specifics on what events may be given priority. The government has ramped up its testing at major Japanese airports in Tokyo and Osaka and intends to roll out more vigorous testing at all airports as the border reopens.

Covid-19 – Due Diligence And Asset Management

Early Pandemic Bets Paid Off Big for Handful of Asia Hedge Funds

Brief: A few Asia-based hedge funds benefited from early insight into the pandemic’s impact to post outsized gains this year, while regional peers are on track to outperform global funds for the eighth time in 12 years. Funds overseen by Anatole Investment Management Ltd., Aspex Management (HK) Ltd., CloudAlpha Capital Management Ltd. and Franchise Capital returned more than 50% this year to the end of August, making money on bets ranging from electric cars to e-commerce, while some shorted hard-hit tourism sectors. Anatole’s $2 billion flagship fund returned more than 60% in the first eight months, said a person with knowledge of the matter. Aspex, which oversees more than $3 billion, gained 54%, said another person. CloudAlpha’s global technology fund surged 135% in the same period, and Franchise’s $1 billion fund jumped 133%, according to investor newsletters seen by Bloomberg News.

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COVID-19 Private Sector Global Facility announced at SDG Business Forum

Brief: The United Nations Development Programme (UNDP), the United Nations Global Compact (UN Global Compact) and the International Chamber of Commerce (ICC) have established the COVID-19 Private Sector Global Facility, a global initiative and collaboration bringing together public and private sector partners to help local communities recover better from the pandemic. Deutsche Post DHL Group, Microsoft Corp. and the PwC network (“PwC”) have already joined the COVID-19 Private Sector Global Facility, and the initiative is open for other like-minded private sector organizations that want to contribute. The Global Facility is a response to corporate calls to action for private sector leaders and governments to work together to address the negative impacts of the coronavirus pandemic. The initiative has been established to better coordinate their responses, helping to ensure that immediate stimulus efforts flow into the real economy. The Global Facility will operate at both the global and national levels. It aims to co-create solutions that are tailored to the phase of the COVID-19 pandemic in a given area and the specificities of the local private sector and government context.

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HSBC, Goldman Sachs and PwC delay return to offices in England

Brief: HSBC, Goldman Sachs and PwC have postponed plans to bring staff back to their offices in England after the government’s U-turn on its back-to-work drive. A memo sent to staff at HSBC informed them that the investment bank, based in London’s Canary Wharf financial district, was pausing its planned return of “phase one” teams to the office. The bank said its staff working in branches and those supporting customers in call centres would continue to go into work, although the majority of office-based staff would work from home. Goldman Sachs, which brought about a third of its 6,000 UK workers back into its London building from mid-June, also postponed plans to expand its back-to-work operation, which involved bringing back staff on a rotating basis.

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Insurers' hedge fund investments may face chop after dismal pandemic performance

Brief: Having complained for years about hedge funds’ high fees and lacklustre performance, insurance firms may be preparing to cut allocations to the sector after its poor performance during recent market upheaval left many of them nursing losses. That would be a problem for hedge funds, as insurance companies are huge investors, managing around $20 trillion of assets globally. It would also be a challenge for insurers, which have been hoping hedge funds would deliver market-beating returns to help them meet billions of dollars in pandemic-related payouts. One of the primary objectives of hedge funds is to preserve clients’ capital during market downturns. But the industry mostly failed to do that in the first six months of 2020, losing an average of 3.5%, according to Hedge Fund Research (HFR).

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The world’s largest hedge fund is operating out of tents in a Connecticut forest

Brief: Dozens of employees at the world’s largest hedge fund have been working from tents in the Connecticut woods for months, Fortune magazine reports. Bridgewater Associates, which manages roughly $140 billion in assets, attempted to reopen its offices this spring but found that constant mask-wearing and other safety protocols added a new layer of stress. So roughly 50 employees moved outdoors, setting up shop in a rustic pine grove outside the firm’s Westport, Conn., headquarters. The open-sided tents were equipped with fast WiFi, furniture spaced at socially distanced intervals and noise-canceling software that drowns out the sound of birds during video calls, according to Fortune. Employees were given weather-resistant computer screens and webcams after nature began taking a toll on their electronics, and access to kayaks for occasional breaks. The makeshift outdoor office had to briefly shut down in August when a hurricane approached New England and will probably be packed away by the end of October, when sitting outside in coats and hats ceases to be comfortable.

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Investors are returning to hedge funds, as industry enjoys positive capital flows for second month in a row

Brief: Investors continued to add more money to hedge funds last month – after pouring more than USD9 billion into the industry in July – as the sector recovers from a bruising four-month run of withdrawals and allocators drift back to the sector, new industry data shows. Altogether, hedge funds attracted some USD7.36 billion of positive inflows in August, according to eVestment, whose latest flows report highlighted an “impressive” breadth of allocations despite a reduced volume of asset movement compared to recent months. But it also warned of a “rocky” outlook, with investor sentiment hinging on how successfully hedge fund strategies of all stripes can seize on what it calls the “large” opportunity set ahead.

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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 September 23, 2020:

  • In the United States the fourth large-scale trial of a Coronavirus vaccine has begun. The Janssen Pharmaceutical Companies of Johnson & Johnson intend to recruit up to 60,000 volunteers to test their newest single-dose injection at over 215 test sites across the country and abroad. The investigational tests will be funded by the U.S. Department of Health and Human Services’ Office of the Assistant Secretary for Preparedness and Response. The vaccine employs a human adenovirus that causes the common cold which has been modified so that it no longer replicates and causes disease. The same adenovirus has been employed in a vaccine for the Ebola virus which has recently been cleared for use by the European Commission. The Janssen vaccine is designed to prevent moderate to severe cases of COVID-19 and avoid the need for medical intervention if a vaccinated person contracts the virus.

  • Without stringent compliance with the safety measures similar to those taken in the early stages of the pandemic, COVID-19 is projected to continue to grow in Canada according to a federal document released on Tuesday. The documents states that Canada is on track to have 155,795 total cases and 9,300 deaths by October 2nd if Canadians are unable to revert back to stricter lockdown procedures. Infections are set to rise as numbers over the past two weeks show significant transmission throughout the country. If Canada continues on its current path, the virus will return "faster and stronger," said Dr. Theresa Tam, Canada's chief public health officer. At Tuesday’s briefing, health minister Patty Hajdu said that "all of us have the future in our hands in terms of the decisions we're making today," and that Canadians need to “ensure that we're not socializing more than absolutely necessary.”

  • The British pound took a dive in the early morning trading hours on Wednesday following announcements from Prime Minister Boris Johnson that the U.K. will strictly enforce new regulations to slow the spread of COVID-19. The pound slipped against the American dollar by 0.3 per cent to $1.26. Johnson warned that even stricter measure may be put in place over the next six months if the reproduction – or “R” – number does not decline. The reproduction number is the amount of secondary infections that come from a single infected person. The current “R” number in the U.K. sits between 1.1 and 1.4. Fines for breaching the COVID regulations in Britain range from £200 for the first offence and up to £10,000 for secondary infractions.

  • Indian parliament is scheduled to close its current session on Wednesday, a week earlier than anticipated after 30 parliamentarians have tested positive for COVID-19. The new session began on September 14th and was the first time the lawmakers had met in six months. New cases of the virus surged again on Wednesday after having reported the lowest number of new cases in over a month on Tuesday. India has consistently recorded the highest number of daily infections worldwide for the last few months and that number is continuing to grow as the country tries to alleviate the burden on an increasingly strained healthcare system. In the last 24 hours, there were 83,347 new cases, with 1,085 deaths, federal health data showed.

  • In Australia, lockdown restrictions in parts of the country are beginning to ease with South Australia and Queensland opening their borders to residents from neighbouring New South Wales. There have been no new community transmitted cases of the virus in New South Wales for the last 14 days prompting the easements at the border. However, travel restrictions are still firmly in place for the state of Victoria which has seen the largest number of cases in the country, primarily in the metropolitan area of Melbourne. Travellers from New South Wales entering South Australia will no longer have to quarantine for the required 14-day period starting on Thursday. “This will be a massive, massive relief to people who have been dislocated from friends, from family, from business opportunities,” said South Australian Premier Steven Marshall. The move will be welcome to country’s economy which has fallen into a recession for the first time since 1991.

Covid-19 – Due Diligence And Asset Management

UBS AM sees 'emergency' vaccine approval in fourth quarter, hot tech to cool

Brief: An emergency approval of one to three Covid-19 vaccines is likely in the coming months UBS Asset Management predicted on Wednesday, a milestone that could finally end the surge of mega-cap U.S. tech stocks. The full approval of the vaccine that allows for broad inoculation is more likely during the middle of 2021, the asset management arm of the Swiss bank said. After the recent correction led by tech stocks, UBS AM said its hopes for a vaccine meant it was adding “exposure” to other sectors and regions that could benefit from a normalisation of the economic cycle. “A vaccine announcement is likely to reinforce this trend (rotation to cyclicals) by increasing visibility into the earnings recovery outside of technology and other work-from-home beneficiaries,” UBS Asset Management’s investment team said.

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Hong Kong and China stocks snap two-day run of losses after changing direction at least 10 times

Brief: Hong Kong and China stocks rose for the first time this week, as traders assessed prospects of global growth and the fallout from a resurgence in the coronavirus epidemic in Europe. The Hang Seng Index added 0.1 per cent, or 25.66 points, to 23,742.51 at the close on Wednesday after changing direction at least 10 times. The benchmark snapped a 3 per cent decline over the previous two days. The mainland’s Shanghai Composite Index rose 0.2 per cent to 3,279.71. HSBC Holdings rebounded from its lowest level in 25 years and Joy Spreader Interactive Technology, one of Hong Kong’s most sought-after initial public offerings, dropped below the offer price on debut. Most equity gauges in Asia retreated except Australia, after the Federal Reserve chairman Jerome Powell said that the US economy has a long way to go before it fully recovers from the damage of Covid-19 and will need more support.

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HSBC halts return to office plan in Britain

Brief: HSBC HSBA.L has paused its plan to return more staff to office working in Britain, in common with other financial firms after Prime Minister Boris Johnson on Tuesday urged workers to stay home to combat the coronavirus. “We will pause any further consideration of ‘phase one’ teams returning to offices,” HSBC said to its staff in Britain in a memo seen by Reuters on Wednesday. A spokeswoman for the bank confirmed the contents of the memo. Critical workers needed for the bank and its branches to operate will continue to go in to the office, the memo said.

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ASIC extends COVID-19 relief for certain capital raisings and financial advice

Brief: ASIC is extending the temporary relief for capital raisings and financial advice due to the continuing uncertain impacts of COVID-19. ASIC is also extending the financial advice relief related to the COVID-19 early release of superannuation scheme in light of the extension of the scheme by the Government. The capital raisings relief aims to assist listed entities affected by the COVID-19 pandemic to raise capital in a quicker and less costly way without undermining investor protection. It was originally announced on 31 March 2020 (20-075MR). The temporary relief enables certain ‘low doc’ offers (including rights offers, placements and share purchase plans) to be made to investors without a prospectus, even if they do not meet all the normal requirements.

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PwC says majority of its UK employees will now work from home

Brief: Accountancy firm PwC, which had seen a number of staff return to offices from lockdown, has said most UK employees will now be working from home in the wake of new government guidance. The Big Four firm joins the long line of businesses that have this week had to review back-to-office plans in light of new government guidance telling people to work from home if they can. Many employers had invited staff to come back into offices from last month after a period of remote working during lockdown. Kevin Ellis, PwC UK chairman and senior partner, today said: “We’ve seen benefits for our people, clients, suppliers and communities of using our offices in recent weeks and they will continue to play an important role - but only when appropriate to do so. Safety and wellbeing is paramount, and we will follow the government’s new guidance.”

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Asia hedge funds continue to hire in 2020 despite COVID-19, KPMG and AIMA survey finds

Brief: Hedge funds in Asia have continued to increase their headcount and still have appetite to hire more talent despite the economic uncertainty brought about by COVID-19, according to a new joint report by KPMG and the Alternative Investment Management Association (AIMA). The report titled Agile and Resilient: Alternative investments embrace the new reality surveyed 144 hedge fund managers globally, representing an estimated USD 840 billion in assets under management (AUM). Seventeen percent of the respondents are headquartered in Asia Pacific, while 11 percent are in Hong Kong. The survey was conducted in real-time throughout the pandemic and the report also includes one-on-one insights from key players across the industry.

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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 September 22, 2020:

  • In the United States, as the coronavirus death toll reaches 200,000, the vast majority of Americans want to see their elected politicians do much more to mitigate the economic fallout from the pandemic. According to a survey from the Financial Times and the Peter G Peterson Foundation, almost 90% want Washington to pass a new stimulus package, but they are equally split on who is to blame for the delay. Thirty-nine per cent say the Democrats and Republicans are equally responsible, with 26% blaming the Republicans and 23% blaming the Democrats.

  • In Canada, Prime Minister Justin Trudeau is expected to make one of his most anticipated speeches on Wednesday as he outlines his government’s plan to take the country through the next wave of the COVID-19 pandemic. Sources are saying Prime Minister Trudeau’s Throne Speech which outlines the government’s priorities – will focus on a three-pronged attack. There will be a focus on the immediate task of tackling the coronavirus, a medium-term commitment to support Canadians through the pandemic and a “resiliency agenda” to spur recovery and reconstruction. The prime minister’s speech isn’t expected to establish budget targets, which will be left to the finance minister to update later in the year.

  • United Kingdom Prime Minister Boris Johnson is waving the white flag for Britons return to the office due to a surge in coronavirus cases. Addressing the House of Commons on Tuesday, Prime Minister Johnson said he is asking workers who can work from home do so for at least the next six months and is scrapping a plan to bring 80% of civil servants back to city offices, which have been abandoned during the pandemic. The government also announced a plan to close all pubs, restaurants and bars at 10 PM, starting Thursday. 

  • In Germany, the city of Munich has unveiled mask-wearing requirements for popular outdoor areas due to rising coronavirus cases. The capital city for the state of Bavaria has surpassed a national threshold of 50 cases per 100,000 residents for seven consecutive days, which means local governments must tighten regulations such as these. Over the weekend, Germany as a whole recorded 2,300 daily cases on Saturday, the highest total in the country since April.

  • Philippines President Rodrigo Duterte has extended a state of calamity for the country by one year. By issuing this extension, President Duterte’s government can draw emergency funds faster in order to fight the COVID-19 pandemic and also call on the power of the police and military to maintain law and order. President Duterte first placed the Philippines under a state of calamity back in March due to the pandemic.

  • China has sentenced a prominent real-estate tycoon in a Beijing court to 18 years in prison for alleged corruption. Ren Zhiqiang grew up as the son of a Chinese Communist party official, which granted him an opportunity to speak more freely than most, which he did, speaking critically of the government over the last several years. Earlier this year, Ren criticized President Xi Jinping’s handling of the coronavirus pandemic calling him not “an emperor in his new clothes, but a bare-naked clown.” It is comments like these that led to Ren being found guilty in a one-day trial for charges including bribery, embezzlement of public funds, and abuse of power.

Covid-19 – Due Diligence And Asset Management

Deutsche Bank to Close 20% of German Branches in Coronavirus Shift

Brief: Deutsche Bank plans to shutter one in five branches in Germany as it seeks to save costs and capitalise on the changing habits of customers during the coronavirus pandemic, an executive said. Philipp Gossow, who oversees the retail banking business in Germany, told Reuters that the reduction to some 400 branches from around 500 currently would occur primarily in urban locations and take place “as quickly as possible”. The cull comes as Deutsche Bank undergoes a broad overhaul of its global operations that began in 2019 after years of losses. German banks traditionally operate large numbers of branches compared with those in the Netherlands or Britain, where customers are more comfortable with digital banking. Banks throughout Europe are rethinking their branch strategies in the wake of the coronavirus crisis. Deutsche’s rival Commerzbank recently opted to shut 200 of its 1,000 branches and is considering closing hundreds more. “Coronavirus has further changed the demands placed on advisory services and the branch business,” Gossow said.

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Citadel, United Among Lenders in Avianca’s $2 Billion Plan

Brief: The hedge fund Citadel Advisors LLC, United Airlines and an El Salvadoran air mogul are among investors offering loans as part of Latin American airline Avianca Holdings SA’s $2 billion bankruptcy financing plan, according to court documents. The companies, which were stakeholders in the air carrier before it filed for Chapter 11 protection in May, would help provide about $722 million in loans. Together with a separate tranche of roughly $1.3 billion of debt, Avianca said it has commitments for $2 billion in debtor-in-possession funding. “Securing these financing commitments is another concrete step forward in our Chapter 11 reorganization process,” said Anko van der Werff, chief executive officer in a statement. The plan needs approval from the U.S. Bankruptcy Court for the Southern District of New York. Avianca shares were flat in Bogota trading. Bonds due in 2023, which will be rolled up in the financing plan, were unchanged, according to data compiled by Bloomberg. The debt being offered by an affiliate of Citadel -- the famed hedge fund founded by billionaire Ken Griffin -- United, and El Salvadoran Roberto Kriete’s Kingsland Holdings would be eligible to roll over into common shares when Avianca emerges from the Chapter 11 reorganization, according to court filings.

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Brookfield Properties’ Retail Arm is Laying off 20% of its Workforce, as Pandemic Hits Malls

Brief: One of the biggest retail real estate owners in the country, Brookfield Properties, is going through a major round of job cuts, CNBC has learned, as the coronavirus pandemic takes a toll on its business and new leasing activity at its malls dries up.  “While many companies were quick to implement furloughs and layoffs at the onset of the pandemic, we made the conscious decision to keep all our team employed while we gained a better understanding of its longer-term impact on our company,” Jared Chupaila, CEO of Brookfield Properties’ retail group, said this week in an email to employees, which was obtained by CNBC.  However, he said, the mall owner has now decided to make cuts “to align with the future scale of our portfolio.”  Chupaila said the reductions are going to affect roughly 20% of the company’s workforce, across both its corporate headquarters and leasing agents in the field. Brookfield Properties’ retail division employees about 2,000 people.  Brookfield Properties has more than 170 retail properties in 43 states, according to its website, including Brookfield Place downtown in New York City and Fashion Show Mall in Las Vegas… Brookfield Asset Management’s real estate businesses employ roughly 22,000 people globally, according to its latest annual filing, which includes other asset classes like office space. 

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How to Impact European Real Estate in a COVID-19 World

Brief: The economic implications of COVID-19 are yet to be fully realized, but the expectations of the detrimental impact are sobering. The pandemic has not only shaken up reality but has woken the world up to addressing underlying societal and economic issues that may have previously been dismissed. The virus is a major global threat, but it will not be the last such threat that we face in the coming years. Climate change, pollution, and growing social and economic inequality, among other issues, all have the power to massively disrupt our way of life. But from these threats comes greater awareness of the need for reinvention, and with reinvention comes great opportunity to align and contribute toward our modern, more sustainable future. A key opportunity for investors to combat the effects of the pandemic is through real estate investing. This can be achieved in a multitude of ways, such as providing low income housing options, rent-relief for hospitals and built-for-purpose medical centers for pandemic efforts, with climate change efforts at the core of each investment. During times of distress, there is a silver lining: unique industry advancements and unprecedented innovation. We have seen strides in technological development and increased private market participants, all working together to fill gaps caused by the pandemic.

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Here’s What Investors With $3.4 Trillion Are Buying During Covid

Brief: Oil pipelines, hotels, convenience stores and automaker bonds are among the assets being bought by some of the world’s biggest asset managers as they look for value in a world thrown into turmoil by the coronavirus pandemic. In interviews with sovereign wealth funds, pension firms and asset managers across Asia and Europe that collectively manage about $3.4 trillion, one thing was clear: many of them are avoiding the overheated stock market. The most common outlook was one of caution. They are mindful that much of the rebound in markets and private-company valuations is thanks to ultra-low interest rates, massive central bank stimulus and government fiscal support, some of which could start to be wound back in coming months. With asset values still seen as inflated, even in some hot areas like healthcare and technology, many are waiting for a potential second downturn after stimulus measures end but before mass vaccinations enable economies to restart without risking widespread infection.

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London Financial Firms See Long-Term Shift to Working from Home

Brief: The heads of Man Group Plc and Schroders Plc say the shift to working from home during the pandemic will become the new normal for financial firms. Man Group expects to have about 10% of employees back in the office next week unless the government imposes new restrictions on London, where the majority of its roughly 1,500 staff work, Chief Executive Officer Luke Ellis said at a virtual event on Monday. The world’s biggest publicly traded hedge fund firm won’t even try to get back to having more than about 70% of staff working in the office on any given day. At Schroders, about 20% of its employees are in the office now, and if that number rises to 50% in the future that would be “very positive,” CEO Peter Harrison said at the City Week event. The London-based asset manager, which has about 5,000 employees worldwide, recently loosened its rules to make it easier for staff to work from home when they need to. “We have gone forward 20 years in terms of the future of work,” Harrison said. “People don’t want to come in five days a week, and I don’t think it is helpful for them and I don’t think it is good for them.”…  Ellis said that the average worker in the City of London spends about 10% of income on commuting. “If they don’t have to do that apart from occasionally, that is a significant benefit for them, that in the long run means lower cost for the company,” he said.

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Contact Castle Hall to discuss due diligence

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

Our briefing for Monday September 21, 2020:

  • The United States’ Centers for Disease Control (CDC) made its second bizarre move in a matter of weeks. On Monday, the federal public health agency said it had mistakenly issued guidance on airborne transmission of the coronavirus and that another update would be coming soon. In language that was posted Friday and now removed, the CDC said COVID-19 was most commonly spread through close contact with other people, but growing evidence showed droplets and airborne particles can remain suspended in the air and travel beyond distances of six feet such as in restaurants, fitness classes, choir practice, etc. Last week the CDC had updated its coronavirus testing guidance after a New York Times article stated CDC scientists didn’t write the original update back in August.
  • In Canada its two most populous provinces continue to see the largest increases of COVID-19 cases it has seen in months. In Quebec, 586 new cases were reported on Monday, the highest daily increase since May. Montreal and Quebec City, the province’s two largest cities had their COVID-19 alert level raised to orange, just one stage short of its highest level. Ontario reported 425 new cases on Monday, its highest total in three-and-a-half months. The new cases have remained consistent; happening mostly in the province’s high-density populated areas and close to 70% of those new cases are people under the age of 40. 
  • In the United Kingdom, the country’s chief medical officer and chief scientific adviser said it is in for a very challenging winter. In a televised address, the two said coronavirus cases could hit almost 50,000 a day within weeks on the current trajectory and deaths could top 200 a day by November unless action is taken. Therefore, it is numbers and projections such as these that are forcing Prime Minister Boris Johnson to make his next move on how the government plans to fight the pandemic, which he plans to do on Tuesday.
  • In Spain, the city of Madrid is displaying Europe’s highest rate of coronavirus infections. Therefore, as of Monday at midnight, the country has ordered 850,000 people not to leave their neighbourhoods. The new rules will apply for two weeks and people can only exit or enter the affected areas for work, education, health or similar reasons. The city has recorded more than 45,000 new cases in the past two weeks alone.
  • Germany will set-up pop-up clinics that will take patients with typical coronavirus or flu symptoms away from the general hospitals. The “fever clinics” as they are being called, are part of the government’s strategy for the expected rise in cases over the autumn and winter months. The country’s health minister said the clinics should be up and running in the autumn, while Germany also aims to step-up protection measures and testing for high-risk groups, such as nursing homes.
  • The Czech Republic’s health minister Adam Vojtech resigned on Monday after criticism of his handling of the COVID-19 pandemic, especially during this latest surge. Before the start of the summer, the government lifted almost all of its restrictions imposed during the first wave of the pandemic. Thanks to that move, the Czech Republic has seen the number of infections double in the last month and trail only Spain for Europe’s second fastest COVID-19 new case rate in recent weeks. Roman Prymula, a top epidemiologist who helped lead the country through its initial response back in the spring will be the new health minister, replacing Vojtech.

Covid-19 – Due Diligence And Asset Management

Bank Shares Slide on Report of Rampant Money Laundering

Brief: The financial sector was hit hard Monday following a report alleging that a number of banks, JPMorgan, HSBC, Standard Chartered Bank, Deutsche Bank and Bank of New York Mellon among them, have continued to profit from illicit dealings with disreputable people and criminal networks despite previous warnings from regulators. According to the International Consortium of Investigative Journalists, leaked government documents show that the banks continued moving illicit funds even after being warned of potential criminal prosecutions. The report compounded a massive sell-off across global markets because of gloom and doom over COVID-19 infections and the economic damage from the pandemic. The consortium reported that documents indicate that JPMorgan moved money for people and companies tied to the massive looting of public funds in Malaysia, Venezuela and the Ukraine. The bank also processed more than $50 million in payments over a decade for Paul Manafort, the former campaign manager for President Donald Trump, according to the documents, which are known as the FinCEN Files.

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Investors Brace for Months of Big Market Swings as Virus, Political Worries Loom

Brief: Investors are bracing for an extended period of market volatility, as worries over a potential resurgence in coronavirus cases and political uncertainty roil stocks. The Cboe Volatility Index, known as “Wall Street’s fear gauge,” hit its highest level in nearly two weeks as concerns over waning fiscal stimulus and the long-term economic consequences of the coronavirus pandemic took the S&P 500 down to a seven-week low on Monday. [.N] Market participants aren’t expecting the turbulence to die down any time soon. VIX futures show that investors are betting that market swings will persist beyond the Nov. 3 U.S. presidential election and into December, reflecting worries over the possibility of a contested election and concerns that a deeply divided government will fail to agree on providing more fiscal stimulus to support the U.S. economy. “It’s not just Election Day that matters to this market,” said Stacey Gilbert, portfolio manager for derivatives at Glenmede Investment Management. “It’s also ‘do we get fiscal stimulus or do we not?’” Those concerns, some investors say, have been sharpened by the death of Supreme Court Justice Ruth Bader Ginsburg, which observers expect to deepen partisan divides as it sets up what promises to be a fierce fight in the U.S. Senate over President Donald Trump’s eventual nominee to replace her.

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Carlyle to Acquire Data Company TriNetX in Health-Care Drive

Brief: Carlyle Group Inc., the alternative asset manager overseeing $221 billion, is buying a majority stake in clinical data company TriNetX Inc. Equity capital for the investment came from the $18.5 billion private equity fund, Carlyle Partners VII, the company said Monday, declining to comment on deal terms. Closely held TriNetX has built a global network of research hospitals and academic institutions, biotechnology and drug companies, contract research organizations and other specialty data partners. Carlyle’s investment will help the company, founded in 2013, bring more technologies such as artificial intelligence and machine learning to researchers, according to Gadi Lachman, chief executive officer of Cambridge, Massachusetts-based TriNetX…  The deal adds to Carlyle’s growth investments in the health-care industry. The firm said earlier this month it led a $175 million round for Grand Rounds. Carlyle also backed 1Life Healthcare Inc., the primary-care clinic chain that went public in January. Other deals have focused more broadly on technology…

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Hedge Funds See Opportunity in Battered New York, San Francisco Apartment Markets

Brief: In the wake of the COVID-19 outbreak, as businesses across the country urged employees to work from home, rents plunged in New York City, San Francisco and other densely-populated cities. Still, prominent hedge funds, including D1 Capital Partners and Long Pond Capital and mutual fund giants Capital Group and T. Rowe Price, purchased shares in the second quarter in companies that rent residential real estate in urban markets, buying in at beaten-down levels and possibly betting on a faster rebound than Wall Street forecast. Now, nearly three months later, shares of real estate trusts that specialize in urban apartment rentals are down more than the broader real estate sector and the benchmark S&P 500 stock index for the year-to-date and since the March market rout. Shares of Equity Residential, founded by billionaire Sam Zell, are up 7% since the March low, AvalonBay Communities, which owns the Avalon Morningside Park with views of Manhattan, and UDR are up 26% and 14%, respectively, while the S&P 500 is up 48%. “The next three to five years are going to be very challenging,” said Jonathan Litt, whose hedge fund Land & Buildings Investment Management concentrates on real estate. “The key is to stay alive until 2025 in these markets.”

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Hedge Funds Wanted After Investors Lose Complacency

Brief: Hedge fund managers that have successfully navigated their way through the first half of this year and are producing good returns are in demand by institutional investors that are adding more hedge fund exposure to their portfolios and/or are upgrading lackluster managers with better choices. "There's a sense of optimism from hedge fund managers, backed up by investors," said Thomas P. Kehoe, managing director and global head of research and communications for the London-based Alternative Investment Management Association. "More investors are interested in hedge funds, and are seeing a real tool they can latch on to in this difficult environment for preserving capital, managing volatility, mitigating risk and producing returns," Mr. Kehoe said. In fact, high volatility in the first quarter this year was the catalyst for investors to consider more investment in hedge funds, said Kenneth J. Heinz, president of index provider Hedge Fund Research Inc., Chicago. "A year ago, institutional investors were very complacent. They aren't anymore because of ultra-high equity valuations. They're building out their hedge fund portfolios by putting the unallocated portion of their hedge fund target to work," Mr. Heinz said.

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U.K. GDP Faces $14 Billion Impact from Closed U.S. Air Links

Brief: The closure of passenger air links between the U.S. and the U.K. will strip at least 11 billion pounds ($14.21 billion) off U.K. gross domestic product in 2020, according to a report commissioned by British Airways’ parent IAG SA, London’s Heathrow Airport, the Airlines U.K trade group and airport services firm Collinson Group. The authors called for the creation of city or state-based travel corridors between the U.S. and the U.K. as well as airport testing for Covid-19. Keeping the routes closed will cost the U.K. economy 32 million pounds a day by the beginning of October, according to the report. “Government inaction on aviation and its impact on Britain’s economy couldn’t be clearer,” British Airways Chief Executive Officer Alex Cruz said. “Ministers must reach agreement with their U.S. counterparts on a testing regime that minimizes quarantine and permits regional travel corridors to re-open the U.K.-U.S. market.” Airlines have been campaigning to lift restrictions on trans-Atlantic travel which have been in place since early March. New York to London is BA’s most profitable route, with business travel a key driver of demand. The route generated about 7 million seat sales last year. The U.S. is the single biggest source of visitors to the U.K., with almost 4 million people visiting annually, according to the report.

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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 September 18, 2020:

  • In the United States, a New York Times article is stating politics seem to be trumping science more and more when it comes to the coronavirus. The article points to a controversial move made by the Center for Disease Control and Prevention (CDC) last month which said people without COVID-19 symptoms didn’t need to be tested. The recommendation was not written by CDC scientists, but instead from the Department of Health and Human Services. The guidance came at a time when health experts were pushing for more testing, not less. On Friday, the CDC updated their guidelines yet again, rolling back the controversial changes saying testing should include asymptomatic persons, including close contacts of a person diagnosed with COVID-19. Other than the New York Times article, it is difficult to see what changed over the last month, which could lead to more confusion for Americans when it comes to testing.

  • In Canada, the premiers of Ontario, Quebec, Manitoba and Alberta have issued a joint call to the federal government and Prime Minister Justin Trudeau. The call comes days before the government’s throne speech and the premiers are looking for an increase to boost federal health transfers, which have become more urgent thanks to the COVID-19 pandemic. The four provincial leaders want the funding increased from $42 billion to $70 billion per year, with an additional demand to cover 35% of health-care costs going forward. The prime minister’s office indicated no date for the call, but it is expected to take place before September 23rd, which is when the throne speech was expected to take place.

  • In the United Kingdom, ministers on Friday announced plans to extend socializing restrictions to 3.3 million more in England. As of Tuesday, households will be prohibited from meeting indoors in Merseyside, Lancashire, excluding Blackpool, and parts of the Midlands and West Yorkshire. The new restrictions mean about 20% of the UK’s population or 13 million people, will be living under restrictions. Recent data has shown the number of new COVID-19 infections in the UK are growing up to 7% a day. Leading scientists are even suggesting to the government a nationwide lockdown for two weeks in October to help curb the spread, but Prime Minister Boris Johnson is said to be strongly against such a measure.

  • India’s doctors are accusing their leader Narendra Modi and his government of callous disregard for their lives as they battle the coronavirus pandemic. The Indian Medical Association (IMA) said that 382 doctors have died from COVID-19 since the pandemic started and the situation is only getting worse as frontline healthcare workers deal with daily infections that are approaching 100,000. The IMA have stated the Modi government has tried to conceal the number of causalities and that the rate of fatality for infected doctors were nearly four times greater than the general public. The government’s pushback has been they have established an insurance scheme for healthcare workers infected with the coronavirus, but the IMA complained the program didn’t work and benefits were not reaching the intended recipients.

  • The metropolitan government of Seoul, South Korea have stated they plan to seek $4.6 billion won, or close to $4 million USD in damages against a church for causing the spread of the coronavirus by disrupting tracing and testing efforts. Back in mid-August, a fresh wave of infections erupted at a church whose members attended a large protest in downtown Seoul. The outbreak has caused triple-digit increases in daily COVID-19 cases for more than a month.

  • In Australia, the country is set to increase the cap on the number of citizens allowed to return home from 4,000 to 6,000. The move was confirmed by Prime Minster Scott Morrison during a Friday news conference as there are more than 25,000 Australians abroad waiting to return home. All travellers who intend to come back home are required to spend 14 days in a quarantined hotel at their own cost. Prime Minister Morrison also noted during the news conference that he is working with New Zealand towards the first elements of a travel bubble between the two countries.

Covid-19 – Due Diligence And Asset Management

Bank of America’s CEO Says More Stimulus Needed to Help Last of Recovery

Brief: Bank of America Corp. Chief Executive Brian Moynihan called for another round of federal stimulus to help the U.S. reach a full economic recovery from the coronavirus pandemic. “You’re back up to where 95% of the economy is back,” Moynihan said Friday in an interview with David Westin in advance of next week’s Bloomberg Equality Summit, adding that more help is needed for restaurants, airlines, performing-arts venues and state and local governments so they can “cross that same bridge” as housing, health-care and other recovered industries. “We’ve got to help everybody else get across.” Moynihan said a year-over-year increase in consumer spending is a sign of the economy’s resilience. U.S. retail sales rose 0.6% last month, following a 0.9% gain in July, the Commerce Department reported earlier this week. Government support for small businesses is running dry with the Paycheck Protection Program having closed in early August, and a supplemental $600 a week in unemployment benefits having expired at the end of July. Some House Democrats are keeping pressure on Speaker Nancy Pelosi to bring a new coronavirus relief bill up for a vote next week as they look to signal that the party is pursuing a deal to bolster the economy. Pelosi has held firm that the White House should first agree on a $2.2 trillion plan Democrats have put on the table.

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Wall Street’s Return-to-Office Push Finds Virus Won’t Cooperate as Infections Hit Trading Floors

Brief: Wall Street leaders made the case this week for bringing more workers back to the office, while a rash of COVID-19 infections on trading floors showed how quickly they could be sent back home. Goldman Sachs Group Inc., JPMorgan Chase & Co. and Barclays Plc all had to quarantine groups of traders after employees tested positive for the coronavirus. The setbacks threaten a ramp-up of return-to-office efforts that executives have said are necessary to preserve productivity and firm cultures… But ending the lockdowns will mean trying to head off new outbreaks. Goldman Sachs had to send some traders back home after at least one employee tested positive for COVID-19 at its Manhattan headquarters. The firm hasn’t seen any transmission of cases within its offices, according to a person monitoring the situation “Our people’s safety is our first priority, and we are taking appropriate precautions to make sure our workplaces remain safe for those who choose to return,” Leslie Shribman, a spokeswoman for Goldman Sachs, said in a statement Thursday.

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How Covid-19 Permanently Changed the Way Businesses Operate

Brief: Companies looking to return to the norms of January 2020 should rethink their expectations. The Covid-19 pandemic has permanently changed how businesses operate, according to a report from the Carlyle Group. The virus caused a sudden and swift shock to the U.S. economy. In March, U.S. businesses switched from all staff working in the office to many working from home in just days. The big surprise? Companies of all sizes were able to meet or exceed prepandemic business volumes, according to Jason Thomas, Carlyle’s managing director and head of global research, who wrote the report When the Future Arrives Early. Don’t expect any big changes to remote working once the economy recovers, which could take a few years, wrote Thomas, adding the virus broke the inertia of companies requiring staff to be in the office full time. “Some people may never go back,” Thomas wrote. “In the future, work arrangements will be optimized based on what works best for the employees and the business rather than expectations that had been inherited from a different time.”

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A “Psychological Placebo”: Why This Hedge Fund Manager is Betting Against Drug Companies in the Race for a Covid Vaccine

Brief: The frantic hunt for an effective vaccine against coronavirus could leave some pharmaceutical companies highly exposed in a fiercely competitive race – and UK hedge fund Argonaut Capital is weighing in with several key bets against the sector. Argonaut’s CEO and CIO Barry Norris, who runs the firm’s Argonaut Absolute Return equity long/short fund, is avoiding large blue-chip drug names such as AstraZeneca and Pfizer (“the vaccine doesn’t really move the dial for them,” he says) as well as small-cap stocks, where there is a liquidity risk. Instead, he has built short positions against the “five biggest pure plays” in the sector, including Moderna – which has a USD25 billion market cap – along with US-focused German companies BioNtec and CureVac, as well as Novavax. “None of them have ever brought a drug or a vaccine to market successfully,” Norris says of his targets, which he sees as being overvalued. “Between them they’ve got about USD500 million of revenues this year, but they’ve got a USD50 billion market cap. There’s a lot of hope and speculation in those share prices.”

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Investec Sees Profit Falling as Much as 68% on Virus Fallout

Brief: Investec Ltd. expects first-half profit to slump as much as 68% because of the economic slowdown caused by the coronavirus pandemic. Headline earnings including the bank’s demerged asset management unit will likely fall to between 7.3 pence and 9 pence in the six months through September, compared with 22.7 pence a year earlier, the Johannesburg-based lender said Friday. “The first half of the year has seen lower average interest rates, reduced client activity and a 22% depreciation of the average rand against pound sterling, compared to the prior period,” it said in a statement. “Capital and liquidity ratios remain robust and are expected to be stable.” The owner of banks and wealth-management businesses is restructuring its U.K. lending operations and planning as many as 210 job cuts -- about 13% of staff -- in order to remove redundant roles and save costs. Investec spun off its asset management unit in March to provide Ninety One Ltd. with more scope to scale-up, while creating a more focused banking unit. Investec Plans to Cut 210 Jobs at Its U.K. Banking Division In line with regulatory guidance in South Africa and the U.K., Investec doesn’t expect to declare an interim dividend, the bank said. In May, the lender scrapped its final dividend and doubled loan-loss provisions as it braced for further fallout from the pandemic.

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A $700 Million CMBS Portfolio Is on the Brink as Malls Collapse

Brief: Bond investors who wagered on a group of malls owned by Barry Sternlicht’s Starwood Capital Group are starting to take losses after the Covid-19 pandemic shuttered stores and wiped out emergency cash reserves that had been keeping interest payments flowing. The commercial-property bond, known as Starwood Retail Property Trust 2014-STAR, is backed by an almost $700 million defaulted loan. It’s cutting interest payouts to investors for a second time, after a reserve account dried up in June and a sharply lower property valuation led to the servicer holding back some funds. The bond’s performance shows how rapidly the pandemic is deepening losses in a sector that was already getting crushed by online shopping. Even the part of the bond deal that was once rated AAA -- meaning bond raters saw virtually no risk of taking losses just two months ago -- have now been cut deep into junk territory. “The experience of the mall CMBS from Starwood is certainly symptomatic of the larger narrative,” said Christopher Sullivan, chief investment officer of United Nations Federal Credit Union. Weakening mall asset fundamentals and fewer willing investors “will present ongoing financing problems.”

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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 September 17, 2020:

  • United States President Donald Trump is urging Senate Republicans to increase the size of the stimulus proposal. Ahead of the upcoming election, President Trump is trying to channel his dealmaker persona that was key to him winning the election the first time around and is keen to reach a deal with Democrats before November 3rd. In a tweet on Wednesday, Trump urged Republicans to “go for much higher numbers” than the $500 billion plan, which was blocked by Democrats last week. Earlier this week, a 50-member group of House Democrats and Republicans put together a $1.52 trillion stimulus plan.

  • In Canada, the new federal Conservative leader who is in self-isolation after being exposed to COVID-19, via a staff member, is blasting the leading Liberal government for the current state in testing. “The Trudeau Liberals have created this mess by refusing to approve other testing methods – despite all our allies having, for months, multiple tests including much faster and invasive methods,” said Erin O’Toole. The opposition leader and his family were turned away from an Ottawa testing site on Wednesday after waiting hours because of capacity issues.

  • In the United Kingdom, seven areas in Northeast England have been placed under strict pandemic restrictions amid a “concerning rise” in COVID-19 infection rates. The announcement was made by Health Secretary Matt Hancock on Thursday and affects 1.5 million people overall, including the cities of Newcastle, Sunderland and Durham. The restrictions will include a ban on socializing outside households, or support bubbles, and a mandated closing time of 10 PM for all bars, pubs, restaurants and leisure centres. The measures will come into effect as of midnight Friday morning.

  • France is following a similar plan as the UK, applying new restrictions soon to the cities of Lyon and Nice, while Marseille could face even tighter measures than those already in place, including the closures of bars and bans on public meetings. The new restriction call was made by Health Minister Olivier Veran and also said the pandemic course in other major cities such as Paris, Toulouse, Rennes and Lille are being watched with concern. “This is now a reality. The epidemic is once more very active in our country. We have to learn to live with the virus for several months,” said Veran.

  • India’s city of Mumbai, considered to be the commercial capital of the country, is set to see new enforced restrictions from its police department. As of midnight local time on Friday, and continuing until the end of September, Mumbai city residents’ movement across the city will be prohibited. The order will stunt any movement in containment zones – sections of the city deemed “hot” spots – except for essential activities. For the rest of the city, certain exemptions pertaining to the last order will be in place. A list issued by state government gives exemptions to government offices, service providers, banks, ports and essential service providers.

  • Ahead of an election next month, New Zealand’s finance minister was left trying to defend the government’s decision on one the world’s toughest COVID-19 lockdowns. The result to the economy was a 12.2% drop in GDP from April to June, compared to the previous three months. The contraction, similar to a lot of other countries in the world now has New Zealand in its first recession in a decade. However, the country’s finance minister, Grant Robertson is pointing to an outbreak in Auckland, the nation’s largest city last month. The situation was brought under control fairly quickly and according to Robertson, highlighted the benefits of sticking with a policy to eliminate, rather than suppress COVID-19.

Covid-19 – Due Diligence And Asset Management

Fink Laments Eroding Corporate Culture in Work-at-Home Era

Brief: BlackRock Inc. Chief Executive Officer Larry Fink said he worries that working remotely results in a lack of productivity and collaboration. “The most difficult issue for all of us is retention of a culture,” Fink said Thursday during a virtual conference hosted by Morningstar Inc. “Cultures were not meant to be done in a remote fashion.” Fink said that although he’s proud of how the New York-based company has performed through the Covid-19 pandemic, he’s concerned about 400 new young hires who joined in July, who have never been to the office. BlackRock, the world’s biggest asset manager, said last month that it would allow employees to work remotely for the rest of the year. While some big Wall Street firms are seeking to get staff back to the office, there are already signs of how challenging that could be. JPMorgan Chase & Co. sent some workers home this week after an employee in equities trading tested positive for Covid-19. JPMorgan CEO Jamie Dimon said this week that he sees prolonged remote work inflicting serious social and economic damage. “Going back to work is a good thing,” Dimon said in a panel discussion Tuesday.

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Nuveen CEO Says Staff Will Not Return to Offices Until 2021

Brief: Nuveen’s staff will not return to its offices until 2021, Chief Executive Officer Jose Minaya said. That decision was “heavily debated” and so far the company has found that its operations have fared well with staff working remotely, he said at the FT Future of Asset Management virtual conference Thursday. Chicago-based Nuveen is the investment arm of retirement savings giant TIAA. “The engagement with clients is the highest ever,” Minaya said. Minaya also said about 4% of Nuveen’s investment staff took voluntary buyouts and the company expects no layoffs for the foreseeable future. The rate is comparable to the company’s turnover for investment personnel in 2019, he said. In May, TIAA offered a voluntary separation program for most of its global workforce. The buyout offer went to 75% of the company’s 16,500 employees. Asset management firms have been closely scrutinizing expenses as investors have flocked to low-cost index funds. The move has cut into profit for some firms and made it difficult for smaller investment companies to compete against behemoths including BlackRock Inc.

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How to Launch a Hedge Fund in a Pandemic

Brief: New manager Hickory Lane Capital Management has launched a $100 million equity long-short fund with seed money from Investcorp-Tages, a joint venture formed in May, as well as capital from outside investors, including family offices and peer hedge fund managers. Investcorp and European asset manager Tages earlier this year consolidated their absolute return businesses to form a new venture that includes customized portfolios, a hedge fund seeding business, and multi-manager portfolios in private debt and other alternative investments. Prior to forming the joint venture, the two firms had deployed $2 billion in assets between them and seeded 42 emerging managers, mostly hedge funds. Hickory Lane founder and chief investment officer Joshua Pearl, who spent nine years investing in stocks as a partner at Brahman Capital, never expected that he’d build his first hedge fund firm in a pandemic. But shortly after leaving Brahman, the spread of Covid-19 shut down economies around the globe.

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The Richest Got $37 Billion Richer During COVID-19, While Millions Lost Their Jobs

Brief: As millions of Canadians lost their jobs during the COVID-19 pandemic and the economy collapsed, the country’s richest got richer — more proof that the economy and the stock market do not always move in lockstep. Canada’s 20 richest have collectively added $37 billion to their fortunes since March, according to a new report from the Canadian Centre for Policy Alternatives. None of them experienced a drop in net worth. David Thomson and family, who’s consistently at the top of the country’s richest lists with their media and publishing empire, led the way with a $8.8 billion increase in wealth. Shopify’s skyrocketing stock price gave founder and CEO Tobi Lutke a $6.6 billion increase. The continued rise in e-commerce helped Alibaba’s Joseph Tsai come in fourth place, with a $4.5 billion increase. Lululemon founder Chip Wilson was next with a nearly $3 billion gain — evidence that the pandemic has kept athleisure in vogue. And 92 year old James Irving, head of the J.D. Irving conglomerate, rounded out the top five by adding $2.1 billion. But as their wealth grew COVID-19 took a record toll on Canada’s economy and the unemployment rate hit an all-time high of 13.7 per cent in May, 1.1 million people are still out of work.  “At the same time as billionaires like Loblaws owner Galen Weston have seen their wealth balloon, front-line workers stocking shelves and scanning groceries at his stores have continued to risk their health and that of their loved ones by coming into work,” said Alex Hemingway and Michal Rozworski in the report.

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Fund Managers Confident of a Recovery in Next 12 Months, says Bank of America Survey

Brief: Following a historic rally from March lows, Bank of America Securities' latest Fund Manager Survey showed that a majority of the respondents believed a new bull market had started. The survey, conducted between September 3 and 10, involved 224 managers with assets worth $646 billion under management. Around 58% percent managers said that the market is bullish, compared to 25 percent in March. However, 29 percent were of the view that the market is still bearish. While 41 percent of those surveyed said that COVID-19 vaccine could trigger higher bond yields, 37 percent said that inflation would be responsible for higher bond yields. On recovery, 37 percent said that it would be U-shaped or W-shaped and 20 percent said that recovery charts would be V-shaped. Around 51 percent of fund managers preferred the balance sheet discipline, whereas 37 percent wanted increased capital expenditure as compared to 13 percent in April. While most managers believed that a vaccine announcement would be made in the first quarter of 2021, some 32 percent were optimistic of an announcement in the Q4 of 2020.Around 84 percent of the managers said they expected global growth to go up within the next 12 months.

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Vast Majority of Managers Still on Lockdown – Survey

Brief: The number of money management firms with employees working from home has barely budged over the summer, a Callan survey released Wednesday showed. Callan said 81% had not opened their offices as of Aug. 15, nearly the same as the 84% that had reported keeping their doors closed in June. The investment consultant's second "Coping with COVID-19" survey report said 44% of the 98 responding firms have not set a date for returning to the office. Of the remaining universe of managers surveyed in August, 36% said they don't expect to go back until 2021. Just 2% of firms picked that time frame in the June survey. A September opening date was named by 12% of August respondents vs. 25% in June; an October date was picked by 7% in the recent survey, compared to 1% in the previous survey; and just 1% of those recently surveyed cited November as the month they might reopen vs. zero in the June survey. By region, more managers — 38% each — in the U.K. and Southeastern U.S. now have staff in the office. The level of office openings was 20% on the U.S. West Coast, 12% in the Northeast and 9% in the center of the country. The offices for the two managers surveyed in the Mountain West are both closed.

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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 September 16, 2020:

  • The United States Centers for Disease Control and Prevention (CDC) said the country should have enough COVID-19 doses for Americans to return to “regular life” by around this time next year. The statement came from Dr. Robert Redfield, Director of the CDC on Wednesday appearing in front of a Senate panel. Dr. Redfield also claimed he expects vaccinations to begin in November or December, which seemed to echo claims made by United States President Donald Trump in a town hall discussion on Tuesday telling undecided voters a vaccine should be ready in four weeks. The CDC director noted the first batches will be limited and made available to those most in need, such as healthcare workers.
  • In Canada, multiple media sources are reporting the current agreement on the US-Canada border closure to non-essential travel will be extended into November. The current agreement is set to expire September 21st, but CTV News is citing sources the border will remain closed until it is felt that the COVID-19 pandemic is under control on both sides of the border. Elsewhere in the country, Ontario Premier Doug Ford will be pushing to rollback social gathering limits in high populated areas such as Toronto, Peel (Mississauga & Brampton) and Ottawa after 315 new cases were confirmed on Wednesday; most occurring in the regions mentioned. The current limit in the province on social gatherings is 50 people indoors and 100 outdoors.
  • In the United Kingdom, Prime Minister Boris Johnson admitted on Wednesday what most Britons already know: the country does not have the capacity to cope with the current demand for COVID-19 testing. “Demand has massively accelerated in the last two weeks. We don’t have enough testing capacity right now. In an ideal world I would like to test absolutely everybody who wants a test,” said Johnson to a committee of members of Parliament. Prime Minster Johnson blamed the surge in demand for virus tests on people trying to prove they didn’t have the disease so they could return to normal life but would like Britons to follow the guidance in place that states people should only be seeking a test when they have symptoms.
  • In Ireland, the government had a scare on Tuesday after Premier Micheal Martin and his entire cabinet were directed to restrict their movements for several hours after the health minister fell ill. The minister completed a COVID-19 test, which came back negative allowing the restrictions to be lifted late in the evening. The chaotic scene happened on the same day Martin and his government were setting out their plan to tackle the pandemic across Ireland as they see rising COVID-19 infections. 
  • Spain’s death total from COVID-19 has now moved past 30,000 – the most of any European country. Figures for hospitalizations and deaths are steadily rising in the country, but officials argue that detection rates are much higher and those infected are much younger than the initial first wave back in the spring. At its peak back in March and April, Spain was seeing close to 1,000 deaths per day. In the last 24 hours, there were 234 deaths and close to 12,000 active COVID-19 cases across the country.
  • Brazil’s epidemiologists are concerned the beaches and bars of Rio de Janeiro are reopening too early as the country heads into its summer season. World renowned for its coastline, which always attracts large crowds, the country’s second largest city could experience a second wave just as its dismantling much of its emergency healthcare capacity. The epidemiologists are saying that Rio is basing their decision to ease restrictions on incorrect data, which seemed to point to a decline in deaths. However, the deaths aren’t declining; instead they are sitting at a high plateau and the numbers that the decisions were based on were due to a bureaucratic delay in notifications. If Rio were deemed to be a country, they would have the worst mortality rate in the world due to COVID-19.

Covid-19 – Due Diligence And Asset Management

When to Stop Working From Home? How About Never, Workers Say

Brief: U.S. workers who are being shepherded back to the office would rather continue doing their jobs from home, at least a few days a week. It’s not that they hate the idea of returning, but more that they’ve grown to really like the work-from-home life. It’s becoming the big topic of conversation across virtual workplaces, as companies try to get employees to leave their makeshift desks in bedrooms, kitchen counters, porches or backyards for the once-familiar surroundings of the good old office. A Wells Fargo/Gallup survey released Wednesday found 42% of 1,094 workers surveyed in August had a positive view of working remotely, versus 14% who viewed it negatively. Almost a third of the 1,200 U.S. office workers surveyed by consultancy PricewaterhouseCoopers in June said they’d prefer to never go back to the office, while 72% said they’d like to work away from the office at least two days a week. Until recently, for those lucky enough to still have a job and to be able to do it from home, the question of whether they wanted to return to the office was theoretical. Now the prospect’s real. JPMorgan Chase & Co. has told its most senior sales and trading staff that they need to be in the office by Sept. 21. (There are exceptions for those with health or childcare issues.) At other firms, workers are being encouraged rather than commanded to come back, and employees are debating whether that means they have a choice to opt out of returning. A June survey of 1,000 professionals by management consulting firm Korn Ferry asked a simple question: “What are you most looking forward to when you return to the office?” About half pointed to camaraderie with colleagues, though 20% said they looked forward to nothing at all.

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London Firms Are Dumping Office Space as Workers Resist Return

Brief: London firms are dumping their unwanted office space as the pandemic forces tenants to review their real-estate needs. Excess space being offered for rent by companies in the capital has surged to the most in at least 15 years as businesses look to cut costs and shift more staff to long-term home working, according to research by real-estate data company CoStar Group Inc. More than 1 million square feet (92,900 square meters) has become available for sublet since June, the equivalent of two Gherkin skyscrapers. The trend is so far limited to London: the city’s second-hand space surged by 21% in the period, compared with just a 1% increase for the rest of the U.K…. Second-hand space poses a threat to developers building new offices, offering tenants seeking to move a cheaper alternative. While newly developed space that has yet to be leased in London remains relatively scarce, overall vacancy rates are increasing due to the buildings being offered up by companies that no longer need them. Banks including Credit Suisse Group AG, HSBC Holdings Plc and Nomura Holdings Inc. are among those companies currently trying to rent out excess space they no longer need, Bloomberg News reported.

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Antares Raises Over $3 Billion for Latest Private Credit Fund

Brief: Middle-market lender Antares Capital has raised just over $3 billion for its latest credit fund, which will focus on providing financing to mainly mid-sized private equity-backed companies. The vehicle, which held its final close this week, raised cash from sovereign wealth funds, public and private pensions, asset managers, banks and insurance companies, according to head of asset management Vivek Mathew. The fund, which attracted institutional investors from the U.S., Canada, Asia and the Middle East, exceeded its $1.5 billion target, Mathew said…  The vehicle’s close comes as fundraising in the $850 billion private credit universe rallied in the second quarter, buoyed in part by appetite for opportunistic and distressed strategies. Investors have also been lured by juicy yields in the rapidly growing market…  Mid-sized companies and their private equity backers are likely to find the flexibility of private credit even more appealing amid the uncertainty caused by the Covid-19 pandemic, according to John Graham. “At the end of the day, there is a large, scalable opportunity set there,” he said.

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Blackstone Warns of a ‘Lost Decade’ Where Stock Market Returns are ‘Anemic’

Brief: The coming years could be a “lost decade” for equity returns as companies struggle to grow their earnings, Blackstone’s Executive Vice Chairman, Tony James, told CNBC on Wednesday. James, who’s attending the virtual Singapore Summit, told CNBC’s “Squawk Box Asia” that stock prices may not rise further after becoming fully valued over a “five- to 10-year horizon.” “I think this could be a lost decade in terms of equity appreciation,” he said, referring to a term commonly used to describe a period in the 1990s when Japan experienced economic stagnation. He explained that current low interest rates may not dip further and may instead rise to more normal levels in the coming years.Higher interest rates, in many instances, tend to negatively affect corporate earnings and stock prices. High borrowing costs will eat into company profits and hurt share prices. In addition, companies will face “plenty of headwinds” that put pressure on earnings, he said. That include higher taxes, increase in operating costs, less efficient supply chains and “deglobalization” that will hurt productivity, explained James.  “All of that will be economic headwinds for companies. So I think you can have disappointing long term earnings growth with multiples coming in a little bit, and I can see anemic equity returns over the next five to 10 years,” he added.

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Singapore Family Offices Tackle Covid-19 Challenges

Brief: During times of disruption it can be expedient to be tactical and strategic. Crises can also provide a significant reminder on the need for good planning. And, family offices, unlike some other more cumbersome financial institutions, have the advantage of being dexterous and efficient, a key capability for investors in the turbulence of 2020. The Asset recently spoke with two Singapore-based family office groups – Golden Equator Wealth and Maitri Asset Management – about how they have managed their way through the Covid-19 pandemic, what they have learned, and which themes have emerged. Gary Tiernan, managing partner at Golden Equator Wealth, believes there is no doubt that well-run multi-family offices (MFOs) and single-family offices typically have clear decision-making processes and responsibilities that allow for quick decisions when required.  “From an investment perspective, the short lines of decision-making responsibility made it easier to execute buying decisions in March when volatility was so large that slow action could have had a high opportunity cost,” Tiernan says. “The sense of responsibility for client family wealth sharpens the focus on doing the right things to steward and grow that wealth.”

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Truth and Misconceptions Surrounding Private Equity, Dry Powder and Recovery

Brief: As the Coronavirus pandemic continues to cut through our lives, the urgency of robust public assistance for businesses remains a matter of vital economic importance. And yet, since the earliest days of the crisis, certain critics have taken exception to the role of private equity in the recovery. Much outrage has been directed at a perceived conflict between private investment firms who hold large quantities of dry powder (unused capital) and petitions to include their portfolio companies in public business stimulus packages such as the Paycheck Protection Program. Some critics might wonder why loans are given to those who don’t put their dry powder towards portfolio company support. But this stance not only over-simplifies and mischaracterises the role of dry powder, it is emblematic of much wider misconceptions about the significant contributions private equity makes both to portfolio companies and the economy as a whole. As governments around the globe consider additional stimulus spending in the face of COVID-19, it’s especially relevant to reconsider these misconceptions about the industry, recognise the value private equity provides during a downturn, and offer support instead of resistance. Regardless of what the critics think they know about private equity, the simple fact is that the industry supports 843,000 jobs and 4,300 businesses in the UK alone – and the US paints a similar picture. Negative attitudes about dry powder should not be permitted to overshadow such numbers.

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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 September 15, 2020:

  • In the United States, a 50-member group of House Democrats and Republicans have put together a $1.52 trillion stimulus plan. The dubbed “Problem Solvers Caucus” has been in development for weeks with the knowledge of the White House and leadership from both parties. However, this glimmer of hope for a solution doesn’t have a great track record as bipartisan groupings in the past haven’t been able to major broker major deals such as this. If this doesn’t work, American economists warn the US economic recovery is in danger of being weaker and more uneven as it tries to recover from the worst contraction since the second world war.

  • In Canada, the province of Quebec is moving their largest city, Montreal from a level one (Green) to a level two (Yellow) as COVID-19 cases increase. Under the new alert level, activities are still allowed to take place in compliance with health rules, but with added enforcement and potential fines to make sure they are followed. As of Tuesday, the province had recorded more than 200 cases for six days in a row. Elsewhere in the country, Canadians are in no hurry to open the land border with the United States. According to a poll conducted at the end of last month, a survey of 1,000 Canadians showed 90% agreed with the current Canada-United States border closure to non-essential traffic.

  • Last week, details were leaked about the United Kingdom’s plan for Operation Moonshot, a plan for mass coronavirus testing of up to ten million by early 2021. However, a group that represents hospitals in the country are complaining they can’t even keep up now due to a shortage of COVID-19 testing that could jeopardize efforts to stay ahead of a potential surge in the autumn. National Health Service providers said on Tuesday that inadequate testing is leading to increased absences in staff members as they are forced to self-isolate while they and their family members wait for test results. Home Secretary Priti Patel said this was “unacceptable” and “much more work needs to be undertaken with Public Health England.” 

  • Germany expects that no COVID-19 vaccine will be available for the wider population until at least the middle of 2021. The government’s research minister said safety must be the priority and that a vaccine will only be used on Germans when the benefit outweighs the risks. The German government has set aside £750 million to fund biotech firms working on COVID-19 vaccines, which will pay for clinical studies and preparation/distribution of vaccine inoculation.

  • With India closing in on five million confirmed coronavirus cases, a snapshot of its returning government shows what the country is dealing with. At least 17 members of the Indian parliament have tested positive for COVID-19 as the lawmakers were screened ahead of the re-opening of parliament on Monday. Twelve of the 17 infected members of parliament were from the ruling Bharatiya Janata Party. All other MP’s cleared by tests wore masks, occupied seats with glass enclosures and worked shortened hours.

  • Japan has named a new Prime Minister and his name is Yoshihide Suga. The 71-year old has served as the government’s chief cabinet secretary over the past eight years and will take over for Shinzo Abe, who is stepping down due to health reasons. Suga won in a landslide – taking 377 of the 534 votes (70.6%), which entitles him to serve out the remaining year of Abe’s three-year term. Suga could also decide to call a snap election to form a more durable administration and work on the recovery of the world’s third largest economy and help continue its battle against the COVID-19 pandemic.

Covid-19 – Due Diligence And Asset Management

JPMorgan Sends Some Traders Home After Worker Contracts Covid-19

Brief: JPMorgan Chase & Co. sent some of its Manhattan workers home this week after an employee in equities trading tested positive for Covid-19, according to a person with knowledge of the matter. News of the infection, on the fifth floor of the company’s 383 Madison Ave. building, was communicated to employees on Sept. 13, said the person, who asked not to be identified discussing information that isn’t public. That was less than a week after more workers began returning to offices after the Labor Day holiday, and just days after the biggest U.S. bank told senior traders they’d be required to return by Sept. 21. The case shows the challenges banks face as they try to bring more staff back to the office after months of remote work. JPMorgan has been among the boldest banks in calling workers back, and Chief Executive Officer Jamie Dimon spoke earlier Tuesday about his concerns that extended work-from-home could have its own consequences.

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Jamie Dimon Sees Long-Term Damage if People Don’t Get Back to Work

Brief: Jamie Dimon says it’s time to get people back to work. The JPMorgan Chase & Co. chief executive officer, who’s been going into the bank’s offices since June, said he sees economic and social damage from a longer stretch of working-from-home. Governments should be focused on cautiously reopening cities, learning from earlier mistakes made in hasty attempts. “Going back to work is a good thing,” Dimon said in a virtual panel discussion at the Singapore Summit. It makes sense to “carefully open up and see if we can get the economy growing for the sake of everybody.” Dimon told analysts at Keefe, Bruyette & Woods that the firm has noted productivity slipping from employees working at home, the analysts said in a Sept. 13 note to clients. That, along with worries that remote work is no substitute for in-person interaction, is part of why the biggest U.S. bank is urging more workers to return to offices over the coming weeks.

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Asia-Pacific’s Commercial Properties Battered as Investors Flee

Brief: Global investors have disproportionately reduced spending on commercial real estate in Asia Pacific compared with other regions amid the pandemic and the outlook remains challenging, according to a report. Total volume of commercial property acquisitions, including office, retail and hotels, was about 65% of the levels recorded in the last two years, the Switzerland-based Bank for International Settlements said in its quarterly review. By contrast, volumes in the Americas fell just 25% in the first half of the year, while those in Africa, Europe and the Middle East were little changed due to some large deals. “Cross-border investors may be particularly flighty when they face a large global shock such as the Covid-19 pandemic,” the BIS said. “It is then that their impact as marginal investors makes itself felt.”  A surge in cases following the virus outbreak forced countries like China and Singapore to impose stringent border controls and lockdowns in the early days of the pandemic, making it harder for investors to seal real estate deals. Even as they’ve reopened their economies, those countries are still cautious in easing travel restrictions amid a resurgence in global virus cases that threatens to derail containment efforts.

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Activist Hedge Funds Outshine the Competition, as Larger Managers Trail the Rest of the Industry

Brief: Activist-focused managers comfortably outperformed other strategy types last month, as the hedge fund industry continues to recover from the Covid-19 turmoil with solid August gains and positive year-to-date returns, new eVestment data shows. Activism-focused hedge funds rose 7.88 per cent in August. Known - and sometimes feared - for their often-combative approaches to investing, which include a range of tactics and methods to effect board level change and improve shareholder value, such funds have now made 3.25 per cent on average this year, eVestment said. That number is still down sharply from their 17.46 per cent gain last year, which itself represented a stellar comeback following a torrid 2018, when activists lost more than 10 per cent for the year. Overall, new eVestment metrics show that most hedge fund types and strategies are now in positive performance territory this year. Hedge funds added some 2.5 per cent on average in August, bringing their year-to-date returns to 2.21 per cent. That suggests the industry is broadly regaining its footing following a challenging few months amid the coronavirus crisis.

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Citigroup to Resume Cutting Jobs, Ending Pause During Pandemic

Brief: Citigroup Inc. will resume job cuts starting this week, joining rivals such as Wells Fargo & Co. in ending an earlier pledge to pause staff reductions during the coronavirus pandemic. The cuts will affect less than 1% of the bank’s global workforce, the bank said in a statement. With recent hiring, overall headcount probably won’t show any drops, the bank said. “The decision to eliminate even a single colleague role is very difficult, especially during these challenging times,” Citigroup said in the statement. “We will do our best to support each person, including offering the ability to apply for open roles in other parts of the firm and providing severance packages.” The bank said it has hired more than 26,000 people this year, and over one-third of those jobs were in the U.S. The lender had roughly 204,000 employees at the end of the second quarter. Banks have resumed job cuts in recent weeks after pledging, en masse, to pause such actions earlier this year. Many firms are pushing to cut costs as the pandemic has dragged on, threatening lenders with higher credit costs and crimping revenue growth.

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Largest Global Banks Lose USD635bn in Market Cap Amid Pandemic

Brief: New data from by Buy Shares indicates that 14 selected major global banks cumulatively lost USD635.33 billion in market capitalisation between December 2019 and August 2020, largely the main as a result of the coronavirus pandemic. Wells Fargo recorded the biggest slump with a percentage change in the market capitalisation at -56.26 per cent followed by Spain’s Banco Santander at -46.16 per cent. JP Morgan Chase’s change in market capitalisation was -30.16 per cent. During the period, Japan-based Mizuho Financial Group had the least change at -11.33 per cent. Intervention by central banks cushioned most facilities from a further slump.  “The drop in valuations for the selected banks could have been much worse if there was no intervention from central banks. The immediate measures taken by regulators to ease restrictions on liquidity and capital, banks have proved beneficial," says Buy Shares. "Although the measures put in place by authorities helped banks, they still face some immediate pressures on their capital and liquidity position, as the length and severity of the outbreak remain uncertain.” An overview of the individual market capitalisation shows that JP Morgan still holds a superior position at USD437.2 billion in December 2019 and USD305.44 billion as of August 2020. In December last year, Wells Fargo market cap stood at USD227.5 billion and in August it stood at USD99.5 billion.

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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 September 14, 2020:

  • In the United States, President Donald Trump is facing backlash from his first indoor campaign rally since June. President Trump held the rally in Nevada, which is a state run by a democratic governor and he wasn’t happy with the federal government’s defiance of his state restrictions on large events, which sits at no more than 50 people. Governor Steve Sisolak said the president, “blatantly disregarded the emergency directives and tough choices made to fight this pandemic… This is an insult to every Nevadan who has followed the directives, made sacrifices, and put their neighbours before themselves…” The government rejected the governor’s attacks stating, “if you can join tens of thousands protesting in the streets, gamble in a casino, or burn down small businesses in riots, you can gather peacefully under the first amendment to hear from the president.”
  • In Canada, Prime Minister Justin Trudeau is urging Canadians to be vigilant in following public health guidelines as COVID-19 cases continue to climb in its two most populous provinces. Speaking before a two-day cabinet retreat, Prime Minister Trudeau stated, “the last thing anyone wants is to go into this fall in a lockdown similar to this spring, and the way we do that is by remaining vigilant.” Ontario is reporting 313 news cases of COVID-19 on Monday – the highest daily count since early June. Meanwhile Quebec finds itself in a similar predicament seeing over 500 cases over the weekend, and its most in one day since the beginning of June. 
  • In the United Kingdom, after experiencing a setback in COVID-19 vaccine trials, the team of Oxford University and AstraZeneca are set to resume their work. A rapid review by the trial’s independent safety review committee and national regulators have concluded that is safe to resume inoculating new participants. So far, 18,000 individuals have taken part in the vaccine trials, which are taking place in the UK, United States, South Africa and Brazil.
  • Israel will be moving ahead with its second major lockdown after Prime Minister Benjamin Netanyahu made the announcement on Sunday. The timing isn’t the greatest either as starting this Friday, the beginning of the Jewish High Holiday season, schools, restaurants, malls and hotels will shut down. Israelis will also face restrictions on movement and gatherings. “Our goal is to stop the increase (in cases) and lower morbidity,” said Netanyahu in a national broadcast statement. “I know that these steps come at a difficult price for all of us. This is not the holiday we are used to.”
  • In the Middle East, Saudi Arabia will start easing coronavirus-imposed movement restrictions on Tuesday. The kingdom plans to end all restrictions on travel by land, air and sea by January 2021. For the time being, exempted groups including employees in the public sector, military personnel, diplomats and their families are some of those that can travel. In Dubai, government officials have closed several establishments for ignoring regulations as the area sees a surge in cases. Authorities have warned residents to follow regulations, such as wearing a face mask, as most infections have occurred through gathering. The United Arab Emirates reported a record 1,007 cases on Saturday.
  • The government in the Philippines are making a move to allow more passengers in public transport by gradually easing the one-metre social distancing rule. A group of medical frontline workers in the country have said it’s still too early to ease the distancing guidelines as the Philippines continue to have the highest number of infections in Southeast Asia with over 261,000 cases. Elsewhere in the country, President Rodrigo Duterte vowed to prioritize buying potential COVID-19 vaccines from Russia, or China, while also taking a shot at western nations. President Duterte said “the one good thing about China is you do not have to beg, you do not have to plead. One thing wrong about the western countries, it’s all profit, profit, profit.”

Covid-19 – Due Diligence And Asset Management

A Wall Street Giant Tapped $1.5 Billion in Federal Aid for its Hospitals

Brief: Like hospital chains across the U.S., LifePoint Health tapped federal relief money to blunt the cost of the Covid-19 pandemic. It was a potent lifeline, a total of $1.5 billion. But LifePoint is unusual in one respect, its owner: private equity firm Apollo Global Management, led by billionaire Leon Black. LifePoint was certainly eligible for the money. But the extent of the federal assistance could contribute to concern in Washington over whether private equity-backed hospitals should have been. In July, the U.S. House passed a bill that would require health-care companies to disclose any private equity backing when seeking short-term loans from the federal Medicare program. The reason for lawmakers’ concern: Private equity firms have ample access to cash. As recently as June, the Apollo fund that owns LifePoint had more than $2 billion to support its investments. Apollo, which manages $414 billion, recently told investors in an internal document that LifePoint was in such a strong market position that it was planning to make acquisitions of less fortunate hospitals.  The relief flowing to LifePoint illustrates a drawback of a government program designed to send out money quickly to every hospital, regardless of financial circumstances, according to Gerard Anderson, a health policy professor at Johns Hopkins University.

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At JPMorgan, Productivity Falls for Younger Employees at Home

Brief: A troubling pattern emerged as most of JPMorgan Chase & Co.’s employees worked from home to stem the spread of Covid-19: productivity slipped. Work output by younger employees was particularly affected on Mondays and Fridays, according to findings discussed by Chief Executive Office Jamie Dimon in a private meeting with Keefe, Bruyette & Woods analysts. That, along with worries that remote work is no substitute for organic interaction, are part of why the biggest U.S. bank is urging more workers to return to offices over the coming weeks. “The WFH lifestyle seems to have impacted younger employees, and overall productivity and ‘creative combustion’ has taken a hit,” KBW’s Brian Kleinhanzl wrote in a Sept. 13 note to clients, citing an earlier meeting with Dimon. A JPMorgan representative didn’t immediately respond to a request for comment. JPMorgan’s findings provide a data point in the debate over whether employees perform as well at the kitchen table as they do in the workplace, showing extended remote work may not be all it’s cracked up to be, at least for some job functions. While pre-pandemic studies found remote workers were just as efficient as those in offices, there were questions about how employees would perform under compulsory lockdowns.

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The Signals Coming From the Emerging Markets Petri Dish

Brief: Even though U.S. stocks are behaving like government stimulus will go on forever and Covid-19 will vanish shortly, emerging markets are giving investors a taste of what could happen when the world ultimately normalizes. One notable trend is that value stocks in emerging markets have finally stabilized. Value stocks have underperformed for years, setting off a frenzied debate on whether or not the investing style still works. “It seems that emerging markets are behaving defensively. Low vol is doing well and value stocks are not declining. Perhaps this is because emerging markets don't expect a big stimulus to artificially keep them going through a second Covid wave and therefore have to rely on normal market dynamics,” wrote Damian Handzy, Style Analytics’ head of research and chief commercial officer, in the firm’s most recent analysis of factor performance. In the paper published on Monday, the research firm found that August was the first month since the crash in March that Europe, the emerging markets, and the U.S. have diverged from one another. 

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Doomsday Real-Estate Bets Rejected by $40 Billion Swedish Fund

Brief: The woman running one of Sweden’s biggest pension funds says the Covid crisis has done less damage to property markets than some feared. That’s why Kristin Magnusson Bernard, the chief executive of Sweden’s $40 billion AP1 fund, is “heavily exposed” to prime real estate in city centers. Magnusson Bernard says she and her team in Stockholm “have thought a lot about what a world with less demand for office spaces would mean for us.” Though it’s clear “the sector will see some adjustments,” she said, “We don’t believe in any systemic meltdown in the real estate market. That is not our view.” At the end of June, AP1’s real estate exposure was close to $6 billion, or almost 15% of the total portfolio. The return over the first six months of the year was 1.1%, making real estate one of the better performing major asset classes that AP1 invests in. Overall, the fund lost 1.8% in the first half, after costs. A recent study by Norwegian bank DNB found that working from home is likely to be considerably more widespread after the Covid-19 crisis than it was before. The survey, which focused on Norway and Sweden, showed that 28% of office tenants expect to continue working from home, more than double the pre-crisis level. AP1 holds key stakes in some of the Nordic region’s biggest property managers and developers, such as Vasakronan AB. “We are heavily exposed to that type of prime locations in city centers,” Magnusson Bernard said.

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Bank of America Adopts AI, Finds ‘More Significant Credit Stresses’ From Covid-19

Brief: Bank of America Corp. has begun using artificial intelligence to predict the likelihood of companies defaulting on loans. “Today we present our inaugural work on applying the latest machine learning tools to analyzing the credit risk,” Bank of America credit strategists Oleg Melentyev and Eric Yu and head of predictive analytics Toby Wade said in a research note Friday. They have started using natural language processing to digest earnings-calls transcripts in order to estimate companies’ probability of default over the next 12 months.  In expanding their default model with the help of AI, the credit strategists seek to detect language used by chief executive officers and chief financial officers that signals a company’s high likelihood of default. Phrases that link to defaulting include cost cutting, asset sales, and cash burn, they said.  Natural language processing has pointed to “more significant credit stresses” in sectors exposed to Covid-19 than under Bank of America’s existing default framework, according to the note. For example, the machine-learning technology predicts default rates will be higher in energy, transportation, and media, and lower than estimated in the cable and health-care sectors.

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Africa’s Gathering Debt Storm

Brief: The Covid-19 crisis is pushing Africa to the financial brink. African governments are under pressure to continue servicing their external loans, leaving them with few resources to confront a historic pandemic and its economic fallout. Without external support – specifically, a comprehensive repayment freeze – some African economies will buckle under their debt burden. The resulting domino effect could imperil the entire continent’s development and harm richer countries, too. The international community’s response so far has been mixed. The most notable step so far – the G20’s Debt Service Suspension Initiative (DSSI) for the world’s poorest countries – covers only official bilateral debt. But 61% of African DSSI countries’ debt-service payments this year will go to private creditors, bondholders, and multilateral lenders like the World Bank. And, despite the G20’s assurances, some countries joining the DSSI were subsequently downgraded by global ratings agencies. The World Bank has played an unhelpful role here. Although its president, David Malpass, recently called for expanded debt relief and even raised the possibility of a write-off, he has also resisted calls for the Bank itself (a major lender to Africa) to freeze debt repayments. Instead, the US-dominated institution seems more interested in scoring political points by urging the China Development Bank to join the G20 initiative, even though doing so would really affect only one African country.

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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 September 11, 2020:

  • In the United States, Washington politicians continue to be in a stalemate over the next stage for coronavirus relief. Republicans in the Senate failed in their efforts to move a $500 billion stimulus package to the next level as Democrats voted to block the legislation because the package was deemed too small. In the procedural vote 52 Republicans were on board, but with 60 votes needed to move ahead and unable to secure any support across the aisle, the plan was dead on arrival. Congressional leaders and senior administration officials said they are open to negotiations, but with elections in November and federal lawmakers set to adjourn in early October to campaign for their districts, the likelihood of a deal isn’t looking good. 

  • In Canada as Ontario has seen its highest COVID-19 daily case totals in months, the premier is calling the quarantine system put in place by the federal government “broken”. Since the end of March, the Quarantine Act has been invoked which requires anyone travelling outside of Canada to quarantine for 14 days upon arrival, even if they aren’t experiencing COVID-19 symptoms. In a news conference earlier in the week, Premier Doug Ford says his province alone has uncovered 622 cases of people thumbing their nose at the quarantine rules. “The system is broken, said Ford. I need the help from the federal government to make an amendment or change it. Why have our police go around and checking to see if people are quarantining if they aren’t going to follow up with a charge?”

  • According to a survey published on Friday, the coronavirus is spreading much more quickly in England now than in previous weeks. Statistical analysis conducted by the Imperial College London and Ipsos Mori estimate the reproduction value, or the R number to be at 1.7. Government scientists have repeatedly stressed the R number needs to be kept at or below 1 in order to curb the spread of the virus. Amid these concerns, leaked documents have shown an ambitious plan by the Boris Johnson government to test up to 10 million per day by January. Dubbed “Operation Moonshot”, under the plan huge groups of the population would be regularly checked, either by using swab tests that could deliver results in 20 minutes, or self-administered saliva tests. However, the problem with “Operation Moonshot” is that the technology described for testing is still in its infant stages – existing only in prototypes and yet to be signed off anywhere in the world.

  • Even as infections surge, France announced on Friday they would be halving the time people infected with the coronavirus must self-isolate at home from two weeks to one. The change in tactics reflects the government acknowledging the isolation period may be longer than necessary and many people weren’t sticking to the two weeks anyway. French Prime Minister Jean Castex said, “it’s essential that everyone respects strictly this period of isolation, which will be monitored.” Nearly 10,000 new COVID-19 cases were reported on Thursday with over 5,000 patients currently in French hospitals with COVID-19 related illnesses.

  • Israel will be the first major country to head back into a full nationwide lockdown after ministers voted to do so on Thursday. Media reports are stating the full lockdown would be reinstituted likely by the middle of next week and lasting for two weeks. After that period, schools will remain closed for another two weeks. The reports note specifics have yet to be finalized as a full cabinet vote will likely be held on Sunday. Israel reported over 4,000 new cases in one day for the first time earlier in the week and with close to 34,000 active cases, the country’s health system is becoming overwhelmed by an influx of seriously ill patients.

  • Japan and Singapore have agreed to allow essential business between the two countries starting September 18th. This marks the first country Japan has formed such an agreement with as they have imposed strict rules on arrivals into their country in order to prevent the spread of COVID-19. Singapore has done the same when it comes to their borders but have already struck similar deals with arrivals from New Zealand and Brunei. Business travellers must undergo pre-departure and post-arrival testing as well as follow a “controlled itinerary” for the first 14 days.

Covid-19 – Due Diligence And Asset Management

Trump Praises JPMorgan for Telling Trading Staff to Return to the Office

Brief: President Trump on Friday lauded the nation's biggest bank for calling its top trading staff back to the office after months of remote work. "Congratulations to JPMorgan Chase for ordering everyone BACK TO OFFICE on September 21st," Trump tweeted. "Will always be better than working from home!" JPMorgan told senior employees of the sales and trading operation in London and New York that they and their teams must return to the office by Sept. 21, a person familiar with the matter told FOX Business. The Wall Street Journal first reported the news Thursday. Employees who have medical conditions that make them more vulnerable to COVID-19 complications, or who live with someone considered at increased risk of severe illness, can continue working from home. That exemption also applies to employees with child-care issues Companies that have permitted their employees to work virtually for the majority of the year face a challenge in calling them back. Colleges and universities that welcomed back thousands of students to their campuses are now beset by COVID-19 cases.

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BlackRock and Ares Are Selling CLOs at Prices Signaling Recovery

Brief: Money managers are selling collateralized loan obligations at yields that would have been unthinkably low just a few days ago, signaling that one of the more battered corners of the credit market may be healing amid the Federal Reserve’s unprecedented support for company debt. Ares Management Corp. is marketing a CLO that is expected to carry a risk premium, or spread, of just 1.28 percentage point more than the benchmark on its highest-rated portion, according to people with knowledge of the transaction. BlackRock Inc. sold a deal on Thursday with AAA notes yielding 1.27 percentage point more than the London interbank offered rate. Collateralized loan obligations, or bonds backed by portfolios of leveraged loans, have been one of the last areas of corporate debt market to recover after security prices broadly plunged in March. As the Covid-19 pandemic weighed on company revenues, ratings firms began downgrading leveraged loans, which in turn spooked investors in CLOs. Even as recently as earlier this week, the risk premiums on KKR & Co.’s AAA notes priced at 1.5 percentage point more than Libor. Spreads in Europe are similarly narrowing, with AAA risk premiums as much as 0.2 percentage point tighter than they were in August. For U.S. deals, the healing in recent weeks has come in part because asset managers have sold so few new CLOs, according to a Wells Fargo & Co. report dated September 9.

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Agile and Resilient – Alternative Investments Embrace the New Reality

Brief: It surely goes without saying that COVID-19 has disrupted businesses of all types. And the Alternative Investment sector has not been immune. KPMG International and AIMA (Alternative Investment Management Association) surveyed 144 hedge fund managers globally, representing an estimated US$840 billion in assets under management (AUM), more than one-quarter of the industry’s total. The research examines in detail the effects of the pandemic on the alternative investment industry. In addition, KPMG International and AIMA canvassed the views of the industry via one-to-one interviews with Hedge Funds, investors and key ecosystem players including technology companies, prime brokers, fund administrators and law firms to provide additional insights to the survey findings. Through the various discussions and survey results it highlighted that in times of market volatility and business uncertainty – alternative investments fulfil an important role in an investor’s portfolio. Throughout the pandemic, the Hedge Fund industry has proven its ability to manage risk and volatility while still producing above-market returns for investors. Significant uncertainty may remain, but in conversations with fund managers and the data suggests the industry remains agile and resilient and is taking prudent steps in order to embrace the new reality.

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73% of PE, VC Managers Expect Drop in Dealmaking Following COVID-19 Fallout

Brief: Just 27% of private equity and venture capital fund managers globally expect investment activity to remain flat or rise in the coming months, with the remaining 73% taking a more pessimistic view, as managers grapple with uncertainty following the spread of coronavirus, according to an S&P Global Market Intelligence survey. Of the 142 managers polled globally, 30% expect dealmaking to slow by between a quarter and a half, with 29% expecting a volume dip of one-quarter and 13% taking a more negative view, predicting a drop of over 50%. The largest proportion of North American and Latin American respondents expect activity to decrease by between 25% to 50% in their regions. There was more optimism from respondents in Europe, the Middle East and Africa, with the majority of respondents expecting activity to dip by less than 25%. Asia-Pacific respondents were particularly upbeat, with the largest proportion expecting investment activity to remain flat or decrease. But that does not mean managers expect their own investment pipelines to come to a halt. More than half — 58% — of respondents globally will focus on making new, selective investments over the coming months, with 23% indicating they will focus on stabilizing their portfolios.

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Ray Dalio, in Economic Club New York Address, Speaks of Threats Beyond the Pandemic

Brief: According to Ray Dalio, the coronavirus pandemic was a blow to the system. But in his view, Covid-19 isn’t the biggest game changer. Instead, the Bridgewater Associates founder said Thursday that he sees the convergence of monetary policy, social and economic gaps, and the rise of China as forces that could change the world. Dalio shared his views on these changes — and how history informs them — Thursday at a digital event held by the Economic Club of New York. “It was the shock,” Dalio said of the pandemic. He added that history has shown that these shocks — whether they’re natural disasters, pandemics, or other calamities — become stress tests for a country’s health, financial and otherwise. But when the pandemic recedes, Dalio said he believes that these issues will remain. “How do you pay the bills?” he asked. “Are we going to be at each other’s throats? And what do the five wars, the conflicts with China, look like?” According to Dalio, those conflicts could include a trade war, a technology war, a geopolitical war, a capital war, or a military war.

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This Hedge Fund Is ‘Reasonably Confident’ a Covid-19 Vaccine Will be Approved This Year

Brief: Asset manager MKP Capital Management has placed a 70 percent probability on a Covid-19 vaccine being approved in 2020, with a smaller chance of that happening before the U.S. presidential election. MKP Capital, an alternative asset manager focused on global macro and fixed-income relative value strategies, sees a 40 percent chance that a vaccine will be approved before the election on November 3, according to a report from the firm dated September 9. “It is now MKP’s strong base case that we will have at least one successful vaccine by the end of the year,” the firm said in the report. “A major question mark remains around whether a vaccine will be available ahead of this date and potentially provide a boost to President Trump’s campaign.” Stocks and bonds were initially rocked by the Covid-19 pandemic this year, tanking during the first quarter before the Federal Reserve stepped in with a series of emergency measures. While markets have rebounded as investors look beyond the economic recession prompted by the deadly disease, some companies and sectors remain battered by the downturn. While the world is beginning to “learn to live with the virus,” Covid-19 is still causing a significant break in economic activity, Michael Hume, MKP’s head of strategy and research, said Thursday in a phone interview.

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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 September 10, 2020:

  • The United States will end coronavirus screening for airline passengers arriving from such places as China, Iran, most of Europe and Brazil. The decision was made by America’s Centers for Disease Control and Prevention (CDC) and the new policy will go into effect on Monday for those arriving at 15 designated airports. “We now have a better understanding of COVID-19 transmission that indicates symptom-based screening has limited effectiveness because people with COVID-19 may have no symptoms or fever at the time of screening, or only mild symptoms,” said the CDC in a statement. According to the Bureau of Transportation Statistics there were just 1.1 million travellers on international flights in July, down a whopping 90% from the same month last year. 

  • In Canada, the province of Quebec unveiled a new colour-coded regional alert system for COVID-19. The system is intended to help people understand the current level of risk, along with what actions need to be taken in the event of serious outbreaks. The four levels range from green (lowest) to the red (highest). Currently there are four regions in the yellow tier, which is the second tier of the four, while the rest of the province, including its largest city, Montreal remain in the green. Premier Francois Legault says police will start handing out fines to anyone who isn’t wearing a mask when required according to public health guidelines, especially to those classified to be in the “yellow” regions.

  • In the United Kingdom, as of Thursday two companies will launch paid saliva-based tests for COVID-19 as more and more people are either returning to schools, or back to their offices. British tech company iAbra has developed a test that uses a mouth swab and delivers results within 20 seconds. The test has been trialed at London’s Heathrow airport as the company tries to line up more customers. The other firm is Halo, which says its saliva test provides results in 24 hours, has Exeter University as its first customer and are in talks with an unnamed hedge fund and a major international airline.

  • France is choosing to prolong temporary virus-related unemployment benefits until next summer in order to protect further job losses from the pandemic. The country’s Labour Minister said the government would continue paying up to 84% of salaries for employees in struggling companies. Prior to the announcement, the job scheme in place to help the most exposed sectors such as hotels, cafes and event-related work was to expire at the end of the year. France has already spent £30 million on its temporary unemployment system since the country imposed a strict lockdown back in the spring, which put many out of work.

  • With the United Kingdom’s AstraZeneca suffering a setback in its phase three COVID-19 vaccine trials, China has picked up the ball and tried to press ahead as the new front runner. China National Biotec Group Co. has said none of its recipients of its two coronavirus shots so far have reported an adverse reaction or infection. The vaccine developer, a subsidiary of a state-owned drugmaker Sinopharm Group Co. touted the results on its official WeChat account stating hundreds of thousands of people have received the COVID-19 treatment so far. The potential vaccine is also being tested in countries in the Middle East and South America and may be available to the public by the end of the year, if all continues to go well.

  • The United Nations is calling on the world’s countries to contribute $35 billion US more, including $15 billion US over the next three months to the World Health Organization’s (WHO) program to back vaccines, treatments and diagnostics against COVID-19. Only three billion has been contributed so far as countries or governments from the European Union, Japan and the United States reach bilateral deals for vaccines. “There is real urgency in these numbers. Without an infusion of $15 billion over the next three months, beginning immediately, we will lose the window of opportunity,” said UN Secretary General Antonio Guterres.

Covid-19 – Due Diligence And Asset Management

The Pandemic is Making Risks of Slavery in Global Supply Chains

Brief: The coronavirus pandemic is complicating the task of rooting out modern slavery by making it impossible for companies or investors to visit factory floors in many countries, adding to the challenges of addressing supply-chain risks. The economic shock caused by the coronavirus outbreak is also making people more vulnerable to exploitation, further compounding the problem, Mans Carlsson, the Sydney-based head of ESG research at Ausbil Investment Management, told the Bloomberg Inside Track webinar on Thursday. Australia has gone further than the U.K. and California with laws requiring companies and investors to have a detailed plan on how they will assess and tackle the risk of modern slavery in their supply chains. With more than 40 million people working in slave-like conditions even before the pandemic, more than any time in human history, it’s a complex issue to address, Carlsson says. The global nature of supply chains can make the issue overwhelming, said fellow panelist Danielle Welsh-Rose, ESG investment director for the Asia Pacific at Aberdeen Standard Investments.

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Hedge Funds Bought the Dip as Nasdaq Tumbled into a Correction

Brief: Hedge funds stepped up buying of technology shares during the Nasdaq 100’s first correction since March, once again warming up to the industry after trimming stakes. Professional managers that make both bullish and bearish equity bets scooped up internet and software companies on Friday and Tuesday at the fastest rate in five months, according to data compiled by Goldman Sachs Group Inc.’s prime-brokerage unit. Meanwhile, hedge-fund clients at Morgan Stanley increased their exposure to growth and momentum stocks, styles dominated by tech companies, the firm’s data showed. Having taken a more neutral stance on tech as retail traders piled into the FAANG names and stay-at-home darlings like Zoom Video Communications Inc. and Peloton Interactive Inc., hedge funds took advantage of the Nasdaq 100’s three-day, 11% slump that chopped valuations from levels last seen 20 years ago. “They’re just riding the wave and believe that with interest rates low and inflation non-existent and with the Fed saying, ‘We’ll let it run a little hot,’ there’s more room to run,” said Chris Gaffney, president of world markets at TIAA Bank. “Is it a bubble and do we continue to inflate that bubble? I think that it can continue to inflate.”

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New York Office Glut Signals Market Downturn as COVID Bites

Brief: New York is facing a glut of workspace as fear of COVID-19 has reduced the daily usage of office buildings to almost nothing, a devastating sign for a city already reeling from the highest unemployment rate among the largest U.S. cities. Manhattan’s density and sea of skyscrapers together hamper a return to the office on the island and that is unlikely to change until a vaccine allows the subway and elevators in office towers to run at full capacity. Just 8% of employees have returned to Manhattan offices as of mid-August, the Partnership for New York City, a non-profit of nearly 300 chief executives, found in a survey of major city employers. The real estate industry is the most aggressive in returning, with 53% already back, the partnership said. “The economy and people’s sense of their health go in lock step,” said Michael Cohen, president of the tri-state area at brokerage Colliers International Group Inc (CIGI.TO). “Until people feel safe enough to go back to the office, you can stand on one leg and spit nickels – they’re not going to revive this economy,” he said.

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‘Exceptionally Challenging’: How Top CEOs Are Confronting Covid-19

Brief: It’s been a tough year for executives across Europe, the Middle East, and Asia — especially for those in the healthcare sector. “To be completely honest, throughout the past six months most decisions have been exceptionally challenging,” said Dr. Ahmed Ezzeldin Mahmoud Abdelaal, chief executive of Cleopatra Hospitals Group, which operates six hospitals in the Cairo area in Egypt. In May, Dr. Ezzeldin was at the helm when the group converted two of its facilities into Covid-19 treatment and isolation centers. “The transition had to take place in a very short time frame and there was no room for error,” said Dr. Ezzeldin, who has been voted the No. 2 healthcare CEO in Institutional Investor’s 2020 Emerging EMEA Executive Team. First place in the healthcare sector went to MLP Care chief executive Muharrem Usta, who leads Turkey’s largest healthcare provider. Usta said the safety of his staff was a top priority at MLP, which has 30 hospitals in 16 Turkish cities and has been involved in the treatment and diagnosis of patients with Covid-19, as well as public health messaging.

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Goldman Sachs Sees Double-Digit Returns in Emerging Junk Market

Brief: Analysts at Goldman Sachs have forecast double-digit returns on high yield - also known as junk - emerging market bonds over next 12 months if the world gets over its coronavirus worries. “We continue to think EM HY sovereigns offer the best risk-adjusted total return opportunity: our 12m target of ~600bp for EM HY spreads (from ~730bp currently) implies double-digit total return potential,” Goldman said in a note on Thursday. The investment bank also forecast emerging market governments would issue at least $150 billion of dollar-denominated debt this year as they look to tackle the crisis, though it could be even higher.

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JPMorgan Dismisses Employees for Misuse of COVID-19 Relief Funds

Brief: JPMorgan Chase & Co (JPM.N) on Wednesday dismissed several employees who allegedly misused funds that were supposed to help businesses dealing with the COVID-19 pandemic, the Financial Times reported, citing a person familiar with the situation. Individuals who fraudulently obtained loans under the Economic Injury Disaster Loan (EIDL) program had not been acting as JPMorgan employees, the person said. However, breaking the law was a violation of the bank’s code of conduct and some people were fired as a result of their improper EIDL applications, the person added. The lender found that some of its own staff had deposited suspicious EIDL funds in their Chase checking accounts, according to the report. Those cases accounted for a “very small” percentage of the total suspicious activity uncovered by JPMorgan, the person said. Reuters reported on Tuesday that the lender was probing employees who may have been involved in the misuse of funds intended for COVID-19 relief, citing an internal memo.

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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 September 9, 2020:

  • In what AstraZeneca is calling a “routine action”, the drugmaker is temporarily suspending its phase three COVID-19 vaccine trial after a participant in the United Kingdom section of the study suffered a suspected serious adverse reaction. According to two people familiar with the trial, the sick participant fell ill with a rare inflammatory condition. AstraZeneca, along with vaccine partner, Oxford University said it is reviewing the event to ensure it wouldn’t result in a significant delay with the trials rumoured to be starting up again as early as next week. The UK drugmaker had been in the lead to become one of the first to deliver a COVID-19 vaccine with the United States rumoured to be considered fast-tracking the process for the vaccine before its November presidential elections.
  • In the United States, President Donald Trump continues to get battered by new books criticizing everything from his personality to his ability to run the country. The latest to hit the shelves is from Bob Woodard – no stranger to White House controversies from his work in uncovering the Watergate scandal in the 1970’s, and it isn’t very flattering for the President. Media have jumped on a series of audio recordings Woodward used for his book, titled Rage where President Trump admits to downplaying the seriousness of the coronavirus as he didn’t want to create panic. “This is deadly stuff”, Trump told Woodward in a February 7th meeting. In a series of interviews with Woodward, President Trump’s knowledge of the virus as a threat was known far earlier than he let on, adding the coronavirus was maybe five times “more deadly” than the flu. 
  • In Canada, two of its major provinces are trying to curtail COVID-19 spread as new cases trend upwards. In British Columbia (BC), the government is ordering nightclubs and stand-along banquet halls closed. They are also calling on restaurants to end the sale of liquor past 10 PM and to lower the volume of music to conversational levels. The changes come as BC has reported 429 new cases over the past four days. In Ontario, Premier Doug Ford and his government have paused its reopening plan for four weeks after seeing its COVID-19 cases spike. What this means Ontario won’t allow things like expanded social circles, gathering sizes or greater increases in the number of people allowed to attend sporting events. As of Tuesday, Canada’s most populous province had seen 13 straight days of new COVID-19 cases in the triple digits. 
  • As mentioned in Castle Hall’s Tuesday COVID-19 Diligence Briefing, the Financial Times is now reporting United Kingdom Prime Minister Boris Johnson plans to move ahead with tightening measures to reduce the spread of coronavirus in the country. The new measures will restrict how UK residents live and socialize, including a ban on most gatherings of more than six people. Under current rules the max gathering is 30 people and this new limit of six will be applied across England, whether you are indoors or outdoors and to all ages. There will be “reasonable exemptions” such as gatherings for work or school, along with weddings, funerals and organized sports if they are deemed “COVID-secure”. According to the Financial Times the new measures will be introduced on Monday.
  • In Germany, a domestic drugmaker and its US partner are negotiating a contract with the European Union (EU) to supply at least 200 million doses of their potential COVID-19 vaccine. Mainz-based BioNTech, along with Pfizer, said if an agreement is reached, deliveries could begin by the end of the year, as long as the product receives regulatory approval. The EU would have the option to buy a further 100 million doses of the vaccine, which will likely require two shots per person immunized. BioNTech has already reached agreements to supply Hong Kong, Canada and Japan, while also committing 600 million potential doses to the United States.
  • In China, researchers at the South China Agricultural University and Guangdong Academy of Agricultural Sciences released a report over the weekend of coronavirus lingering on food supplies such as fish. Chinese authorities have been looking into food as a potential source of infection since June and have been investigating imported meat, packaging and containers as potential COVID-19 sources. The report points to coronavirus lingering on chilled salmon for more than a week. The researchers found SARS-CoV-2, the virus that causes COVID-19 collected from salmon samples at four degrees Celsius (39 degrees Fahrenheit), which is roughly the temperature the fish were transported at.

Covid-19 – Due Diligence And Asset Management

U.K. Property Funds With $16 Billion Face Reopening Dilemma

Brief: The U.K.’s biggest property funds for mom-and-pop investors that were locked at the peak of the coronavirus market turmoil have been given the all-clear to reopen. They aren’t rushing for the keys. Funds holding almost 12 billion pounds ($15.6 billion) of commercial real estate halted trading in March, leaving investors to just watch as office and shopping mall values headed south. Now, they have a choice: reopen and risk a wave of redemptions or stay closed and invite the wrath of investors. “As soon as funds open, money will leave, that’s undoubted,” said Ben Yearsley, investment director at Shore Financial Planning. “Honestly, I think most won’t reopen.” As the pandemic froze real estate markets in March, fund managers including Aviva Plc and Standard Life Aberdeen Plc were thrown a lifeline. An industry committee said most properties couldn’t be accurately valued, prompting a slew of freezes that prevented investors heading for the door. On Wednesday, that group said the uncertainty had sufficiently eased, heaping pressure on managers to re-open. Now, any failure by funds to reopen following their next valuations could be a signal they don’t have enough cash if redemption requests have piled up since their freezing. That’s despite many having relatively healthy cash buffers prior to the coronavirus crisis upending markets.

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A New Front in Coronavirus Disinformation: Wall Street Research

Brief: Coronavirus misinformation is infecting the unlikeliest of places: Wall Street research that investors rely on to trade in the financial markets. In an early August note to clients, an analyst at a research firm called Fundstrat Global Advisors, which distributes widely-read reports and analysis to investors, cited a series of tweets by an ophthalmologist named James Todaro who painted a rosy picture of the US population's potential for developing herd immunity to coronavirus. In a research note sent to clients on August 11th, Fundstrat co-founder Thomas J. Lee included four tweets Todaro sent the previous day. One of Todaro's tweets cited "growing evidence that T cell immunity allows populations to reach herd immunity once 10-20% are infected with SARS CoV-2," the coronavirus that causes Covid-19. Todaro's claim is not supported by credible scientific research. In fact, Shane Crotty, an immunologist at the Center for Infectious Disease and Vaccine Research at the La Jolla Institute for Immunology, told CNN Business that Todaro's tweets are "dangerous" to public health. The presence of Todaro's tweets in a Wall Street research note suggests the campaign to downplay the virus championed by the president and his supporters is gaining traction. Todaro is one of the people who appeared in a viral video in July promoting hydroxychloroquine that Facebook and YouTube later removed because they said it was promoting misinformation.

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Druckenmiller Says Inflation Could Reach as High as 10%

Brief: The markets are in a “raging mania” and rising inflation is a big threat, investor Stan Druckenmiller said. Inflation could hit 5% to 10% in the next four to five years, Druckenmiller said Wednesday in a CNBC interview, adding that the Federal Reserve has created conditions that have sent valuations soaring. Deflation is also a risk, he said. “Everyone loves a party but inevitably after a big party there is a hangover,” he said. “We are in a raging mania.” Investors, however, in general don’t see much risk of higher inflation in the U.S., according to prices in the market for Treasury inflation-protected securities. The 10-year breakeven inflation rate derived from TIPS is just 1.7%, suggesting the risk that the Fed will miss its 2% inflation target over the next decade is higher than that of exceeding it. Periods of deflation have been preceded by asset bubbles, Druckenmiller said, and Fed Chair Jerome Powell “has created this massive asset bubble, so ironically he’s raised two tails” -- the risk of inflation and the risk of deflation. Druckenmiller said the odds of hitting the 2% target “have actually gone way down with the Fed activity.” U.S. stocks sold off in the last three trading days, with a drop in technology shares gathering speed as investors fled the names that fueled a historic five-month rally. Heading into Wednesday’s trading, the Nasdaq 100 Index was down 11% from its record high set last week. Traders have sought safety in haven assets, pushing Treasury yields lower and strengthening the dollar.

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SoftBank Unveils Headquarters Just as COVID-19 Forces Office Decemp

Brief: SoftBank Group Corp (9984.T) on Wednesday unveiled the building that will house its new WeWork-designed headquarters, in a long-planned move that comes just as the COVID-19 pandemic worldwide forces a shift away from office working. Tokyo Portcity Takeshiba’s biggest tenant will be SoftBank unit SoftBank Corp (9434.T), whose Chief Executive Ken Miyauchi told reporters at the unveiling that 60% to 70% of the wireless carrier’s employees are currently working remotely. Excess space can be opened up to other group companies, Miyauchi said. Some of these are currently renting space around Tokyo from office sharing firm WeWork, which SoftBank has taken control of globally following a series of missteps at the U.S. startup. The new development employs technology that supports social distancing, such as real time data on congestion at restaurants and SoftBank-developed robots for cleaning floors and making deliveries.

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Hedge Funds on a Roll With Strongest Five-Month Showing Since Early 2000

Brief: Hedge fund managers running a range of investment strategies rose again last month, with August’s gains capping the strongest five-month run for the industry in more than 20 years. The HFRI Fund Weighted Composite Index – an investable barometer of the broader hedge fund industry published by Hedge Fund Research – was up 2.67 per cent last month. In the five months since April, following Q1’s coronavirus meltdown, the index has surged 15.4 per cent - the strongest five-month total return for hedge funds since February 2000. That puts its index value to an all-time high of 15,093.  Year-to-date, the index is now up more than 2 per cent since the start of 2020. HFR president Kenneth Heinz said the impressive run – which is also the third-strongest five-month recovery return from a drawdown trough since HFR’s inception in 1990 – comes despite continued coronavirus concerns globally, ongoing economic and social upheaval in the US, and political uncertainty surround the US election, and underlines the industry’s fortitude. August’s gains were fuelled mainly by equity-focused hedge funds, which rose 4.25 per cent last month, and are now up 4.63 per cent year-to-date.

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Goldman Sachs says Wall Street’s Fear Gauge is Flashing a Warning Sign Unseen since the Dot-Com Crash in 2000

Brief:

Goldman Sachs said Wall Street's top fear gauge is flashing a warning signal not seen in about two decades since the dot-com bubble burst in early 2000. The CBOE Volatility Index, also known as the VIX, is the market's best indicator of expected volatility in the next 30 days. When the stock market rises, ordinarily the index declines, and vice versa. A market that is steadily rising or falling has low volatility, but one in which rapid rises and falls follow in quick succession shows high volatility. A reading below 20% for the VIX means that the market is operating in a low-risk environment, while above 20 shows fear is picking up. A reading above 30 reflects heightened volatility. Goldman said this trend has been upended as both the benchmark S&P 500 and VIX index have been moving in tandem. This means that since the dot-com crash, the volatility index is at the highest it has been at a time when the S&P 500 is also at a peak since March 2000. "US equity markets have shown a strong 'vol up, spot up' pattern driven by single stock markets but influencing the VIX," Goldman analysts Rocky Fishman, John Marshall, and Rohith Medarametla wrote in a September 3 note, when the VIX stood at 26.6. 

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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 September 8, 2020:

  • As politicians head back to Washington after their August recess, the United States don’t appear to be any closer to passing the next stage of coronavirus relief to Americans. The Senate will vote Thursday on a procedural motion to advance a scaled down version of a COVID-19 stimulus bill that will be $500 billion. The bill would need 60 votes to advance, but it is not expected to reach that number. Republicans would like to get at least 51 GOP votes, so they can show the American public it’s the Democrats who don’t want to compromise. From the Democratic side, they have called for a bill that is four times the size of the Republicans current offer – in the two trillion range. House Speaker Nancy Pelosi claimed the offer on the table is not even an attempt to do the right thing for Americans and is just an attempt to satisfy Republicans who don’t want to spend one more dollar on a stimulus package. 

  • In Canada, as the average number of cases rose by 40% in the past two weeks, that steady increase is a cause for concern in the mind of the country’s chief public health officer. In a news conference on Monday, Dr. Theresa Tam noted the country experienced an average of 545 new cases in the past week – up from 390 cases during the week of August 24th. “As we enter the fall, Canadians will need to be even more vigilant about following public health guidance, particularly as the cold weather shifts activities indoors,” said Tam. To add to the concern in the increase in numbers, several of Canada’s 10 provinces have reopened its school doors to students and teachers for the first time in months on Tuesday.

  • The United Kingdom is starting to experience a surge in new cases as well – with close to 6,000 in the past two days. Prime Minister Boris Johnson has warned against “complacency” and some government officials are concerned the UK are following the same path as France and Spain, where hospitalizations have begun to rise. In order to curb the spread, a Bloomberg report notes the prime minister’s team is looking at cutting the maximum number of people who are allowed to gather in a private home. Current guidelines in the UK suggest no more than six people should meet, but police can only take action against groups of more than 30. Options on the table include tougher police enforcements to break up groups that are too large. 

  • Over the weekend, India surpassed Brazil with the world’s second highest COVID-19 cases, trailing only the United States. India now has more than 4.2 million confirmed cases after recording 90,802 overnight on Sunday and more than 71,000 people have died from the virus – the third largest number of deaths. The country though continues to lessen restrictions as no other major economy suffered more than India in the last quarter, with its gross domestic product shrinking 23.9% compared to a year earlier.

  • Australia’s Victoria state didn’t exactly get the news they were hoping for over the weekend. The country’s government announced only a gradual easing of one of the world’s strictest current lockdowns. Key sectors of the economy such as retail, hospitality, tourism and entertainment will stay restricted and the five million residents of Melbourne will remain under stay-at-home orders until October 26th, or until there are fewer than five new COVID-19 cases a day. Victoria state Premier Daniel Andrews has also asked office staff to work from home until at least November 23rd. 

  • Nine drugmakers, considered to be the leaders in COVID-19 vaccine development, have signed an unprecedented pledge on Tuesday to ensure when/if a vaccine will be released to the public, it will be at its highest ethical and scientific standards. The pledge was signed by the CEO’s of American drugmakers Johnson & Johnson, Merck, Moderna, Novavax and Pfizer, along with European companies AstraZeneca, BioNTech, GlaxoSmithKline and Sanofi. The news comes as drugmakers try to boost public confidence in vaccines and amid concern that the United States Food and Drug Administration were considering pushing through a COVID-19 vaccine under its emergency measures next month due to political pressure.

Covid-19 – Due Diligence And Asset Management

JPMorgan Says Some Employees Have ‘Fallen Short’ as Bank Probes Abuses of Government Relief Funds

Brief: JPMorgan Chase welcomed employees back from a long holiday weekend with a troubling message in their inboxes: Some of them may have been involved in potentially illegal activity. The bank’s operating committee, led by CEO Jamie Dimon, sent an email Tuesday morning to 256,710 employees saying that while the pandemic has brought out the best in many workers, there have been instances where customers abused the government’s coronavirus relief programs. “Unfortunately, we’ve also seen conduct that does not live up to our business and ethical principles — and may even be illegal,” the bank’s committee said. “This includes instances of customers misusing Paycheck Protection Program loans, unemployment benefits and other government programs. Some employees have fallen short, too.” The government’s mammoth $2.2 trillion coronavirus relief package included the Paycheck Protection Program for small businesses, enhanced unemployment benefits for individuals and support for larger companies. 

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Don’t Bet Against the U.S. Market, it’s Likely Going Higher, BlackRock’s Rieder says

Brief: The U.S. stock market’s two-day tech-led fall last week has revived investor worries about a spiral of selling that could crash the broader market, but Rick Rieder, head of the BlackRock Global Allocation team, does not see stocks going off a cliff. Indeed, the $23.2 billion BlackRock Global Allocation Fund (MALOX.O) that Rieder runs currently has options trades that would benefit from a rebound in stocks. Last week’s pullback in U.S. stocks from record highs came after investors piled into big tech names such as Apple - particularly buying bullish call options. That has caused debate about whether shares are over-extended as investors, buoyed by central bank support, try to look beyond the coronavirus pandemic. “I think the market is going to keep going higher,” Rieder, said in a Reuters interview. The Global Allocation Fund has been selling calls against existing long positions in large-cap, high-flying tech stocks to benefit from gains if they shake off recent weakness. Rieder says investors’ concern that stock markets are overpriced is misplaced. While some stocks are grossly over-valued, the generic market is not, he said.

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Private Equity Giants to Unwind Remote Working Arrangements

Brief: After months working from home, employees of global private equity firms are now being encouraged to get back to the office. Blackstone has told staff worldwide to avoid public transportation in their commute and is offering to pay for its workers’ taxi fare, a person familiar with the matter confirmed to Private Equity News. Despite the push, “returning to the office remains purely voluntary”, the person said. Similarly, Advent International, which employs around 100 people in its London office, has introduced a new commute policy, which forbids the use of public transportation. And although the firm will pay employees’ taxi fares to attend business meetings or events, it refuses to pay for workers’ everyday commuting, a second person told PEN. Both firms are also implementing a new Covid-19 testing policy. Blackstone is asking its London office workforce to register on an app that they have no symptoms before any return. Advent is sending a testing kit to the homes of UK staff every 14 days so that they can be cleared to access the office…

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Managers Assess Portfolios After Shift to Suburbs

Brief: Before the pandemic, everyone wanted to invest in the largest coastal cities that were thriving, thanks to easy access to work and play — but things have changed. The open question that managers and investors are having to answer now, without the benefit of transaction data or across-the-board write-downs, is how to position real estate portfolios for the long term. At the moment, few real estate managers want a high rise in a big coastal city. Some are following millennials to the suburbs from the cities or grabbing smaller buildings, such as garden-style apartments and low-rise office buildings located adjacent to cities. The once-hot cities of San Francisco and New York are being replaced by less expensive cities such as Phoenix, Boston, Denver and Austin, Texas, where people and companies can get more space for their money as telework becomes normalized and social distancing, air filtration and other health requirements are incorporated into office design. These trends are driving investors to reconsider their core real estate portfolios.

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Gulf Asset Managers to Face Pressure Amid Twin Shock

Brief: Asset managers in most of the Gulf will face moderate-to-high pressure on their profitability over the next year to 18 months as a result of low oil prices and the coronavirus pandemic, rating agency Moody's said on Monday. The twin shocks of the oil price crash earlier this year coinciding with the spread of the coronavirus in the region have put pressure on the six-member Gulf Cooperation Council's (GCC) economies, leading most governments to cut spending and raise debt. "Current weak oil prices will hold back economic growth and public spending across the region, with negative consequences for asset managers," Moody's said. "Oil is also a key source of revenue for the sector's investor base, which consists largely of local high net worth individuals, family offices and government-related institutions, including sovereign wealth funds." But the ratings agency said GCC countries' plans to reduce their dependence on hydrocarbons, as well as privatisation efforts, "should contribute to medium-to-long-term growth, and encourage the development of capital markets". Though Moody's expects diversification to take time, it will eventually spur private investment, attract international investors and therefore support the asset management industry's growth.

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Hedge Fund’s Buying Spree During Credit Slump Fuels 36% Return

Brief: Distressed-assets specialist Alp Ercil went on a billion-dollar buying spree in March and April, bargain-hunting amid the indiscriminate selloff in credit markets, a person familiar with the matter said. Ercil’s Hong Kong-based Asia Research & Capital Management Ltd. deployed almost 80% of the $1.6 billion raised for his latest fund in the two months, having sat on the sidelines for most of 2019 waiting for more attractive opportunities, the person said. Most of the capital was channeled into dollar-denominated developed-market credit with a duration of 10 years or more, said the person, who asked not to be identified because the information is private. ARCM purchased mostly investment-grade names in the latest upheaval, the person said. The spree paid off, with the fund up 36% in the first eight months of the year, the person said. Most of the gains came between April and August when credit spreads tightened after blowing out during the March rout. Yusuf Haque, ARCM’s chief operating officer, declined to comment. ARCM raised its fourth and largest fund early last year, but deployed only 20% of the capital during 2019 as it waited for more favorable markets. Those materialized in March when the Covid-19 pandemic and Russia-Saudi Arabia oil price war sparked panic selling across all assets, including debt of fundamentally sound companies. Spreads have since tightened as central banks unleashed unprecedented stimulus to shore up their economies and investors chase yields amid low and negative rates.

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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 September 4, 2020:

  • In the United States, Democratic Presidential nominee Joe Biden held a news conference on Friday regarding the economy and President Donald Trump’s response to the pandemic. Biden took repeated jabs at the president, noting that while America added 1.4 million jobs in August, “Donald Trump may be the only president in modern history to leave office with fewer jobs than when he took office.” Biden also criticized the White House’s response to the COVID-19 pandemic, claiming they “botched” it, should have acted sooner, and have now left everyday people, such as teachers, afraid to do their job in fear of bringing home the virus to the people they love. 
  • As parents across Canada struggle with the idea of sending their children back to school, an Ontario Superior Court judge has made a precedent-setting ruling: don’t come to us. The court has ruled with the mother of a child who wants her son back in school, despite the objections of the father, who insisted the child take his classes online due to the COVID-19 pandemic. The presiding judge reminded parents there are other tools to resolve these disputes and they shouldn’t be tying up an already backlogged court system due to the pandemic. Other news in Canada on Friday included the country adding 246,000 jobs in August, pushing the unemployment rate down to 10.2%. The August number means almost two million jobs have been added to the economy since it started to reopen in May, but Canada still has 1.1 million fewer paid workers than it did in February.
  • In the United Kingdom, the Office for National Statistics (ONS) noted half of the country’s workers returned to office in the last week of August, the highest number since lockdown measures were introduced in March. That number is expected to rise even more as people return to work next week – the first full work week following the summer holidays. The ONS’ latest survey should be encouraging news for Prime Minister Boris Johnson who was proclaiming earlier this week during a cabinet meeting that workers were returning to their offices in large numbers, but Downing Street officials struggled at the time to back up those claims with critical statistics.
  • Spain, France, and Italy have all experienced their largest daily increase in COVID-19 cases in months. Authorities in Spain have reported 10,476 cases to their active total, 4,503 which were diagnosed in the last 24 hours – the highest daily total since early May. France reported close to 9,000 new COVID-19 infections in the past 24 hours, the largest daily increase since the outbreak began in the country. Despite, the record increase, France’s National Health Agency indicates the number of people hospitalized and in intensive care units remain stable. Finally, Italy has reported over 3,000 new cases in the past two days, with Friday’s numbers marking the largest increase since early May. 
  • A study published in the medical journal, The Lancet on Friday indicates Russia’s Sputnik V vaccine generated strong immune responses in 100% of the 76 participants without any “serious adverse effects”. The report from The Lancet is the first peer-reviewed study of the vaccine, which drew raised eyebrows from the Western world when Russia declared the COVID-19 drug good to go last month, despite limited clinical trials. Researchers have only begun phase three trials on more than 40,000 volunteers and it will be October or November before initial results are known. 
  • Australia’s Prime Minister Scott Morrison said he has the commitment from most state and territory leaders to reopen the country’s economy by December. However, the country’s leader is dealing with a fragmented population, falling along state lines and has yet to secure an immediate agreement to lift border restrictions. This is key to restart an economy dealing with its first recession in almost 30 years. The reopening of the economy was originally envisioned by the end of July but was complicated with the recent outbreak in Victoria state and city of Melbourne in particular. Seven out of eight state and territories are on board to reopen by Christmas, with the state of Western Australia being the lone holdout.

Covid-19 – Due Diligence And Asset Management

Covid Winners: These Funds Lured $22bn Amid the Virus Crisis

Brief: Fund managers have suffered heavy outflows since the onset of the Covid crisis, haemorrhaging tens of billions of dollars as the pandemic wreaks havoc on markets. But there are bright spots. Equity funds that make so-called "thematic" bets pulled in a net $22bn across Europe during the first six months of the year, according to data from Broadridge. Non-thematic funds posted outflows of $57bn in the first six months of the year across the region. Thematic funds invest around a specific theme or niche area of the market — think emerging technology, sustainability, healthy living or changing consumption. The Broadridge figures demonstrate how investors have been on the hunt for trends that will emerge stronger from the pandemic. “European investors are making this long-term bet,” said Kieran Kothari, a consultant in the global insights team at Broadridge. He said he's seen an acceleration in demand. “In an uncertain world, they have homed in on thematics for their potential to outperform global equities.”

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Volatility “Most Definitely on the Menu”: Hedge Fund Industry Reacts to Thursday’s Shock Sell-Off

Brief: After global stock markets suffered their steepest sell-off since June, Hedgeweek rounds up a range of perspectives from across the hedge fund spectrum, gauging the broader impact of this week’s unexpected reversal and the potential for renewed market volatility up ahead. The sustained momentum in global equities that yielded positive returns for an assortment of hedge fund strategies in recent months came to an abrupt halt this week, with major US technology companies first in the firing line during the rapid reversal. The tech-dominated Nasdaq 100 took its biggest tumble since the historic Covid-19-driven crash back in March, slumping almost 5 per cent on Thursday. The S&P 500 slipped 3.5 per cent – its worst day in three months – and the Dow Jones fell 2.8 per cent, with the FTSE 100 meanwhile dropping 1.4 per cent. Stephen Crewe, a director at multi-strategy manager Fulcrum Asset Management in London, believes the sell-off appears to be predominantly US-centric, and likely to be short-lived. Observing the correlation between US growth and value indices, Crewe said the short-term correlation between returns had turned negative, a rare development which last happened back in 2000.

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Billionaire Daniel Loeb Bets on Covid Vaccine Arriving This Year, Here’s What it Means for Your Equity Portfolios

Brief: Billionaire hedge fund titan Daniel Loeb is prepping clients for a potential coronavirus vaccine as soon as the end of 2020. "We have spent significant time with scientific experts to better understand evolving treatments and vaccines, and have confidence that several will be effective and available later this year," the hedge fund manager said in a 6 August investor letter seen by Financial News. Loeb said in the letter that a vaccine or medicine for Covid-19 "should lead to the next phase of market recovery in coronavirus‐affected companies." "Our equity portfolio is balanced between companies that are doing well now, and later-stage recovery names in aerospace, entertainment, and retail, which are still trading near their March lows and should benefit when there is a move back into these sectors." Loeb's comments came on 6 August, before the US government told states to prepare for a coronavirus vaccine to be ready to distribute by 1 November. The timing of the potential treatment raised concerns about the White House playing politics with the pandemic — the US presidential election is scheduled to be held two days later. After a rocky start to the year, Third Point has made smart bets in the last few months. The hedge fund swung to gains after the billionaire overhauled the portfolio, with the Third Point Offshore Fund posting gains of 4.4% for the year, after a jump of 8.4% last month, according to a performance update sent to clients on 31 August and seen by FN.

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Domestic Investors Boost Real Estate Markets

Brief: Despite the devastating impact of the pandemic on economies around the globe, the real estate markets of Japan, Germany and South Korea showed resilience in the first half of this year as they leant on deep domestic pools of capital.  As widespread lockdowns and travel restrictions stalled investors’ short-term capital deployment plans, commercial real estate investment fell 29 percent globally to US$321 billion in the first six months of 2020 compared to the year-earlier period, according to data from JLL.  Yet, despite the widespread drop in investment, Japan, Germany and South Korea all outperformed the broader market in the first half of the year. In Japan, deal volume climbed seven percent to reach US$24 billion. Germany dropped a mere 1 percent, and, despite sliding 15 percent, South Korea outperformed its long-term, first-half average. “Countries that acted quickly and effectively to contain the spread thus far have generally been more resilient both in terms of domestic commerce and commercial real estate investment,” says Sean Coghlan, Head of Global Capital Markets Research, JLL. “Aside from rigorous efforts to contain the spread of the virus, these countries also benefitted from relatively high levels of market transparency, deep pools of domestic capital and strong government stimulus.”

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PE Interest in Europe’s Telcos is Rising Due to COVID-19

Brief: After a dip in transactions in 2019, the coronavirus pandemic could see private equity companies target European telecom operators, experts told S&P Global Market Intelligence. As demand for telecom services increased during the pandemic, the industry offers cash flow visibility, as well as some potential bargains, the experts said. "Fixed networks gained importance as a utility during COVID-19," Hendrik Wiersma, a senior credit analyst who covers tech, media and telecoms at ING, said. "Private equity tends to target sectors with predictable cash flow generation with high margins." The rollout of fiber broadband in the region is also expected to encourage deals between carriers and private equity, they said. "These [fiber] deployment programs act as a lever for investment as they deploy a certain amount of capital with a relatively stable return — and if you get government funds that subsidize that, that is even better," Markus Muhs, a Clifford Chance partner specializing in cross-border M&A, said. In April, the German government announced two low-interest loans from its state-owned bank to support private and municipal companies building out fiber internet.

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Allianz Investment Arm Sued Over $1B Loss From Virus Crash

Brief: Investors in a hedge fund that lost nearly $1 billion during the coronavirus-induced market crash earlier this year say "extreme risk taking" by fund manager Allianz Global Investors caused the fund to collapse in a proposed class action in New York federal court. A Teamsters Union retirement plan filed the suit Wednesday against AllianzGI, the investment management division of German financial services giant Allianz SE, alleging it abandoned its risk controls and meaningful downside hedging strategies for a fund purportedly designed to weather extreme market volatility. When U.S. equity markets experienced a crushing downturn in late February and March amid the COVID-19 pandemic, AllianzGI failed to take any meaningful steps to reduce the fund's risk and protect its investors, the complaint alleges. "AllianzGI's reckless throw of the dice in the late winter of 2020 — and its abject failure to meaningfully 're-balance' its 'market neutral' positions or acquire more than token hedge positions (despite having had plenty of time to do so) — proved to be a fool's bet and resulted in catastrophic losses of over 75% for the fund's investors," the suit claims. The complaint echoes claims made in other lawsuits filed over the summer related to losses from AllianzGI's "Structured Alpha" funds during market downturns related to COVID-19. Wednesday's suit deals with losses in Structured Alpha US Equity 500 LLC, an AllianzGI-managed hedge fund with the stated goal of outperforming the S&P 500 Index by 5% each year, net of fees and expenses.

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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 September 3, 2020:

  • In the United States, the nation’s top health director is informing state governors to speed up the opening of new vaccine distribution centres. According to media reports, Dr. Robert Redfield, the director for the Centers for Disease Control and Prevention (CDC) has written a letter informing state leaders to waive requirements that might slow down granting the permits of new facility sites. The news seemingly points to federal government plans to push ahead with an immunization program before the elections in November. Last week it was reported the CDC was considering granting emergency use authorization of a vaccine being developed in partnership with Oxford University and AstraZeneca.

  • In Canada, Prime Minister Justin Trudeau is blaming processing “hiccups” as many Canadians are reporting delays in receiving their COVID-19 related emergency response benefit payments (CERB). Speaking at an event on Thursday, Prime Minister Trudeau admitted there were challenges faced due to the extension of CERB payments and that the government would continue to be there for Canadians. The Canada Revenue Agency did not provide an explanation for the delay, other than to say the money is on the way. The Liberal government extended the CERB plan until the end of the month with a price tag at about $37 billion so far.

  • The United Kingdom government has warned the country’s economic outlook was “about to get tougher” due to the impact of the COVID-19 pandemic. The “tougher” part chancellor Rishi Sunak admitted will come in the form of increased taxes to the UK public. “We will need to do some difficult things, but I promise you, if we trust one another we will be able to overcome the short-term challenges,” said Sunak. No word yet on how much the tax increase will be, but the UK media, always having a way with words, declared the government will detonate a “tax bombshell” this autumn. Public sector borrowing in the UK already hit £150 billion in just the first four months of 2020, almost a record level for a whole year. 

  • France is touting the “biggest stimulus package of all European countries” as they try like many others, to navigate their way out of the coronavirus pandemic. Speaking after a cabinet meeting, French Prime Minister Jean Castex noted the package is the equivalent of 4% of GDP over two years, or €100 billion in monetary terms. The program is separate from the emergency support measures released this spring, which included vast loan guarantees. The money in the current package will be used to improve business competitiveness, hasten the country’s green transition and help retrain France’s younger generation, who lost their jobs due to the pandemic.

  • India set another unfortunate record on Wednesday, with a new daily record of close to 83,000 new coronavirus cases. At their current rate, India will likely surpass Brazil for second most COVID-19 cases in the world, trailing only the United States. The country of close to 1.4 billion have suffered through an incredible surge in cases over the last month as officials ramped up testing. Despite becoming the new epicenter in the world for the coronavirus, government officials continue to push through with easing of restrictions. This could be seen this week as millions of students were allowed to write their entrance exams. Next week, urban metro services will resume for the first time since March. Health officials are concerned the relaxing of restrictions will lead to renewed pressure on their facilities.

  • Australia’s state of Victoria suffered a slight setback on Thursday, seeing their new case total rise into the triple digits for the first time in several days. The country’s second most populous state recorded 113 new cases and Melbourne media reported on Wednesday that government officials want to extend the state of emergency a few more weeks (September 28th).  However, Premier Daniel Andrews said the leaked documents media are citing were out of date, and that the state cabinet will announce a gradual easing of restrictions and road to economic recovery on Sunday.

Covid-19 – Due Diligence And Asset Management

Covid-19 Volatility Underscores Need for Next Generation in Risk Management

Brief: New academic research by Plato Investment Management’s Head of Long Short Strategies, Dr David Allen, has highlighted the need for investors to move beyond the traditional “bell-shaped” normal distribution assumption that underpins much of industry practice. Dr Allen’s research paper, titled A comparison of non-Guassian VaR estimation and portfolio construction techniques, has recently been published in the Journal of Empirical Finance. “It is widely accepted by academics that asset returns do not follow the well behaved bell-shaped normal distribution of economic textbooks, and that extreme returns occur much more frequently than one would expect,” says Allen. “For example, if stock returns really were ‘normally’ distributed as practitioners tend to assume, the 12 per cent fall in the S&P 500 that occurred on 16 March as Covid-19 fears gripped the world would not have occurred even if the stock market had been open every day since the Big Bang. The 20 per cent drop in the S&P 500 that occurred on Black Monday, 19 October, 1987, would not have occurred even if the history of the universe was repeated one billion times. “Using the normal distribution in a non-normal world is to court disaster. Nevertheless, the normal distribution forms the bedrock of modern financial practice, primarily because it is mathematically tractable and easy to use.

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Fed’s Evans says Substantial Additional Fiscal Aid Critical

Brief: The course of the economic recovery in the U.S. will “critically depend on receiving substantial additional support from fiscal policy,” Federal Reserve Bank of Chicago President Charles Evans said. “Partisan politics threatens to endanger additional fiscal relief,” Evans said Thursday in remarks prepared for a virtual event hosted by the Lakeshore Chamber of Commerce in northwest Indiana. “A lack of action or an inadequate one presents a very significant downside risk to the economy today.” Senate Majority Leader Mitch McConnell expressed doubts Wednesday as to whether lawmakers would be able to reach a deal on additional pandemic relief in the next few weeks. The Chicago Fed chief gave a downbeat view of the road ahead for the economy even assuming a deal, suggesting that periodic coronavirus outbreaks around the country would damp consumer spending until a vaccine becomes available. “Even with steady progress in controlling the virus and additional fiscal support, I expect it will be some time before the economy recovers from the hit it took,” he said, predicting the unemployment rate would still be somewhere in the range of 5% to 5.5% at the end of 2022.

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Airlines Urge UK, U.S. to Start London-New York Passenger Testing Trial

Brief: Major airlines want the U.S. and British governments to launch a passenger testing trial for the coronavirus for flights between London and New York to pave the way for a resumption of more international travel. In a letter to government transportation officials seen by Reuters, the chief executives of Airlines for America, Airlines UK, Heathrow Airport and Virgin Atlantic Airways said both governments should “establish passenger testing solutions in air travel. “We believe that in the immediate absence of a vaccine, testing of passengers in aviation provides the best and most effective frontline defense.” They urged the governments to establish a testing trial between New York and London by month’s end “to gather real world evidence and data.” Sharon Pinkerton, senior vice president at Airlines for America, which represents American Airlines Co (AAL.O), Delta Air Lines (DAL.N), United Airlines (UAL.O) and others, told reporters on Thursday the industry wanted a pilot program to help boost international travel.  U.S. international travel has fallen by 87% during the coronavirus pandemic, which has battered the airline industry.

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How the European CLO Market has Developed Over 180 Days of COVID-19

Brief: In May, we published "How COVID-19 Changed The European CLO Market In 60 Days," which discussed how the first two months of COVID-19 had altered the market for European collateralized loan obligations (CLOs). Following six months of heightened rating actions on nonfinancial corporates spurred by the economic fallout from the pandemic, data for CLOs show how the market has continued to evolve. New CLOs have priced during this period, but at a slower pace and at lower levels compared from those in 2019. The focus is on monitoring the performance of loans underlying existing transactions, as well as challenges that existed before and persisted during COVID-19, including high leverage ratios, EBITDA add-backs, and covenant-lite loans. S&P Global Ratings acknowledges a high degree of uncertainty about the evolution of the coronavirus pandemic. The consensus among health experts is that the pandemic may now be at, or near, its peak in some regions but will remain a threat until a vaccine or effective treatment is widely available, which may not occur until the second half of 2021. We are using this assumption in assessing the economic and credit implications associated with the pandemic

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Private Equity Can Play an Essential Role in Economic Recovery

Brief: The Covid-19 crisis has wreaked havoc on the economy; in a matter of weeks, once-safe assumptions about the markets have been upended, placing severe pressure on businesses across all sectors. We will likely feel the impact of the damage this pandemic has caused to global markets for months to come. In time, it is hoped the virus will be addressed and normal economic life can be restored. But by whom? Many companies are now struggling with liquidity or funding issues, despite billions of dollars in government stimulus, and few entities have the kind of dollars—and appetite—to help restart company growth, make vital investments, rehire workers, and restructure debt. Enter private equity firms. Although the industry is perhaps best known for buy outs—and the political fire such deals inspire—these shops can have the unique skills, experience, and risk appetite to invest when others do not, and can create far more value than others through their work during challenging economic times. Leading private equity firms are already envisioning a post-Covid outcome; what’s more, they have roughly $1.5 trillion of dry powder at their disposal to support existing portfolio companies, invest in newly distressed firms, and pursue other growth and value-creating strategies.

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ESG Index Funds Hits $250 Billion as Pandemic Accelerates Impact Investing Boom

Brief: Socially conscious investing continues to gain momentum as Covid-19 and the destruction left in its wake spark interest in stakeholder capitalism — the idea that a public company’s focus shouldn’t only be generating profits to reward shareholders without taking the bigger picture into account. With investors increasingly favoring ESG stock selection — when a company’s environmental, social and governance policies are considered alongside more traditional financial metrics — more impact investing funds are launching to keep pace with demand. Both the number of sustainability-focused index funds, and their assets, have doubled over the past three years, according to a report from Morningstar released Wednesday. The financial research firm said that as of the end of the second quarter 2020, there were 534 index funds focused on sustainability, overseeing a combined $250 billion. In the U.S., which has lagged Europe in ESG investing, assets in sustainable index funds have quadrupled in the last three years and now represent 20% of the total.

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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 September 2, 2020:

  • In the United States, the Trump administration’s “America First” slogan seems to be more than just a political catchphrase. The American government announced they will not join a global effort to develop, manufacture and equitably distribute a coronavirus vaccine. Their reason: the World Health Organization (WHO) is involved. The WHO is part of the coalition which has more than 170 countries in talks to participate in the Covid-19 Vaccines Global Access (Covax) Facility. The White House said in a statement: “The United States will continue to engage our international partners to ensure we defeat the virus, but we will not be constrained by multilateral organizations influenced by the corrupt World Health Organization and China.”
  • In Canada, Quebec’s premier tossed out the idea of re-imposing lockdown measures if citizens don’t start obeying the public health rules more closely. Premier Francois Legault issued the warning earlier in the week as the number of new cases have been rising for two weeks in the province. The uptick is concerning as the weather starts to get a little cooler, moving more people indoors and children returning to school. The premier pointed to the resumption of sports, the reopening of bars and indoor private gatherings for the recent spike. Elsewhere in the country, Ontario has reported 133 new COVID-19 cases on Wednesday, making it now a week-long stretch for new daily case counts in the triple digits. However, the province’s health minister pointed out the majority of cases are concentrated in four densely populated regions. Twenty-one of the 34 health regions in Ontario have reported no new infections at all on Wednesday. 
  • In the United Kingdom, the media are calling out Prime Minister Boris Johnson on his claims that “huge numbers” of people have returned to work in the office. In pre-recorded comments, Prime Minister Johnson told his weekly cabinet meeting, “people are going back to the office in huge numbers across our country – and quite right, too.” However, figures from the Transport of London note ridership is down 72% compared to the same time last year. Downing Street officials noted they have no numbers to back up the Prime Minister’s claims. The government last month urged people to get back into the office, but many civil servants and private sector employees continue to work from home. 
  • The European Union and its Centre for Disease Prevention and Control (ECDC) is urging its bloc members not to reduce the 14-day quarantine for COVID-19. The ECDC is citing data that new cases across Europe are at 46 cases per 100,000 people, which almost reflect the numbers seen in March – the beginning of the peak phase of the pandemic. EU nations such as Germany, Netherlands and Norway were already making or have made plans to shorten their quarantine length.
  • Media is citing sources close to the matter that Japan’s government is considering offering free COVID-19 vaccinations to all residents. The sources say the government wants to secure vaccines for all of its citizens by the first half of 2021 and is considering prioritizing medical workers, the elderly and those who have underlying illnesses. Elsewhere in the country, the ruling Liberal Democratic Party is pushing ahead and have decided that September 14th will be the vote for a new party leader after Prime Minister Shinzo Abe announced last week he would step down due to health reasons.
  • Issuing its first guidance on treating COVID-19, the World Health Organization (WHO) has signalled two anti-inflammatory steroids that significantly reduced the rate of death in patients requiring oxygen support. A WHO-led report reinforced conclusions of an Oxford University study earlier this summer that the drug dexamethasone cut mortality rates in severe COVID-19 patients. The WHO-led analysis also found the everyday steroid hydrocortisone was equally successful. To date, these are the only treatments with a proven effect on coronavirus death rates and the health regulatory body doesn’t recommend using steroids in non-severe coronavirus patients, a group that the drugs might cause harm.

Covid-19 – Due Diligence And Asset Management

German Finance Watchdog Says Worst of Coronavirus Crisis to Come

Brief: Germany’s financial regulator expects the worst of the coronavirus crisis is still to come, although there was no immediate threat to financial stability from the pandemic. But as many countries in Europe and beyond see rising coronavirus infection rates and governments grapple with how to respond, BaFin president Felix Hufeld said he was concerned about the weakest 20% or 30% of institutions he monitors. We will not get out of this thing painlessly. That much is for sure. The hard part is still to come,” Hufeld said on Wednesday at a banking conference at which he and other panelists were separated on stage by plastic screens. Earlier, Deutsche Bank (DBKGn.DE) Chief Executive Christian Sewing forecast that the economy would not return to normal this year or next, and that many sectors will be running at 70%-90% capacity, with “serious consequences”. “Many companies will have to adjust to this and manage to be profitable with longer-term lower revenues,” Sewing said.

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Pensions Need a ‘Safety Valve’, Says JPMorgan

Brief: Pensions entered the Covid-19 pandemic significantly exposed to corporate credit risk, relying on a traditional investment strategy that may be heading for failure, according to JPMorgan Chase & Co.’s asset management group. They’ve been hedging the volatility of their pension liabilities by taking on “a very concentrated exposure to corporate credit,” Jared Gross, the head of institutional portfolio strategy at J.P. Morgan Asset Management, said in a phone interview. Largely holding corporate bonds at risk of being downgraded to junk in the downturn, plus Treasuries with historically low yields, won’t work well for ensuring workers receive the pension benefits they’re owed, according to Gross. “If a classic fixed-income portfolio is yielding 2 percent, that’s not going to get the job done,” he said. “You have a concentrated exposure in investment-grade corporate credit, which is both relatively low-yielding today and likely to be exposed to higher than normal levels of credit volatility.”

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Australia’s Wealth Fund Posts First Annual Loss Since Global Financial Crisis

Brief: Australia’s sovereign wealth fund has posted its first annual loss since the global financial crisis, and is holding more cash in preparation for further market volatility. The Future Fund lost 0.9% in the 12 months ended June 30, the first annual decline since 2009, it said in a statement Wednesday. It’s cash allocation increased to the highest in almost three years in preparation for "what will be a challenging and volatile environment in the future, ” Chairman Peter Costello said. "The factors that have fueled strong performance in the past may not be there any longer, ” Costello said in the statement. "We will need to be ever more strategic in how we pursue long-term returns in the future.” The Future Fund echoed Norway’s sovereign wealth fund, which is expecting more volatility given the coronavirus pandemic isn’t under control. The world’s biggest wealth fund lost 3.5% in the first half of 2020 as the rebound in stock markets wasn’t enough to erase the record decline earlier this year. The Future Fund’s cash holdings rose to 17% of the portfolio in June, the most since the third quarter of 2017 as it reduced exposure to private equity firms and sold its stake in Gatwick Airport. It made bets in "new infrastructure” such as fiber and data centers, Chief Executive Raphael Arndt said.

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U.S. Economy Needs Over $1 Trillion in Fresh Coronavirus Stimulus, says World’s Biggest Hedge Fund

Brief: The co-CIO of the world’s largest hedge fund told CNBC on Tuesday that the U.S. economy continues to need significant fiscal support in order to sustain its recovery from the coronavirus-induced devastation. Greg Jensen of Bridgewater Associates said the firm estimates that the price tag for another coronavirus relief bill is between $1.3 trillion and $1.7 trillion in order for the U.S. economy to continue “in the way that it’s been going.”  “And it depends what it’s used for. ... The policy that gets directly spent in the economy is much more effective per dollar than the dollar that’s preventing more bad things from happening,” Jensen said in a “Squawk on the Street” interview. “The money for states is going to prevent negatives. The stimulus checks will be direct positives.” Jensen’s comments come as Republicans and Democrats in Washington continue to squabble over the size and scope of another piece of Covid-19 stimulus legislation while millions of Americans remain out of work and businesses grapple with continued disruption. 

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Can Steve Cohen Fix America’s Health Care Problem?

Brief: Steve Cohen’s Point72 Ventures is getting into the health care game. The venture firm announced Tuesday that it has created a new investment team focused specifically on health care. The firm hired Scott Barclay, previously a partner at Data Collective Venture Capital, to lead the group. Hedge fund firms like Deerfield Management and Renaissance Capital have been raking in returns after investing in health care companies, Institutional Investor has previously reported. There are major profits to be made in the health care industry, particularly during the pandemic, but Point72 Ventures is positioning this launch as an altruistic one.  “The current health care system is broken, particularly in the United States,” said Matthew Granade, managing partner at Point72 Ventures, in a statement. “We believe that these problems will be solved by technical founders who are dedicated to reimagining how the health care system should function at scale.” According to a spokesperson for the company, Point72 Ventures plans to invest across the health care space, without specifically focusing on biotech or pharmaceuticals.  Early on, the venture fund will focus on investing in better models of paying for care and improving health care access. Point72 Ventures will specifically look to invest in technology and data-driven products as solutions to these problems, the spokesperson said.

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More Asset Owners Worldwide Turning to Alternatives

Brief: A broad survey of institutional investors found that 40% of the universe will increase their allocations to alternative investment strategies over the next three to five years, said CoreData Research in a report on its findings released Tuesday.  The research firm surveyed 459 asset owners in North America, Europe and Asia in June and July and found that European investors have the largest appetite for alternatives with 46% of those surveyed responding that they intend to ramp up their commitments in this area. In contrast, 30% of Asia-based asset owners said they will increase their exposure to strategies including private equity, private credit and real estate over the three- to five-year period vs. 35% of North American institutional investors. "Our findings indicate that institutional investors have looked to weather the COVID-19 storm by seeking shelter in alternatives, which can enhance diversification and risk-adjusted returns," said Andrew Inwood, founder and principal of CoreData Research, in the report. Allocations to alternative investment strategies in institutional portfolios overall now average 26% of plan assets compared with 24% in 2019, CoreData's survey data showed.

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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 September 1, 2020:

  • In the United States, Admiral Brett Giroir, a member of the White House coronavirus task force and the director of the coronavirus testing program, said it’s up to all Americans to do what they are supposed to do heading into the Labour Day long weekend. Giroir is preaching avoiding crowds, outdoor vs. indoor gatherings with families, wearing masks and protecting the vulnerable. When it comes to testing, Admiral Giroir doesn’t want to answer any more questions on when every American can obtain a test quickly and cheaply. “It’s great to talk about this utopian kind of idea where everybody had a test every day and we can do that. I don’t live in a utopian world. I live in the real world and the real world had no tests for this new disease when this first started, said Giroir.”

  • In Canada, the testing story is a little different due to the smaller population as the country’s health authority is willing to consider approving home COVID-19 tests to screen for the virus. Health Canada had previously said it was concerned people might misuse home tests or misinterpret the results. Advocates argue that cheap, rapid tests to be used by people daily, or weekly are very unlikely to miss people sick enough to be contagious. Rapid COVID-19 tests, similar to home pregnancy tests, exist as prototypes in research labs, but have yet to be approved or manufactured at scale for mass use by the population. 

  • In the United Kingdom, more than 30 pharmaceutical companies and business groups have called on the government to help fill a £310 million financing void faced by medical research charities. These charities work closely with the industry to fund and develop drugs. Pharmaceutical companies working on COVID-19 vaccines such as AstraZeneca, Pfizer and Roche have asked Prime Minister Boris Johnson’s government to plug the £300+ million shortfall faced by research charities due to the pandemic, with further cash help in the next three years. The government did respond by saying they have already given the charity sector £750 million in emergency funding since the pandemic started and are willing to work together to ensure patients benefit from charity-funded research.

  • Just a few days removed from setting the single day world record for COVID-19 cases and closing in on four million confirmed cases overall, India had millions of masked students sitting in for college admission exams on Tuesday. Already suspended twice due to the pandemic, government officials weren’t willing to do it for a third time. More than two million students filed into various academic centres across the country, trying to do the best they could in a bad situation with physical distancing, hand sanitisation stations and temperature checks in place. India had recently relaxed more COVID-19 restrictions and announced metro trains can resume services beginning September 7th. 

  • In the Philippines, Manila fitness gyms, barber shops and internet cafes were allowed to partially reopen on Tuesday as quarantine restrictions were further lifted. President Rodrigo Duterte also shortened night curfew hours in most cities in the capital and outlying provinces. These new curfews will be in place for a month. However, it wasn’t all improving news for the country. The southern city of Iligan was placed under a mild lockdown after a rise in community infections. More than 220,000 COVID-19 cases have been confirmed in the Philippines, along with 3,500 deaths.

  • “Theft doesn’t even stop during a pandemic” - #stopCovid19thieves. These are the conditions and social media hashtags trending in Africa as they deal with the coronavirus. The nation was largely spared the brunt of the pandemic during the first wave with some of the lowest number of coronavirus infections in the developing world, but that hasn’t stopped fraud from running rampant. Some examples include Uganda recalling its ambassador to Denmark and her deputy after the pair were recorded in a Zoom call allegedly plotting to pocket COVID-19 funds and South Africa and Somalia dealing with corruption allegations; either over relief funds, or procurement of medical equipment.

Covid-19 – Due Diligence And Asset Management

Boycott of Buyout Firm Leonard Green has Rhode Island Alone

Brief: Rhode Island’s $8 billion public pension fund so far is standing alone in its boycott of Leonard Green & Partners LP over the private equity firm’s management of a hospital company it owns. Seth Magaziner, Rhode Island’s treasurer, last month sent a letter to the firm saying he would not invest with Leonard Green in the future over its handling of Prospect Medical Holdings Inc., which owns 17 hospitals in five states, including Rhode Island. Magaziner said the firm has siphoned money out of the hospitals while cutting back on pensions and capital improvements and has allowed patient care for the poor to slip. Once committed, investors in a private equity fund that disagree with its management or investments have few options. They can either engage the firm, publicly or behind the scenes, or they can decline to do business with the firm in the future, said Eileen Appelbaum, co-director of the Center for Economic and Policy Research, a non-profit public policy organization. “You can’t get out of anything that’s happening in a fund you’re already in,” Appelbaum said. “Your only leverage is to say ‘we’re not going in again.’” A Leonard Green fund purchased Prospect Medical Holdings in 2010 for $363 million, including debt. Since then, Prospect has borrowed to pay out more than half a billion dollars in dividends to shareholders including Leonard Green. It has also sold and leased back some of its properties to pay down its debts.

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JPMorgan Says Investors Should Prepare for Rising Odds of Trump Win

Brief: Investors should position for the rising odds of President Donald Trump winning re-election, according to JPMorgan Chase & Co. Betting odds that earlier had Trump well behind challenger Joe Biden are now nearly even -- largely due to the impact on public opinion of violence around protests, as well as potential bias in polls, said strategist Marko Kolanovic. Based on past research, there could be a shift of five to 10 points in polls from Democrats to Republicans if the perception of protests turns from peaceful to violent, he said. People giving inaccurate answers could artificially skew polls in favor of Biden by 5%-6%, he added. “Certainly a lot can happen in the next ~60 days to change the odds, but we currently believe that momentum in favor of Trump will continue, while most investors are still positioned for a Biden win,” Kolanovic wrote Monday. “Implications could be significant for the performance of factors, sectors, COVID-19 winners/losers, as well as ESG.” Biden’s narrowing advantage in polls evokes memories of the 2016 election, when such tallies seemed to favor Hillary Clinton strongly. While Clinton won the popular vote by several million, the Electoral College, a state-by-state count that determines the election outcome, ended decisively in Trump’s favor. Kolanovic, who has been accurate on calls including the stock rally after Trump’s election and the rebound from Covid-19-fueled lows earlier this year, said important drivers of the election in coming weeks include developments on the Covid-19 pandemic, which looks like it might subside as the vote nears.

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Global Trade Seen Rebounding Faster Now Than Post-Lehman

Brief: Global trade is on course to recover more quickly from the coronavirus pandemic than after the 2008 financial crisis, according to Germany’s Kiel Institute for the World Economy. Shipping volumes are already back at levels that took more than a year to reach following the collapse of Lehman Brothers Holdings Inc., hinting at a V-shaped recovery, the institution’s President Gabriel Felbermayr said. Trade has seen a “deep slump and a quick rebound,” he said. “The current situation is significantly better” than a decade ago. The pandemic has pushed the global economy into what may be its deepest slump since the Great Depression. The initial rebound reflects the lifting of severe restrictions to contain the virus, and policy makers have warned against premature optimism that the worst has passed. The World Trade Organization said earlier this month that projections for a strong, V-shaped trade rebound in 2021 might be “overly optimistic.”

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More Fed Stimulus Need ‘In Coming Months’ to Fight Pandemic Headwinds, Brainard says

Brief: The Federal Reserve will need to roll out new efforts “in coming months” to help the economy overcome the impact of the coronavirus pandemic and live up to the U.S. central bank’s new promise of stronger job growth and higher inflation, Fed Governor Lael Brainard said on Tuesday. “It will be important to provide the requisite accommodation to achieve maximum employment and average inflation of 2% over time,” Brainard said in prepared remarks in an online discussion organized by the Brookings Institution.  Brainard, among the architects of the new long-term strategy the central bank adopted last week, is the first Fed official to tie that new approach directly to the need for further monetary stimulus, likely in the form of more aggressive bond-buying or more ambitious promises about returning the country to low unemployment. Some analysts have argued the Fed’s new “framework” is incomplete without more details on what it intends to do to implement it, and Brainard in prepared remarks suggested that needs to be addressed.  “With the recovery likely to face COVID-19-related headwinds for some time, in coming months, it will be important for monetary policy to pivot from stabilization to accommodation,” Brainard said. That decision “will be guided” by the new strategy which trades risks of higher inflation with efforts to promote further job growth.

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PE Panorama: UK Private Equity Bailouts are Probably a Bad Idea

Brief: According to S&P Global Market Intelligence and Financial Times reports, the UK government has been evaluating ways to extend state-backed loans to private equity investee companies in difficulties, without violating European Union rules on state aid. These rules state that enterprises with losses over 50% of their share capital cannot receive state loans under programmes such as the UK’s Coronavirus Large Business Interruption Loan Scheme. Many private equity-backed firms, with substantial leverage debt on their balance sheets, cannot meet the associated “undertakings in difficulty” qualifications. The arguments against state aid for private equity-backed businesses have already been rehashed in the US. The fundamental point at issue in both cases is the same: why should state capital bail out businesses ultimately owned by big pools of private capital? Governments may be prepared to do whatever it takes to save jobs during a difficult period like the ongoing coronavirus crisis, but it won’t take long for questions about the allocation of state aid to take front seat. Pension funds and other institutional backers of private equity aren’t much of a justification for advancing state aid. If an investee company collapses, their returns suffer. If a private equity firm decides to deploy more fund capital to support an ailing investee, that may drive down returns too. And if state loans are made, taxpayers may be the ultimate losers where the money is diverted to keeping portfolio companies afloat. There’s also the argument that private equity-backed firms take on such large debt burdens partly to lower their tax exposure, which is hardly likely to endear them or their owners to the taxpaying public.

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‘Want a Bonus or Promotion? Come In’: Bankers Face Pressure to go Back to the Office

Brief: Investment bank employees in the City are facing pressure to return to the office, as senior executives take the lead in shifting from remote working arrangements. Junior and mid-ranking employees at some of the largest banks in the City have told Financial News that recent moves by senior staff to come back to the office have increased the urgency to unwind working from home arrangements, even if any return remains entirely voluntary. Bankers and traders said they fear being overlooked for promotions or having bonus payments reduced if they did not return to the office as more people trickle back to the City. “The senior guys don’t particularly want to go back, but they’re coming because the top says so, and that will create pressure for the people under them,” said one director at a US investment bank who requested anonymity. Generally, investment banks have been slow to unwind their remote working arrangements, which have seen tens of thousands of employees working from home. However, the government is preparing to launch a campaign next week to coax workers back to offices. The strategy, dubbed “All in, all together”, will inform the public of how to return safely to work with the right health and safety measures in place.

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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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