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Covid-19 Diligence Briefing

Our briefing for Wednesday March 31, 2021:

  • In the United States, a government report released on Wednesday stated COVID-19 was the primary or contributing cause of 377,883 deaths in the country in 2020. The Centers for Disease Control and Prevention (CDC) said the COVID-19 mortality rate was the third leading cause of death in the United States in 2020 – trailing only heart disease and cancer. The pandemic took its hardest toll on those 75 and above – accounting for close to 225,000 deaths. The CDC also pointed out that limited availability to testing for the coronavirus at the beginning of the pandemic might have resulted in an underestimation of COVID-19 associated deaths.

  • In Canada, three levels of government announced joint funding to expand the country’s vaccine manufacturing capacity on Wednesday. The federal government will spend $415 million on the partnership with French pharmaceutical company Sanofi Pasteur Ltd., with the Ontario provincial government chipping in $55 million. For its part, Sanofi will spend more than $455 million, to bring the total price tag to close to $1 billion. The end goal is to have a new facility up and running in the Toronto area by 2027 that will have the capacity to produce “enough vaccine doses to support the entire Canadian population”, according to a federal news release. “We are now never going to have to rely on any country, any leader, we will be self-sufficient,” said Ontario Premier Doug Ford.

  • In the United Kingdom, the Evening Standard updated a survey regarding a number of FTSE 100 companies’ latest plans for what a return to the office will look like, or if they plan to embrace flexible working going forward. Private equity firm 3i said they have around 150 staff in London and occupy around 35,000 square feet of office space. A final decision has not yet been made, but 3i said it is likely to “maintain our existing set-up.” ICG, a global alternative manager also responded and said they plan to keep their same amount of space (47,000 square feet in London) for the next three years. Standard Life Aberdeen employees can expect a new look when they return to the office – a re-calibrated area to create more open-zones for people to interact and generate ideas, according to CEO Stephen Bird. 

  • Italy will impose a five-day coronavirus quarantine for people arriving from European Union (EU) countries or returning trips from within the bloc until April 6th. Italy is under tight coronavirus restrictions as it goes through a deadly third wave and are facing a three-day lockdown of their own citizens over the Easter weekend, starting on Saturday. Travellers must also take a COVID-19 test at the end of the quarantine period. Similar measures were already put in place for trips to countries outside of the EU.

  • China has come to the defense of their scientists and called on the World Health Organization (WHO) to take the lead in respecting their conclusions. “We need to respect science and respect the opinions and the conclusions reached by scientists,” said Chinese Foreign Ministry spokeswoman Hua Chunying. China’s comments come one day after multiple countries criticized the findings from the WHO report, calling it incomplete and overly controlled by the Beijing government. Hua had an answer for that criticism too: “They [other countries] want to spread rumours and push their political agenda. The experts said they went to the places they wanted to, and they met with the people they wanted to.”

  • Australia has fallen 3.4 million doses short, or 85% shy of its original targeted goal of vaccinating 4 million of its citizens by March 31st. Australia has fared well compared to other countries when dealing with the pandemic, but this development, coupled with sporadic outbreaks leading to lockdowns in six cities over recent months, has prompted criticism of the government. In January, Prime Minster Scott Morrison promised to have four million inoculated by the end of March but pushed that back earlier this month to mid-April. The prime minister also dialed back his promise to have every Australian fully vaccinated by October – instead saying everyone will have their first shot by then.

Covid-19 – Due Diligence And Asset Management

In Next Pandemic, Buyout Firms Want Reprieve in Debt Deals

Brief : Private equity is already positioning for the next deadly virus. Some buyout firms are seeking new terms in loan agreements to help their companies avoid defaults if earnings drop in a future pandemic, according to lawyers with knowledge of the discussions. They’re getting resistance from banks concerned the proposals allow borrowers too much flexibility and would scare away investors. Fights over the fine print in credit agreements became particularly bitter during the Covid-19 outbreak, with companies strapped for cash as business withered. Those tensions are making creditors wary of giving away any bargaining power. Proposed terms vary, but the most aggressive version would allow a company to exclude the effect of a future pandemic from the calculation of earnings used to determine whether it’s in compliance with creditor covenants. The covenants typically rely on earnings-based financial metrics to determine whether a company can take on additional debt, sell assets or distribute dividends.

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Pressure for Hedge Funds Scrutiny Builds as Yellen Leads her First U.S. Financial Stability Meeting

Brief: U.S. Treasury Secretary Janet Yellen is facing pressure from Democrats to revive tougher scrutiny of hedge funds and other large pools of capital as she heads her first meeting of the premier grouping of U.S. financial regulators on Wednesday. The meltdown of leveraged hedge fund Archegos Capital Management this week, which inflicted losses on Credit Suisse, Nomura and other intermediaries, gives the Financial Stability Oversight Council fresh evidence to review. The council, led by Treasury and including heads of the Fed, the Securities and Exchange Commission and other major financial regulators, is scheduled to meet at 3 p.m. EDT (1900 GMT) to privately discuss hedge fund activity and the performance of open-end mutual funds during the coronavirus pandemic. It also will hold a rare public session to discuss financial system risks from climate change for the first time. Archegos’ failure to meet margin calls is the third significant market episode in the space of a year involving faltering hedge funds or open-end mutual funds.

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Carlyle Seeks Staff’s Return by September, Many in Hybrid Roles

Brief: Carlyle Group Inc. plans to bring most staff back to its offices on a regular basis by September, although many will continue working remotely part of every week for the foreseeable future. “By the fall, we’ll be able to sort of open all of our offices in a more fulsome way,” Reggie Van Lee, Carlyle’s chief transformation officer, said Wednesday during a Bloomberg Live event. “We are hoping for the fall and being agile in the meantime.” The private-equity firm is trying “not to be overly prescriptive” when it comes to remote work, Van Lee said. He expects some staff to come in daily, while others do so periodically -- perhaps as infrequently as once a quarter -- to ensure that Washington-based Carlyle is able to keep up with “community building.” Wall Street is diverging in its staffing expectations, with some executives at the largest banks anxious to get employees back to the office to foster more collaboration and win business. Other firms, like Apollo Global Management Inc. and Two Sigma Investments, have been testing plans for their staffs to work remotely a few days a week as pandemic restrictions ease.

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Blending Home and Office Working a Priority for 2021

Brief: Fund managers must manage a seamless integration between office and home working in order to avoid damaging silos. They should also adopt agile methodologies used in the technology market in order to speed up their operations and cope with a likely acceleration in the use of digital technology. These were some of the priorities and predictions for 2021 made by some of the industry’s leading technology and operations figures in the recently published FundsTech quarterly report. Andrew Hampshire, chief operating officer and chief technology officer at specialist fund manager Gresham House, said: “If businesses don’t have a slick mechanism for bringing office and remote workers together, businesses could see silos start to develop between those in the office and those working at home. Getting both the cultural aspects and technological aspects right therefore is very important.”

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Covid-19 and Threat of Climate Change Drives Increase in LGIM’s Company Engagements

Brief: Legal & General Investment Management (LGIM), one of the world’s largest asset managers, has released its tenth annual ‘Active Ownership’ report, which reveals that over the course of 2020, it increased company engagements by 21 per cent and continued to vote globally, opposing the election of more than 4,700 company directors, as it sought to effect positive change at companies in which it invests. 2020 was an exceptional year for engagement. In March 2020 LGIM wrote to companies with constructive suggestions about how they could cope with the unfolding pandemic and resulting lockdowns, from supporting employees to raising capital. In addition to increasing focus on topics such as executive pay, board governance and income inequality, stewardship efforts have continued to shine a light on companies’ gender and ethnic diversity as well as the longer-term threat of climate change.

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FTSE 100 Dividend Yields Forecast to 24 Per Cent This Year as Economy Bounces Back from Covid-19 Crisis

Brief: UK equity analysts forecast that the dividend yields on FTSE 100 shares will rise by 24 per cent from 2.56 per cent to 3.17 per cent this year as the economy begins its recovery from the coronavirus recession, according to new research from Bowmore Asset Management. Bowmore Asset Management’s research is based on a consensus of analysts’ views on how dividends will increase over the next year. Bowmore Asset Management says many FTSE 100 companies took conservative approaches to dividends in 2020 to ensure their balance sheets weren’t put under too much pressure during the early stages of the coronavirus crisis. Banks and oil & gas companies, two of the UK’s largest dividend paying sectors historically, were among the sectors to cut dividends the most aggressively in 2020, alongside the industries hardest hit by the lockdown restrictions, such as travel & leisure and commercial property. Banks were forced to suspend dividends at the height of Covid-19 crisis last March, with regulators believing they could have difficulty lending if dividends were continued to be paid. HSBC and BT were among the largest FTSE 100 dividend payers to cut dividends in 2020, with each cancelling payments totalling more than GBP3 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 Tuesday March 30, 2021:

  • One day after United States’ CDC Director Dr. Rochelle Walensky shared her feelings of “impending doom” at a White House COVID-19 briefing, President Joe Biden made a plea of his own. The president implored state and local officials to reinstate mask mandates where some have lifted them altogether and/or issued new guidance on restaurant capacity and other measures. “I need the American people do their part as well. Mask up, mask up. It’s a patriotic duty. It’s the only way we ever get back to normal,” said President Biden. Health experts have warned another case surge is likely on the way in the coming weeks, with the majority being fueled by coronavirus variants.
  • In Canada, the country’s three most populous provinces are in various stages of handling the latest waves of the coronavirus pandemic. Ontario – the country’s most populous province – experienced just over 2,300 new cases on Tuesday and Critical Care Services Ontario (CCSO) said 46 more people with a COVID-19 related illness were taken to ICU units – the highest single day increase since the pandemic began. In Quebec, the province’s health minister acknowledged on Monday they have now entered a third wave of COVID-19, even as some restrictions loosen in their largest city, Montreal and cases rise in other regions. Quebec reported 864 new cases on Tuesday and the health minister said he is watching the situation closely and if hospitalizations go up, the province may need to reintroduce some measures. Finally, in British Columbia, the province is introducing a three-week “circuit breaker” style-lockdown, introducing sweeping new restrictions on indoor dining in restaurants, group fitness and worship services after hitting a single-day high in cases over the weekend.
  • In the United Kingdom, the Evening Standard is reporting the country could be receiving a fourth vaccine for use within the next four weeks. Professor Paul Heath, chief investigator for the Novavax inoculation trial, believes the Medicines and Healthcare products Regulatory Agency, which has been using a fast track “rolling review” process, now has nearly all the data it needs to make an approval decision. “The regulator will do a very detailed and thorough review and will decide in good time. I would hope it would be in the spring, possibly end of April,” said Heath.
  • Germany is the latest country to recommend AstraZeneca COVID shots only be used for people aged 60 or over following further reports of a rare brain blood disorder. Germany’s medical regulator, the Paul Ehrlich Institute, says it has received reports of 31 people vaccinated with the AstraZeneca COVID-19 vaccine suffering rare blood clots in the brain. Nine of those people died, the agency announced Tuesday. In 19 of the 31 cases, the people also had low blood platelets. German leaders are set to discuss the use of the vaccine after several states said they would stop giving the inoculation to people under the age of 60.
  • In Australia, two separate clusters that both originated from the same Brisbane hospital at different times, has pushed the city into a snap three-day lockdown. Queensland’s state chief health officer described the growing cluster of seven cases “as significant community transmission” of the UK variant and warned people in greater Brisbane to stay home over the coming days. The hospital at the centre of the two outbreaks – Princess Alexandra Hospital – has also been put into lockdown. Snap lockdowns, social-distancing rules and speedy contact-tracing systems have helped Australia control fresh clusters in recent months and they hope for the same to happen in Brisbane over the coming days. 
  • The World Health Organization (WHO) released their findings Tuesday from the fact-finding mission they made to Wuhan, China back in January and it was immediately met with calls to do more. The governments of the United States, Canada, Australia, United Kingdom, Israel and nine other countries have asked for a more independent review and fully transparent evaluations with access to all relevant data in the future. The countries’ joint statement wants further studies of animals to find how the virus was introduced to humans and called for a renewed commitment from WHO and member countries to access, transparency and timeliness. The statement followed WHO Director-General Tedros Adhanom Ghebreyesus’s assertion that data wasn’t freely shared with its investigators who traveled to China to research origins of the pandemic.

Covid-19 – Due Diligence And Asset Management

Private Equity’s Taste for Tech Spurs $80 Billion Deal Spree

Brief : Private equity firms are barreling through the records as they place bets on technological revolutions in sectors ranging from finance to health care. Firms have spent $80 billion acquiring companies in the global technology sector this year, according to data compiled by Bloomberg. That’s an all-time high for a quarter and already up 141% on this point in 2020, which went on to be a record year for such deals. This month alone has seen Thoma Bravo ink a $3.7 billion acquisition of fintech outfit Calypso Technology Inc. and Ontario Teachers’ Pension Plan agree to take a majority stake in Mitratech, a provider of legal and compliance software, in a $1.5 billion deal. In Europe, TA Associates said it would take over Dutch enterprise software firm Unit4 NV in a $2 billion-plus transaction, while one of Insight Partners’s portfolio companies bought data management group Dotmatics Ltd. for as much as 500 million pounds ($690 million). Earlier this year, Montagu Private Equity agreed to acquire U.K. software developer ITRS Group Ltd. for about $700 million. Buyout firms are flush with investor cash and are being drawn to startups helping companies to reinforce their businesses following the impact of the Covid-19 pandemic, according to Chris Sahota, chief executive officer at tech-focused advisory boutique Ciesco.

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Hedge Funds’ Coffers Swell Further in February, as Investors Pile in

Brief: Hedge funds have recorded their strongest two-month run of investor inflows since 2014, with multi-strategy managers attracting the strongest interest so far this year, according to new research by eVestment. Allocators poured some USD16.44 billion into hedge fund strategies throughout February, which helped push total net inflows so far this year to USD23.74 billion. At the same time, strong positive performance for managers since the start of this year has brought hedge fund industry’s overall AUM to USD3.407 trillion. Multi-strategy hedge funds have been the biggest draw for investors, attracting USD8.98 billion in the first two months of 2021, which included USD5.34 billion in February. Meanwhile, event driven managers pulled in USD2.47 billion of allocator capital in February, swelling this year’s new money to USD3.30 billion.

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Data Breaches are a Frequent Occurrence for the Pensions Industry, says Sackers Webinar

Brief: A new survey by Sacker & Partners (Sackers), a UK-based specialist law firm for pensions and  pensions litigation, has revealed that data breaches are occurring frequently. The survey showed that just over a third of those responding to the survey have suffered a breach in the last twelve months, with almost half of such breaches reported to the Information Commissioners Office. Sackers Senior Counsel, Arshad Khan, says: “The pensions industry is firmly in the sights of the media and seemingly public interest too when it comes to data security. And the headlines can be emotive, giving many the impression that the industry is not on top of the situation. But the pensions industry is no different to any other industry, and breaches or cyber attacks do and will continue to happen to everyone, including schemes, such as those in our survey, and government bodies such as DWP, TPR and HMRC too.

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Americans Want the Government to Buy U.S. – Made Goods, even if they Cost More

Brief: A year of pandemic-driven shortages of vital safety goods and medicines - not to mention consumer items like bikes and electronics - has not made Americans more willing to pay extra for U.S.-made goods. Yet a large majority think the government should do so. A new Reuters-Ipsos poll found 63% of Americans want U.S. agencies to buy American-made products in general, even if they cost significantly more, and 62% think the government should strictly buy U.S.-made vaccines. That enthusiasm dims a bit when it comes to other types of safety equipment, such as face masks: a majority, 53%, agree it is fine to buy personal protective equipment - or PPE - from foreign sources, while 41% disagreed. The poll shows a longstanding contradiction: Americans like the idea of buying American goods - but not if it means paying more personally for it. It also underscores a challenge facing the Biden administration, which has vowed to bolster manufacturers of crucial safety goods and pharmaceuticals as part of its larger push to revive the U.S. factory sector.

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JPMorgan says Banks’ Archegos Hit May be up to $10 Billion

Brief: Banks roiled by the Archegos Capital fallout may see total losses in the range of $5 billion to $10 billion, according to JPMorgan. Losses from trades unwinding related to Archegos will be “very material” in relation to lending exposure for a business that is mark-to-market and holds liquid collateral, analysts led by Kian Abouhossein wrote in a note. They added that Nomura Holdings Inc.’s indication of potentially losing $2 billion and press speculation of a $3 billion to $4 billion loss at Credit Suisse AG is “not an unlikely outcome.” Analysts and investors are trying to figure out the final losses to banks exposed to the Archegos implosion, with the task made harder by the opaque nature of the leveraged trading involved. JPMorgan had previously estimated losses in the range of $2 billion to $5 billion. “We are still puzzled why Credit Suisse and Nomura have been unable to unwind all their positions at this point,” the analysts wrote, adding that they expect to see full disclosures from lenders by the end of this week.

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EQT Nears $5.3 Billion Deal for Partners Group’s Cerba

Brief: EQT AB is nearing an agreement to acquire Cerba HealthCare in a deal valuing the French laboratories firm at about 4.5 billion euros ($5.3 billion) including debt, people with knowledge of the matter said. The European private equity firm could announce a deal as soon as this week to purchase Cerba from Swiss buyout firm Partners Group, according to the people. EQT beat out rival bidders including other investment funds, the people said, asking not to be identified because the information is private. Partners Group, which owns the business together with Canada’s Public Sector Pension Investment Board, has been exploring options for the business including a sale, Bloomberg News has reported. Representatives for EQT and Partners Group declined to comment, while a spokesperson for PSP didn’t immediately respond to a request for comment. Demand for hospital and laboratory assets has increased amid the Covid-19 crisis and a sale of Cerba could rank among the largest deals in the sector in Europe this year, according to data compiled by Bloomberg.

Read more...


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 March 29, 2021:

  • The United States’ director for the Centers of Disease Control and Prevention (CDC) is pleading with Americans to continue to take the necessary precautions to prevent the spread of COVID-19 amid an increase in cases across the country. Using words like “scared” and phrases such as “impending doom”, CDC Director Dr. Rochelle Walensky said during a briefing on Monday that the United States’ current trajectory in regard to the pandemic looks similar to Germany, Italy and France, who are experiencing a third wave of the virus. “We do not have the luxury of inaction. For the health of our country, we must work together now to prevent a fourth surge,” said Dr. Walensky. America surpassed 30 million total COVID-19 cases over the weekend, and a 10% increase of more than 60,000 cases per day last week, compared to the previous week.

  • The AstraZeneca COVID-19 vaccine roller coaster in Canada went for another ride on Monday. CBC is reporting Canada’s National Advisory Committee on Immunization (NACI) is expected to recommend a pause on the AstraZeneca vaccine for anyone under the age of 55 because of safety concerns. Canada is expected to receive 1.5 million doses of the AstraZeneca COVID vaccine from the United States on Tuesday. Monday’s news marks just the latest setback for the drugmaker. Earlier this year, a number of European countries halted use of the AstraZeneca vaccine for those over 65 due to questions on efficacy, only to restart them after new evidence emerged. Last week, American health regulators found “outdated information” may have been reported by the company when it released data on U.S. trials. The NACI’s recommendations for the AstraZeneca vaccine have changed multiple times since being approved in the country just last month. 

  • In the United Kingdom, people can now meet in larger groups outside and resume outdoor swimming and organized sports thanks to the government’s roadmap for lifting coronavirus restrictions. Speaking at a news conference on Monday, Prime Minister Boris Johnson said he is “hopeful” he will not need to put the country in lockdown again with infection rates at their lowest in six months and nothing in the data to suggest the government will need to keep restrictions in place longer than planned. The next major stage in the roadmap is April 12th when non-essential retail will reopen while pubs and restaurants will be allowed to serve customers at tables outside.

  • German Chancellor Angela Merkel threatened to assert federal authority over the weekend as some state leaders have opted not to enforce restrictions agreed with her administration. With a federal election expected later this year and Chancellor Merkel already announcing she won’t run again, the once respected leader is now in lame duck status. There has been mounting public opposition to lockdown measures and frustration with Germany’s vaccination drive. In an interview with ARD television on Sunday, Chancellor Merkel stated in regard to broken commitments: “We can’t go on like this. We meet every four weeks and then we just keep going the same way as before.”

  • In the Philippines, Metro Manila and the adjacent provinces of Bulacan, Cavite, Laguna and Rizal were moved back into strictest lockdown phase on Monday. The move made by government officials is expected to at least remain in place until April 4th and a curfew will be imposed from 6 PM to 5 AM during the lockdown. In a move hoping to boost inoculations, Philippine President Rodrigo Duterte said he will allow private companies to import vaccines “at will”. Businesses can choose where to source and import vaccines. Previously, private companies were required to enter into a deal with the government and vaccine manufacturer to secure supplies. 

  • The United Arab Emirates (UAE) have been chosen by China to make millions of doses of its state-backed Sinopharm vaccine. The deal marks the first time China has allowed for manufacturing of their shot overseas and deepens Beijing’s influence in the Middle East. According to the new joint venture between Sinopharm CNBG and Abu-Dhabi based G42, a plant is expected to become operational later this year and produce up to 200 million doses annually. Production has already started on a smaller scale in an existing plant in the UAE with a capacity of 2 million doses per month.

Covid-19 – Due Diligence And Asset Management

SEC says it’s been Monitoring Archegos Fallout Since Last Week

Brief : The U.S. Securities and Exchange Commission has been monitoring the forced liquidation of more than $20 billion in holdings linked to Bill Hwang’s investment firm that has roiled stocks from Baidu Inc. to ViacomCBS Inc. “We have been monitoring the situation and communicating with market participants since last week,” an SEC spokesperson said in emailed statement. Hwang’s New York-based Archegos Capital Management is at the center of a margin call that led to the forced liquidation on Friday, according to people familiar with the transactions. Among the companies sold were GSX Techedu Inc. and Discovery Inc. Banks including Credit Suisse Group AG and Nomura Holdings Inc. are warning investors that they may face “significant” losses after an unnamed U.S. hedge fund client defaulted on margin calls. Goldman Sachs is telling shareholders and clients that any losses it faces from Archegos are likely to be immaterial, a person familiar with the matter said.

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Real Estate Investors Desperate to Spend $250 Billion Hoard

Brief: Investors with a record hoard of money to finance distressed commercial real estate are finding themselves in a tough spot: There’s nowhere to spend it. The massive wave of defaults expected after the coronavirus shuttered offices, hotels and stores last year has so far failed to materialize. Now, as the U.S. economy swings from pandemic lows to a vaccine- and stimulus-induced rebound, the window of opportunity for discounted deals is closing before it ever really opened. That may sound like positive news to most Americans, but to a select group of investors who anticipated raking in big profits from the misfortunes of others, it’s a problem. Troubled properties aren’t coming to market because owners have little pressure to sell. Commercial real estate prices have held up -- or even risen -- because so much money is chasing so few deals. “We’re starting to see frustration rolling over into desperation,” said Will Sledge, senior managing director in the capital markets unit of brokerage Jones Lang LaSalle Inc. Investors are “willing to push prices up and their yields down in order to simply deploy capital.”

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Pandemic Forces Asset Managers to Recalibrate Their Expansion Efforts, says PwC

Brief: PwC Luxembourg has announced the release of the 21st edition of their annual Global Fund Distribution (GFD) poster showcasing the growth of cross border funds and distribution in 2020. The research covers all border markets globally and provides a unique and global view of the health of the industry. The top five asset management companies for cross-border distribution funds, based on the number of countries in which they distribute worldwide, are Franklin Templeton, Fidelity Investments, HSBC, Schroders, and BlackRock, with three of them based in the US, and two based in the UK. A total of 14,128 cross-border investment funds accounted for 128,520 registrations globally as of end-2020, a 0.7 per cent increase in the number of funds and a 5.8 per cent increase in the number of registrations compared to 2019. The number of cross-border ETFs decreased by 6.2 per cent to 4,482 in 2020. A record 297 ETFs closed during the year. This was primarily driven by increased competition, mergers and acquisitions and the failure to attract assets.

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Institutional Investors Increase Focus on Ethnic and Gender Diversity in Wake of 2020

Brief: More than half of US institutional investors report that the events of 2020, including the protests over George Floyd’s death at police hands, have influenced their thinking on diversity and inclusion in their investments. A survey of 100 institutional investors by Aon found that 58 per cent have become more attuned to issues of gender and ethnic diversity in their investment approach and thinking.  Investors may also be responding to a shifting climate in the industry, with stakeholders and shareholder activist groups upping their focus on diversity. Aon’s survey found that 11 per cent of investors say they have felt greater pressure from stakeholders to take concrete action by investing with diverse managers in the last year.  Another 18 per cent reported that constituents, boards and beneficiaries are now asking for statistics on diversity within their portfolio, while 13 per cent of investors felt more pressure to engage with diverse investment firms.

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Funds Bet on a Consumer Boom to Rival ‘Roaring Twenties’

Brief: Some of the world’s top money managers are betting on a post-pandemic spending boom that will boost real-world companies as economies reopen and people go back to their normal lives. Investors from Aberdeen Standard Investments Inc. and GAM Investments to UBS Asset Management are increasingly pouring money into companies where face-to-face interaction is the norm -- things like travel companies, restaurants, off-line shopping and “consumer experiences.” “A lot of people are estimating this is really going to lead to a new ‘roaring 20s’ theme,” said Swetha Ramachandran, the manager of GAM’s Luxury Brands Equity fund, referring to growing views that post-pandemic spending will hark back to the excesses of the 1920s. That’s when euphoric consumers piled into a wave of spending after the first World War and the 1918 flu pandemic. “There will be a lot of peacocking” as people start socializing, she said. Investors began piling into cyclical stocks that benefit from an economic rebound late last year following good news on the vaccine front, while pulling back from high-valued technology stocks. The rotation accelerated as Treasury yields rose in mid-February.

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Investment Fraud Reports 32% Leap as Criminals Exploit Covid-19

Brief: Investment scam reports surged by almost a third (32%) during 2020, with losses to these scams increasing 42% to £135.1m, according to a report by trade body UK Finance. So called ‘authorised' fraud losses increased 5% in 2020 to £479m as scammers ramped up online activity during the pandemic, its latest Fraud the Facts report stated. Unauthorised fraud losses dropped 5% as lockdown restrictions forced criminals to switch tactics, but were still very high at £784m, the latest Fraud the Facts report also revealed. Impersonation scam cases almost doubled to nearly 40,000 cases during the year. The shocking figures show why tackling scam activity, particularly online, needs to be prioritised across Government, UK Finance argued in the report. UK Finance is specifically calling for fraud to be included in the scope of the government's Online Safety Bill to better protect consumers from these scams. This would ensure that online platforms such as social media firms, search engines and dating websites take action to address vulnerabilities in their systems that are being exploited by criminals to commit fraud.

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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 March 26, 2021:

  • In the United States, the country’s former director of the Centers for Disease Control and Prevention (CDC) only stoked the flames of tension when it comes to the origin of the coronavirus pandemic between America and China. Speaking to CNN on Friday, Dr. Robert Redfield believes the pandemic began in a lab in China – a controversial theory without any evidence. Dr. Redfield believes the virus “escaped” a Chinese lab, albeit not necessarily intentionally. The former CDC director served under the Trump administration and the current Biden administration was quick to distant themselves from Dr. Redfield’s opinion stating it was only his opinion and they were awaiting the World Health Organization’s full report from their January visit to Wuhan, China before making any of their own assertions. The origin of the coronavirus has been a key source of tension between Washington and Beijing ever since the coronavirus pandemic began.
  • Canada is expected to hit one million total coronavirus cases next week, according to data released on Friday by the Public Health Agency of Canada (PHAC). “COVID-19 still has a few tricks in store, and we need to hold on together a bit stronger and longer until vaccines have us protected,” said Dr. Theresa Tam, Canada’s chief public health officer. Due to COVID-19 variants spreading throughout the country, daily case counts are expected to rise rapidly over the coming weeks after two months of relative calm. The PHAC stated with current variants in circulation, the case count could hit 12,000 a day if Canadians maintain or increase the number of people they are in contact with daily.
  • In the United Kingdom, Public Health England (PHE) have released a new study on Friday stating the government’s vaccine rollout plan prevented at least 6,100 deaths due to COVID-19 from early December to late February. PHE’s data says about 5,900 deaths were prevented among people aged 80 and above, and 200 in those aged 70 to 79. “While the vaccines have a striking effect on mortality, we don’t know yet know how much these vaccines will reduce the risk of you passing COVID-19 onto others. Even if you have been vaccinated, it is really important that you continue to act like you have the virus, practise good hygiene and stay at home,” said Dr. Mary Ramsay, PHE head of immunisation.
  • Italian Prime Minister Mario Draghi is firmly backing new European Union restrictions on vaccine exports and also took a shot at pharmaceutical companies. “The impression is that some companies - I won’t name any names – sold things two or three times,” said Draghi. The prime minister went on to add that individual exports bans must be considered, especially for companies which don’t respect contracts. Almost 10% of the Italian population has received at least one vaccine dose, compared to 26% in the United States and 43% in the UK. Prime Minister Draghi said he will seek parliamentary approval in mid-April to widen Italy’s budget to allow further economic stimulus.
  • In the Philippines, the government made a move on Friday to attract investments and help businesses recover from the pandemic. President Rodrigo Duterte approved a law that will cut the corporate tax rate from 30% to 25% for most businesses and 20% for smaller enterprises. According to the Philippines’ Department of Finance, the new law will bring the country closer to the average tax rate in Southeast Asia, which is around 22%.
  • Brazil’s Butantan Institute is going to develop its own domestic COVID-19 vaccine with hopes it could be ready for distribution by July. The Sao-Paulo based Butantan has partnered with China’s Sinovac to produce the CoronaVac shot, which will begin trials in April, pending regulatory approval. The single dose inoculation will begin mass production in May and hope to have 40 million shots ready to go by July. Production would be fully focused to meet Brazilian demand, before opening exports to other countries as well. According to data compiled by Bloomberg, Brazil has only administered first doses to about 6.6% of the population with those fully vaccinated standing at just 2%.

Covid-19 – Due Diligence And Asset Management

Private Equity Thinks Student Property is a Post-Covid Winner

Brief : Private equity firms are ramping up their investments in the U.K.’s student accommodation market, pumping hundreds of millions of pounds into a resilient sector with an eye on high rental returns in post-Brexit, post-Covid Britain. More than one-third of deals for student property in 2021 so far have been financed by private equity, compared to about 15% in total between 2016 and 2019, according to data compiled by real estate advisers Jones Lang Lasalle Inc. With student application numbers projected to rise by 8.5% this year and purpose-built accommodation oversubscribed, property remains attractive for private equity firms. They are sitting on more than $300 billion for property investments alone and want to broaden their assets beyond offices, retail and hotels -- all badly hit by Covid-19. Major deals this year include Los Angeles-based Ares Management Corp.’s first U.K. student property investment. The $197 billion alternative asset manager spent 158 million pounds ($217 million) for two newly built housing units in February, and hopes to build a U.K. portfolio worth 400-500 million pounds, co-head of European real estate Wilson Lamont said in an interview. Ares isn’t alone. A recently launched Sunway Bhd and MBU Capital Group Ltd. fund already stands at 110 million pounds and is targeting almost double that.

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New Hedge Fund Launches Hit Highest Level in Three Years, as Managers Seize on Growing Opportunities

Brief: The number of new hedge funds being launched has reached its highest level in three years, as managers look to capitalise on the nascent economic recovery, idiosyncratic and volatility-based opportunities, and a shifting macro environment. New hedge fund launches increased to around 175 in the fourth quarter of 2020, with the number of new funds unveiled exceeding the estimated quarterly liquidations for the second successive quarter, new industry analysis by Hedge Fund Research shows. The number of Q4 launches was up on the previous quarter’s total of 151, bringing the estimated number of new hedge funds launched in 2020 to 539, a period which included a record low in Q1 at the start of the coronavirus pandemic, HFR said this week. “New hedge fund launches continued to rise as industry expansion accelerated into 2021, driven by the strongest performance gains since 2000, as both managers and investors positioned for strong growth throughout 2021,” said Kenneth Heinz, HFR president.

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Wall Street Bonuses Jump 10% in 2020, says NY State Comptroller

Brief: The average bonus paid to employees in New York City’s securities industry in 2020 rose by 10% to $184,000, a top New York state financial regulator said in a statement on Friday. “Wall Street’s near-record year shattered all expectations,” New York State Comptroller Thomas DiNapoli said. “The early forecast of a disastrous year for financial markets was sharply reversed by a boom in underwriting activity, historically low interest rates, and surges in trading spurred by volatile markets,” he added. The 2020 bonus pool increased by 6.8% to $31.7 billion, during the traditional December-March bonus season, from $29.7 billion in 2019, according to the report, which called the growth figure “unique after a recessionary event”. Bonuses fell by 33% in 2001 after 9/11 attack and by 47% percent in 2008, the report said. Compensation firm Johnson Associates Inc in November said it expected year-end bonuses for most Wall Street workers to decline in 2020 compared with 2019 due to the impact of the COVID-19 impact on the U.S. economy.

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In 2020 the Ultra Rich got Richer. Now They’re Bracing for the Backlash

Brief: In 2020, as the world convulsed under COVID-19 and the global economy faced its worst recession since World War II, billionaires saw their riches reach new heights. Now some are talking to their wealth managers about how to keep a hold of and consolidate their fortunes amid the global debris of the pandemic. Others are discussing how to preempt and navigate demands from governments, and the wider public, to pick up their share of the recovery costs. “The stock market crashed a year ago, by July or so my portfolio was back where it was before, at the beginning of the year, and now it’s far higher,” said Morris Pearl, a former managing director at BlackRock who chairs Patriotic Millionaires, a group that believes the high net worth should do more to close the wealth gap. “The fundamental problem is this gross inequality that’s getting worse.” The plans being discussed by the ultra-rich range from philanthropy, to shifting money and businesses into trust funds, and relocating to other countries or states with favourable tax regimes, according to Reuters interviews with seven millionaires and billionaires and more than 20 advisers to the wealthy.

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Lawmakers Urge Scrutiny of Private Equity’s Role in Health Care

Brief: Private equity’s control of health-care companies requires greater scrutiny to better assess the impact on the industry, several U.S. lawmakers said Thursday. Independent industry experts fielded questions from lawmakers at a House Ways & Means subcommittee hearing about private equity’s growing influence and recommended requiring health-care companies to disclose more financial and ownership data. “Private equity’s influence stretches like an octopus,” said Representative Bill Pascrell, a Democrat of New Jersey, who led the hearing. The industry has made a push to expand into every corner of the health system, from nursing homes to home health to doctors practices. Private equity deals in the sector increased 21% from the year earlier, according to Bain & Co. Sabrina Howell, an assistant professor of finance at the NYU Stern School of Business, said all companies that accept government money should disclose who their owners are. Howell co-authored a study that found private equity ownership of nursing homes increased the short-term probability of death by 10%. “The private equity industry is having an overwhelmingly positive impact on health care across America” by lowering costs, improving access, funding cures and delivering more effective treatments, Drew Maloney, president of the American Investment Council, said in a statement Thursday.

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Griffin’s Covid Year had Planes, Palm Beach, Philanthropy

Brief: In the early days of the pandemic, Ken Griffin talked with President Donald Trump and Vice President Mike Pence about stimulus and fast-tracking Covid therapies. Now, he sees an opening to work with the Biden administration to address a year of lost learning. “The political party doesn’t matter to me,” said Griffin, 52, who contributed $66 million to Republicans in the last election. “What matters is the receptivity to solving the problem.” The past 15 months have been busy for the billionaire founder of hedge fund Citadel and market-maker Citadel Securities, as both parts of his business successfully navigated the pandemic-fueled volatility. Griffin was acutely aware of the “existential and economic threat” posed by the pandemic early on after hearing from employees in China, Citadel Securities’ chief executive officer, Peng Zhao, and an employee who had family in Wuhan. To combat the work from home challenge, Citadel Securities created a trading outpost in a high-end Palm Beach resort. The firm later profited from the huge influx of retail traders using apps such as Robinhood.

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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 March 25, 2021:

  • In the United States, President Joe Biden held his first news conference on Thursday since becoming leader just over two months ago, and pledged a new goal for his administration on coronavirus vaccine rollouts. President Biden announced his administration is aiming for 200 million vaccination shots into the arms of Americans during his first 100 days in office. During his campaign, the president promised 100 million vaccinations in his first 100 days – something his administration was able to achieve last week – 42 days ahead of schedule. “I know it’s ambitious, twice our original goal, but no other country in the world has even come close,” said President Biden.

  • Canada’s scientists at the National Advisory Committee on Immunization (NACI) are reviewing research that suggests people that have already been infected with COVID-19 might be good with just one vaccine dose. In an email, NACI chairperson Caroline Quach-Thanh said the committee is “debating” the question after “France and Quebec have said only one.” A small study in the United States suggests those who have been infected with COVID-19 may produce 10 to 45 times as many antibodies after the first dose of the Pfizer or Moderna vaccines compared with someone who hasn’t had COVID-19. The research has yet to be peer reviewed.

  • In the United Kingdom, MPs have voted 484 to 76 in the House of Commons to extend coronavirus laws into September. The laws allow the government wide-ranging powers from shutting down pubs, through to detaining individuals deemed at risk as part of efforts to contain the spread of the virus. Under the new legislation, Britons could also face a £5,000 fine if they leave the UK without a reasonable excuse. Health Secretary Matt Hancock told the House of Commons: “Although this Act remains essential and there are elements of which we are seeking renewal of, we’ve always said we would only retain powers as long as they are necessary.” 

  • France’s President admitted on Greek television Wednesday that his government was caught flat-footed in regard to the country’s vaccination campaign. “We weren’t fast enough, strong enough on it,” said President Emmanuel Macron to Greek TV channel ERT. “You can give that to the Americans, as early as the summer of 2020 they said: let’s pull out all the stops and do it. They had more ambition than us. We didn’t think [the production of a vaccine] would happen that quickly.” President Macron went on to add: “Everybody, all the experts said: Never in the history of mankind was a vaccine developed in less than a year.” According to statistics, as of March 22nd, 9.3% of France’s population had been partially vaccinated.

  • Bloomberg is citing Indian government officials with knowledge of the matter, that the country expects to slow exports of coronavirus vaccines as it looks to expand domestic inoculations. With India’s new cases steadily climbing over the last month, government officials announced earlier this week that it plans to expand its inoculation program to include everyone over the age of 45. Officials have stated the hold on exports may be reviewed in a month or two and India will honor commercial contracts even if at a slower pace. India has exported or donated more than 60 million shots as part of its vaccine diplomacy efforts.

  • In Japan, the official countdown of the postponed 2020 Tokyo Olympics began on Thursday with the first group of runners carrying the Olympic torch through Fukushima. Due to the pandemic, the ceremony was much more subdued than in previous years. The opening event was closed to the public and the few spectators that did show up were asked to wear masks and refrain from cheering or shouting. The torch relay was seen as the first test for organizers that insist a “safe and “secure” event in the midst of a global pandemic. Japanese Prime Minister Yoshihide Suga told reporters that “we [government] will do our utmost in terms of coronavirus measures and continue to work with related areas to contain the spread of infections and hope to work towards a safe and secure Games.”

Covid-19 – Due Diligence And Asset Management

Powell Likens Fed’s Pandemic Response to British at Dunkirk

Brief : Federal Reserve Chairman Jerome Powell compared the actions taken by the central bank early in the pandemic as the economy barrelled toward a recession to British efforts in World War II to evacuate troops at Dunkirk. Asked Thursday in an NPR interview whether he would have anything different back in March 2020 if given the chance, Powell said, “We almost certainly didn't do everything right but we knew at the very beginning that we should use all of our tools and use them as aggressively and extensively as we needed to.” The Fed slashed its key benchmark lending rate to a record low of 0% to 0.25%, created a number of emergency lending programs to shore up a financial system in crisis and began buying billions of dollars in bonds to keep long-term interest rates low. “We knew that we would never be able to explain in such an emergency situation why we hadn't used our tools in that way," Powell said. "So we did.” In that environment, with the U.S. economy facing peril on multiple fronts, Powell compared the urgency with which the Fed acted to the way the British deployed an impromptu regatta to evacuate thousands of its troops from Dunkirk in France that were surrounded by German forces.

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U.S. Regulator Opens Inquiry into Wall Street’s Blank Check IPO Frenzy

Brief: The U.S. securities regulator has opened an inquiry into Wall Street’s blank check acquisition frenzy and is seeking information on how underwriters are managing the risks involved, said four people with direct knowledge of the matter. The U.S. Securities and Exchange Commission (SEC) in recent days sent letters to Wall Street banks seeking information on their special purpose acquisition company, or SPAC, dealings, the four people said. SPACs are shell companies that raise funds via a listing to acquire a private company with the purpose of taking it public, allowing such targets to sidestep a traditional initial public offering. The SEC, which declined to comment for this story, has previously said it was monitoring the SPAC boom, but the letters are the strongest sign yet that it is stepping up scrutiny of such deals and the Wall Street banks that underwrite them… Wall Street’s biggest gold rush of recent years, SPACs have surged globally to a record $170 billion this year, outstripping last year’s total of $157 billion, Refinitiv data showed. The boom has been fueled in part by easy monetary conditions as central banks have pumped cash into pandemic-hit economies, while the SPAC structure provides startups with an easier path to go public with less regulatory scrutiny than the traditional IPO route.

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Private Equity Could be Set for a Rocket Recovery

Brief: During 2020, as the pandemic took hold across Europe, private equity funds based in Luxembourg continued to raise funds from institutional investors, asset managers, family offices and HNWIs across the world. Some of this money has already been put to work in support of companies that are hurt by the pandemic, protecting jobs and past investment, and smoothing the way to recovery. But by far the greater part of new funds raised will be invested in the high growth companies that are going to pull Europe out of the lockdown-induced recession. These two roles, shoring up good companies with temporary troubles and accelerating the growth of those that innovate and modernise, are central to private equity. The first group includes companies in hospitality, entertainment, travel and tourism, and the latter includes fast growing companies in technology, e-commerce and healthcare. Following the last major recession in 2010-11, companies owned by private equity emerged stronger and grew faster than others. This story is likely to repeat itself in 2021-22. Private equity’s strong focus on investment in growth and performance will make sure of that.

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BC Partners Plans Sale of $1.7 Billion Pharma Firm Aenova

Brief: BC Partners is considering a sale of German pharmaceutical contract manufacturer Aenova, according to people familiar with the matter. The private equity firm plans to seek a valuation of more than 1.5 billion euros ($1.8 billion) for the business, one of the people said. BC Partners is working with Rothschild & Co. to gauge interest in Aenova, which could draw interest from buyout firms and other strategic bidders, the people said. Deliberations are ongoing and there’s no certainty they’ll lead to a sale, according to the people, who asked not to be identified discussing confidential information. Representatives for BC Partners and Rothschild declined to comment. Aenova provides product development and manufacturing services to pharmaceutical and consumer health care companies in 15 countries including Germany, Switzerland and Italy. It reported revenue of 726 million euros and a net loss of 53 million euros in 2019, according to its website. BC Partners acquired the business in 2012 in a 480 million-euro deal.

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Many Businesses See Hybrid Work Continuing After Pandemic

Brief: Many businesses around the world expect employees to continue to work from home beyond the pandemic, according to a new report commissioned by Zoom Video Communications Inc. The study, conducted by Boston Consulting Group, found that a majority of businesses in five countries are considering a flexible remote-work model because of the successful use of video conferencing during the pandemic, and many expect a significant chunk of their workforce to continue to work remotely. In the U.S., 39% of businesses anticipate more than a third of their employees will work remotely after Covid-19 infections wane, which was the lowest response of any of the six countries surveyed. Companies surveyed in India were the most keen to keep work-from-home setups, with 47% saying the same. Responses in the U.K., France, Germany, and Japan were all above 40%. As vaccines are administered across the country, and pandemic restrictions loosen, companies are trying to chart a path forward. Last week, Ford Motor Co. told more than 30,000 employees that they can continue to work from home and use the office only when needed. Many firms in the financial industry are signaling they prefer a full return to the office.

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TISE Increases Revenue and Profit During Pandemic

Brief: The International Stock Exchange Group Limited (TISEG/the Company) has released its latest Annual Report which shows record revenues of GBP8.4 million, a 4.2 per cent increase in post-tax profit to GBP3.6 million and an increase in earnings per share to 128.4p during the year ended 31 December 2020. As previously announced, during 2020 there were 831 newly listed securities on TISE, which is the second highest annual total of new listings since the inception of the Exchange. This took the total number of listed securities on TISE’s Official List to 3,162 at 31 December 2020. Charlie Geffen, Chair of TISEG, says: “It is pleasing that we have continued to make successful progress both organisationally and with increased profitability against the backdrop of the pandemic. At the 2020 AGM we announced a revised growth strategy which is an important step in the diversification of our products, geographies and markets. Our strong financial position gives us the ability and time to execute on our plans and Cees Vermaas’ experience from several major international exchange groups is already proving invaluable in achieving our goals.”

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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 March 24, 2021:

  • A senior United States official expects the World Health Organization’s (WHO) investigation into the origins of the coronavirus pandemic to require further study, perhaps even a return trip to China. Marc Cassayre, charge d’affaires at the U.S. mission to the U.N. in Geneva, hopes the WHO investigation, expected to be released later this week, will be based on science and a real step forward in order to prepare for future pandemics. The WHO’s probe into the pandemic origins back in January was hampered by delays, concerns over access and bickering between Washington and Beijing on where/how the coronavirus pandemic started.
  • In Canada, an Ontario infectious disease doctor believes the third wave of COVID-19 infections will be worse than the first two. “I think it’s impossible to avoid a third wave that’s likely going to be worse than the first two,” said Dr. Abdu Sharkawy, an infectious disease specialist. “Many of us felt that this was an inevitability. This is pretty much the trap that this pandemic has proven its ability to present to us. That’s why we call them waves, you get lulled into a sense of complacency and then cases start picking up.” Ontario’s top doctor earlier in the week declared the province is entering its third wave, even as sections of the economy start to reopen, while Alberta and British Columbia have not made that declaration yet but have seen their infection rates continue to increase.
  • The United Kingdom and European Union (EU) are said to be working on steps to create a “win-win situation” and avoid a vaccine war with one another. In a joint statement, the UK and EU stated: “We are all facing the same pandemic and the third wave makes co-operation between the EU and UK even more important. We’ve been discussing what more we can do to ensure a reciprocally beneficial relationship between the UK and EU on COVID-19.” The joint statement came just hours after Prime Minister Boris Johnson addressed parliament and didn’t think blockades of vaccines, medicines or ingredients for vaccines was sensible. Earlier on Wednesday, AstraZeneca denied “stockpile” claims saying 29 million vaccine doses at an Italian plant are for EU and developing countries. There had been reports that doses were “hidden” in the plant, just outside of Rome, and destined for the UK.
  • Germany’s response to the latest wave of the coronavirus is definitely not going as smoothly as the first. For the third time in three days, Chancellor Angela Merkel had to address lockdown restrictions – this time admitting fault and dropping plans for a five-day shutdown in Germany over Easter, which prompted confusion and criticism. “This mistake is my mistake alone,” Merkel told reporters. “A mistake must be called a mistake and above all it must be corrected – and if possible, that has to happen this time.” Chancellor Merkel said that, even without the Easter shutdown, decisions that have been taken with the 16 state governors offer a “framework” to beat back the new wave of coronavirus infections.
  • Philippines President Rodrigo Duterte has warned officials against jumping the vaccine queue, saying the country risks losing their donated doses from the COVAX initiative if health workers aren’t prioritized. In a televised news briefing on Wednesday, President Duterte said five mayors and a local celebrity’s son have been asked to explain and may face charges for being inoculated ahead of priority groups. At the same news briefing, the country’s health secretary said the Philippine’s available vaccines can only inoculate 30% of the nation’s 1.7 million health workers.
  • Brazil recorded more than 3,000 COVID-19 deaths in a single day for the first time on Tuesday and that grim statistic finally seems to be making President Jair Bolsonaro change his tune, albeit not very much. In a four-minute presidential address on TV and radio, Bolsonaro said his government will make 2021 the year of the vaccination of Brazilians. However, even in that subtle tone shift, President Bolsonaro never addressed the 3,251 deaths due to the virus on Tuesday and said Brazilians will “very soon return to normal life”, which considering the dire situation, doesn’t seem very realistic. President Bolsonaro has constantly downplayed the coronavirus pandemic in Brazil and even late last week, appealed to the Supreme Court to invalidate curfews enacted by two states and federal district. The top courts had previously ruled governors and mayors have the power to adopt such restrictions.

Covid-19 – Due Diligence And Asset Management

Private Equity Piles on Debt to Pull Cash From Health-Care Firms

Brief : Health-care companies are taking on more debt to pay dividends to their private equity owners, just a year after the start of a pandemic that plunged the industry into crisis. At least five U.S. health-care firms have borrowed heavily in part to fund hundreds of millions of dollars of such payouts in the first quarter, according to a report to be released Wednesday by the nonprofit Private Equity Stakeholder Project. The practice, known as dividend recapitalization, is gaining steam as investors hunt for yield with interest rates near historic lows. Meanwhile, health-care companies are on a stronger footing, with patient visits rebounding and the government unleashing unprecedented economic stimulus. Health-care firms have already borrowed about $3.7 billion in 2021, partly to fund payments to private equity owners, more than double the amount issued all of last year, according to data from S&P Global Market Intelligence. At the current pace, it would be the industry’s most active year for borrowing since 2015.

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Blackstone Invests in Mental Health App at $1 Billion Value

Brief: Blackstone Group Inc. is leading a $100 million funding round in on-demand mental-health company Ginger, accelerating a push into fast-growing technology startups. The funds will come out of the investment firm’s growth equity arm, Blackstone and Ginger said Wednesday. The stake values the San Francisco-based service at about $1 billion, vaulting it to unicorn status. Demand for resources provided by Ginger, which connects users to behavioral health experts and services such as coaching via a mobile app, is surging in the Covid-19 pandemic. The company’s revenue has tripled in the past year. “There’s a widespread prevalence of mental health issues in this country,” said Ram Jagannath, who heads health-care investing for Blackstone Growth Equity. “Like other sectors of health care, the pandemic exacerbated the underlying trends and accelerated people’s adoption of digital platforms.”

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Goldman Sends Indian Employees Back Home as Local COVID-19 Cases Rise

Brief: Goldman Sachs told all but critical staff at its operation in Indian IT capital Bengaluru to return to working from home on Wednesday, reversing moves to get staff back to one of its biggest global offices as coronavirus infections in the city grew. India earlier reported a new variant of the coronavirus as new infections and deaths nationwide hit the highest this year, prompting the imposition of new restrictions in some states. Bengaluru reported 1,280 new infections on Tuesday, according to city data, and several sources at Goldman told Reuters that teams had been told to return to working from home ahead of an all-office townhall call at 2 p.m. local time on Thursday. In March so far, nearly 14,000 new cases have been reported, more than twice the number recorded in February.

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Bank Lending to Fossil Fuel Industry Down 9% in COVID-hit Year

Brief: The world’s biggest banks cut lending to fossil fuel firms by 9% in 2020 as a result of the pandemic, although funding has still risen over the past five years, a report showed on Wednesday. The 60 largest banks lent more than $750 billion to 2,300 fossil fuel companies in 2020, down from $824 billion in 2019, according to a report by Rainforest Action Network, Reclaim Finance, Oil Change International and other non-governmental organisations (NGOs). But the report said the fall, driven by record low levels of industry investment in the second half of 2020 as the pandemic hammered fuel demand, followed annual rises of 4.4%-5.5% since 2016, the year after the Paris climate accord was signed. It also followed a surge in demand from fossil fuel companies raising cheap financing in the first half of 2020, the report said after assessing the roles of banks in lending and underwriting debt and equity issues.

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Moody’s Sees Quicker Business Travel Recovery in Developing Regions

Brief: Prospects for the recovery of business travel by air are highly uncertain, but it is expected to grow more quickly in developing regions than in advanced economies, said Moody’s Investors Service. “This will continue the trends seen since the global financial crisis, when growth in business travel in advanced economies lagged the overall market, with demand for leisure flying leading. “An increased focus on near-shoring of supply chains after the pandemic is likely to increase intra-regional or short-haul international business travel at the expense of long-haul trips,” the rating agency said in a note today. Moody’s said the recovery in business travel would be driven by the gradual reopening of workplaces and a latent demand to make business trips, although companies’ duty of care to employees to safeguard against Covid-19 infections before vaccinations becoming widespread would partially restrict business travel.

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Dan Zwirn Invested Like a Crisis Was Coming – And Then Covid-19 Arrived

Brief: Dan Zwirn thought markets were frothy for at least five years before the pandemic. His credit shop, Arena Investors, underwrote investments as if a crisis was on its way and diversified so any one deal wouldn’t have an outsize impact on the portfolio.  “Frankly a lot of stuff that got hurt was very overdone going into Covid. But people didn’t let us into those clubs in the first place,” Zwirn said in an interview. “There were no 18 percent office loans available, so we were not exposed. That gave a lot of people comfort that this is what the downside looks like.” So far, his approach has worked out, according to the Arena CEO and chief investment officer’s latest letter to clients. “Covid was a great stress-test of our approach, and we were left in a position to quickly shift to playing offense once we had taken stock, battened down the hatches, and appropriately assessed the small impact to our book,” Zwirn wrote in the investor letter.

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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 March 23, 2021:

  • In the United States, AstraZeneca’s COVID-19 vaccine has hit yet another stumbling block. Multiple media outlets are reporting the drugmaker will publish up-to-date results from its latest COVID-19 vaccine trial within 48 hours after American health officials questioned the shot’s efficacy rating as it may have not been based on all the available data. Dr. Anthony Fauci, the head for the U.S. National Institute for Allergy and Infectious Diseases (NIAID) said the whole issue was an unfortunate unforced error. “This is very likely a very good vaccine and this kind of thing does… nothing but really cast some doubt about the vaccines and may contribute to the hesitancy,” said Dr. Fauci. The public rebuke by the NIADI is the latest setback for the AstraZeneca vaccine that has been hit by questions over its effectiveness and possible side effects ever since it started getting use throughout the world a few months ago. 

  • In Canada, the federal Conservatives are calling on the leading Liberals to unveil a national plan to reopen the country. “The president of the United States and the prime minister of the United Kingdom have both released public plans for reopening. But [Prime Minister Justin] Trudeau refuses to give Canadians clarity on whether and when regular social life will be able to resume, and under what circumstances and conditions,” said Leader of the Opposition, Erin O’Toole on Tuesday. O’Toole cited national business organizations and one of Canada’s largest unions, agreeing with them that it is “unsustainable” to rely on lockdowns while waiting for COVID-19 vaccines to be widely administered.

  • In the United Kingdom, media has seen a government document that plans to have nursing home workers in England legally required to have a COVID-19 vaccination. According to details of a paper submitted to the COVID-19 operations cabinet subcommittee last week and leaked to the Telegraph, Prime Minister Boris Johnson and Health Secretary Matt Hancock have agreed to the proposal. Upon getting wind of the leak, a government spokesperson insisted “no final decisions have been made”. If the change is approved, it would affect most of the 1.5 million workers in England adult social care sector and likely cause some workers to either quit and/or file lawsuits on human rights grounds.

  • Reuters is reporting the European Union (EU) will extend powers to potentially block COVID-19 vaccine exports to the UK and other countries. The move is expected to be made on Wednesday by the European Commission and will focus on countries with much higher vaccination rates, and to cover instances of companies backloading contracted supplies. An EU official said all vaccine makers could be affected if they don’t comply with delivery timetables. Shipments could also be withheld if vaccine-producing countries such as the United States and the UK don’t allow exports of vaccines to the EU.

  • Germany has doubled down on their coronavirus restrictions with Chancellor Angela Merkel and state leaders agreeing to a hard lockdown over Easter. As noted in Castle Hall’s COVID-19 Diligence Briefing on Monday, Chancellor Merkel and Germany’s 16 regional leaders agreed to extend current lockdown restrictions until April 18th as per media reports. In the hard Easter lockdown, all stores will be shutdown as of April 1st for five days, expect for food stores, which will reopen on April 3rd. Germans will be encouraged to remain at home, private gatherings limited to one other household and a maximum of five people with public meetings banned. Chancellor Merkel said in a news conference after a 11-hour meeting of tense talks with her regional leaders that the Easter lockdown is necessary to try and defuse a third wave of COVID-19.

  • India’s health experts are concerned after seeing a spike in coronavirus cases in recent weeks. The country of close to 1.4 billion people, recorded 260,000 new coronavirus cases last week – one of the worst weekly increases since the pandemic began early last year. The western state of Maharashtra – home to the country’s financial capital – Mumbai – has accounted for nearly 70% of the national caseload. India’s health experts blame poor adherence to safety protocols and potentially circulating variants as reasons for the current spike. “People had falsely assumed that India had reached the threshold of herd immunity but that is not the case,” said Dr. A. Fathahudeen, a critical care expert, who has treated thousands of COVID-19 patients, according to the BBC. More than 40 million people in India have received at least one of dose of a coronavirus vaccine so far, but that’s less than 4% of the country’s population.

Covid-19 – Due Diligence And Asset Management

Dimon, Solomon Join CEOs Urging New York to Reject Tax Hikes

Brief : Jamie Dimon, David Solomon and scores of other New York business leaders warned Governor Andrew Cuomo that proposed tax hikes would risk the state’s economic recovery and worsen the exodus of residents to lower-tax locations. The chief executive officers of JPMorgan Chase & Co. and Goldman Sachs Group Inc. added their names to a list of roughly 250 others who argued in a letter sent Tuesday that higher taxes aren’t needed, given federal stimulus programs approved by Congress and higher-than-expected tax receipts in 2020. The CEOs said they were compelled “to express alarm at plans to enact the largest spending and tax increases in the state’s history,” adding that the proposals “will jeopardize New York’s recovery from the economic crisis inflicted by Covid-19.” Cuomo has long-resisted taxes on the wealthy, favored by the growing progressive wing of his party, but the three-term governor has recently become more amenable to them. Multiple scandals, including claims of sexual harassment and accusations his administration covered up Covid-19 nursing-home deaths, have prompted calls by dozens of lawmakers for him to resign, saying his ability to govern is in question. Cuomo has denied the claims and said he won’t step down.

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Zoom to Zen – Citi Unveils Zoom-Free Fridays to Beat Remote Working Stress

Brief: In a move to combat fatigue triggered by remote working during the COVID-19 pandemic, Citigroup Inc has declared “Zoom-Free Fridays” and encouraged employees to limit calls outside work hours. While Wall Street is known for its tough work culture, the remote working during the pandemic has been particularly gruelling for most employees, taking enormous toll on their health and mental wellbeing. “I know from your feedback and my own experience, the blurring of lines between home and work and the relentlessness of the pandemic workday have taken a toll on our well-being,” Chief Executive Officer Jane Fraser said in a memo seen by Reuters on Tuesday. “It’s simply not sustainable.” Any internal meetings on Fridays would happen as audio-only calls, according to the memo. The CEO also encouraged employees to take their vacations, while the company announced a firm-wide holiday on May 28. Citigroup also said that post-pandemic, a majority of the roles at the bank would be designated as “Hybrid”, allowing employees to work from the office at least three days a week and from home for up to two days a week.

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Private Equity Firm Thoma Bravo to Acquire Software Firm Calabrio from KKR

Brief: Private equity firm Thoma Bravo LP said on Tuesday it has agreed to acquire workplace software firm Calabrio Inc from KKR & Co Inc. Terms of the deal were not disclosed but people familiar with the matter said the deal values Calabrio at more than $1 billion, including debt. KKR paid $200 million to acquire Calabrio in 2016. Minneapolis, Minnesota-based Calabrio provides a cloud-based software that allows companies like Netflix Inc and Shopify Inc track and analyze customer service data generated from their contact centers. Calabrio grew its recurring revenue to nearly 80% of total revenue, up from just 30% about four years ago when it was acquired by KKR, Thomas Goodmanson, its chief executive officer said in an interview. The increase has in part been driven by the shift to remote work due to the COVID-19 pandemic. “The pandemic has really shifted a focus to the cloud, in our industry where we help companies take care of their customers, they had to send their contact center agents home and our software was in a perfect place to help them,” Goodmanson said.

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IMF Considers Creating $650 Billion in Reserves After Yellen Nod

Brief: The International Monetary Fund is considering a plan to create as much as $650 billion in additional reserve assets to help developing economies cope with the pandemic, with an eye on finalizing a decision next month, according to two people familiar with the plan. The institution’s executive board is discussing the staff proposal informally on Tuesday, and one of the priorities will be to consider how much to issue in the units known as special drawing rights, according to the people, who spoke on condition of anonymity because the talks are private. Attention is now focused on a $650 billion issuance, according to the people, after previous talk of $500 billion. The IMF press office declined to comment. IMF Managing Director Kristalina Georgieva is expected to release a statement after the meeting, one of the people said. Momentum has been building for the injection of funds after U.S. Treasury Secretary Janet Yellen leaned toward supporting the action, reversing opposition last year under President Donald Trump. Her predecessor, Steven Mnuchin, blocked the move in 2020, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70% would go to the Group of 20, with just 3% for the poorest developing nations.

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DunPort Launches EUR50m Fund to Support Covid-19 Impacted SMEs

Brief: DunPort Capital Management (DunPort) has launched a EUR50 million fund to provide tailored and flexible capital solutions to Irish small and medium sized enterprises whose businesses have been directly impacted by the Covid-19 pandemic.  The fund, backed by a EUR50 million commitment from the Ireland Strategic Investment Fund (ISIF), will seek to support well-established, historically profitable Irish SMEs with annual turnovers of between EUR5 million and EUR50 million and funding requirements of between EUR3 million and EUR15 million. Capital from the fund may be used to address Covid-19 related challenges while allowing investee companies to retain existing financing relationships and avoid material shareholder dilution. “The significant impact of Covid-19 on businesses of all sizes in Ireland will be long lasting,” says Pat Walsh, Executive Director of DunPort. “To ensure that Irish businesses can exit this challenging period with financial stability and poised for recovery and growth, company balance sheets will require restructuring to transition the build-up of unsustainable short term liability balances into manageable longer-term obligations. DunPort is therefore very pleased to offer, with the backing of ISIF, a suitably structured, patient capital solution to businesses in Ireland that most need it.” 

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One Year On: How Covid-19 Has Impacted Private Equity

Brief: Over the past year or so, we’ve all become familiar with a whole host of terms we knew nothing about at the start of 2020. “Lockdown”, “rate of transmission”, and “social distancing” all entered our collective vocabularies. At the same time, we had to get used to new ways of working and doing business.  That’s as true for private equity (PE) as it is for any other sphere of business. And, initially, it looked like the economic devastation wrought by Covid-19 would hit global private equity markets incredibly hard. But after falling off a cliff in April and May, deal and exit value snapped back vigorously in the third quarter. Even as the mass rollout of vaccines around the globe brings a glimmer of hope that life may return to some semblance of normal, it’s likely that the conditions of 2020 will be with us for some time to come. It’s therefore imperative that private equity firms, their investors, and the firms they fund use the lessons of 2020 to inform their approach going forward. 

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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 March 22, 2021:

  • In the United States, the latest data shows new COVID-19 cases rose 5% last week to 394,000, the first increase after declining for nine straight weeks. With the rising numbers, the White House is calling on governors, as well as the private sector, to maintain or reimpose coronavirus restrictions. However, it might be too late in that regard, with some states already lifting restrictions on restaurant capacity and other retail businesses in recent weeks and others going as far as relaxing mask mandates. Senior COVID-19 adviser Andy Slavitt reiterated that the White House believes “it’s a mistake to get rid of mask mandates” and that the administration is doing “concerted” outreach to the private sector.
  • In Canada, the vaccination drive is expected to gear up this week as the country’s health agency prepares to accept delivery of the largest number of doses since their launch of the immunization effort. Nearly 1.2 million doses of the Pfizer vaccine, along with 846,000 doses of the Moderna shot are expected to arrive this week, with at least one million doses of the Pfizer vaccine being shipped per week for the foreseeable future. The uptick in vaccines comes on news late last week that Canada was looking to finalize a deal with the United States to see a shipment of 1.5 doses of the Oxford-AstraZeneca vaccine before the end of March. 
  • United Kingdom Prime Minister Boris Johnson tried to play down fears of a vaccine war with the European Union (EU) while admitting that the country will likely be affected by a third wave of the virus. Prime Minister Johnson said that he expects the latest wave in the EU to “wash up on our shores as well,” but said the government still planned to “bash on” with the road map out of lockdown already set out. The prime minister also added the need for international cooperation on vaccines as the EU escalated their language on threatening to block vaccine exports to the UK due to AstraZeneca not fulfilling contractual obligations to supply the bloc. Johnson is expected to call EU leaders this week and urge them to dismiss the proposal.
  • Pandemic-weary Germans received some bad news on Monday with Chancellor Angela Merkel and regional leaders agreeing to an extension on current coronavirus restrictions. Chancellor Merkel and Germany’s 16 state leaders decided to prolong coronavirus restrictions until April 18th after contagion rates have nearly doubled in the past month. Restrictions in place include a partial closing of non-essential stores, along with shutdowns of hotels, restaurants, gyms and cultural venues. Chancellor Merkel and regional officials agreed to reconvene on April 12th to discuss the next steps, according to sources.
  • The United Arab Emirates (UAE) are expanding their COVID-19 vaccination program after having covered the majority of at-risk citizens. Over the weekend, state-run media, citing the Ministry of Health, said those eligible for vaccination, including citizens and residents aged 16 and above, can now get inoculated for free at any of the 205 vaccination locations. The UAE have administered more than 7 million vaccine doses to its population of about 10 million.
  • Australia is prepared to ramp up its vaccination drive this week, but mother nature may have other plans. The country’s largest state – New South Wales - has been hammered by heavy rains – causing the government to declare many areas a natural disaster in what is being called ‘once in 100 years’ floods. Finance Minister Simon Birmingham made the rounds on media shows over the weekend stating the weather is likely to cause disruptions to freight and logistic services across the state with vaccine deliveries likely to be impacted. Starting on Monday, anyone aged 70 and above, people with underlying health issues and members of Australia’s indigenous population over 55 years of age– all of these groups accounting for about 6 million people – are now eligible to receive the vaccine.

Covid-19 – Due Diligence And Asset Management

Black Exits Apollo Ahead of Schedule and Cedes Chairman Role

Brief : Leon Black, the Wall Street billionaire who appeared to be a main client of disgraced financier Jeffrey Epstein, is stepping down as chief executive officer of Apollo Global Management Inc. months ahead of schedule. Black’s departure from that role had been announced in January, though the firm said at the time that he would leave by July 1. A statement Monday confirmed his immediate exit from the position as well as the chairmanship he’d been expected to keep. Co-founder Marc Rowan has taken over as CEO, Jay Clayton was named non-executive chairman, and Apollo added two more independent directors to its board, according to the statement. It’s an abrupt turn for Black, 69, a Wall Street legend who built Apollo into one of the most fearsome -- and profitable -- names in American finance. He cited unspecified health issues for himself and his wife in announcing his exit. “Marc has seamlessly transitioned into the CEO role and I am confident Apollo will soar to new heights under his leadership,” Black said in the statement. Black and Apollo have been dealing with the fallout from his extensive links with convicted sex offender Epstein, which brought unprecedented scrutiny and unsettled clients and shareholders.

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What We Have Learned in the 12 Months Since ‘the Bottom’

Brief: No one really likes a look back, especially when talking about the stock market. The past is done, it happened, and there’s no money to be made there. The juice to squeeze is the potential, the future, the edge, the unknown. But even though we know how the dice rolled, taking a moment to see whether we’ve learned anything is fair — and may sharpen our abilities for the future. While the future has no obligation to behave like the past, that doesn’t mean it doesn’t have anything to teach. Plus, it’s been a wild 12 months, with a tiny recession, massive government response, and the craziest roller coaster of a chart the S&P 500 has ever seen. DataTrek’s Nicholas Colas, former hedge fund manager, has spent the year writing about the “2009 playbook,” a way of viewing the parallels between 2020-2021 and 2008-2009. For him, the biggest lesson learned was that “every crisis is the same.” “Markets implode, sending a signal to policy makers. Policy makers respond. The size of the response informs the size of the market bounce-back,” Colas said.

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Global Equities Stall, Bonds Gain as Europe COVID Cases Rise

Brief: Global equities stalled and safe haven assets such as U.S. Treasuries rallied Monday as investors weighed rising coronavirus cases in Europe against a break in the recent run-up of bond yields sparked by concerns of higher global inflation. An unsettled day on global markets saw risk assets such as oil and emerging market stocks rally alongside safe havens such as Treasuries, while Turkish assets took a beating after a shock weekend decision to replace the country’s hawkish central bank governor. A third wave of COVID-19 across Europe due to highly contagious coronavirus variants is increasing concerns of another round of economic restrictions, with Paris going into a four-week lockdown late last week. “The number of new COVID-19 cases is rising rapidly, and an extension of the lockdown inevitable for many European countries. No one will be surprised by such a decision,” said Milan Cutkovic, market analyst at Axi.

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Nonprofit Investors Cautious About Stock Market in 2021, but Confident in Long-Term Prospects

Brief: Commonfund, a prominent investment manager for nonprofit institutions, has released the results of its survey of nearly 300 sophisticated institutional investors from endowments, foundations, healthcare organisations, family offices and public pensions in attendance at the recent 23rd Annual Commonfund Forum. Investors attending the conference represented USD1.1 trillion in total assets. The survey results underscore the themes that drove discussion at the event, including the dual-track economic recovery, ESG and environmentally sustainable investments, and the evolving opportunity set in private capital. When asked about their expectations for US stock market returns in 2021 versus the 10-year average annual return of 13.6 per cent for the S&P 500 Index, the majority (58 per cent) believe this year’s returns will be lower than average, while just 10 per cent expect that they will be higher. These investors are similarly apprehensive about the US economic recovery, with 76 per cent of respondents ranking the prolonged impact of Covid-19 among their top three concerns for 2021, followed by bubbles/narrowness of stock market valuations (60 per cent) and the expanding US deficit (5 per cent).

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U.S. Air Travelers Top 1.5 Million for First Time Since March 2020

Brief: The number of U.S. air passengers screened topped 1.5 million Sunday for the first time since March 2020, as air travel continues to rebound from a pandemic-related drop, the U.S. Transportation Security Administration (TSA) said Monday. COVID-19 devastated air travel demand, with U.S. airline passengers down 60% in 2020. But with a growing number of Americans getting vaccinated, demand and advanced bookings have started to rise in recent weeks. TSA said it screened 1.54 million people Sunday, the highest single day since March 13, 2020 and the 11th consecutive day screening volume exceeding 1 million per day. Screening refers to security checks on passengers entering airports. Still, U.S. air travel demand was down Sunday about 30% versus pre-COVID 19 levels. International and business travel demand both still remain weak. For the last week, trade group Airlines for America said passenger demand was down 47% over pre-pandemic levels, while international travel demand was down 68%. The United States bars most non-U.S. citizens from travel who have been in Brazil, South Africa, China and most of Europe and many countries still restrict entry by Americans.

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Pandemic Puts Rocket Under Healthcare Assets as Investors Scramble for Foothold

Brief: The global pandemic has placed health and wellbeing at the forefront of everyone’s minds, leading to a near-explosion in demand for healthcare property assets as investors and developers scramble to get a foothold in the sector. The search for yield is also driving infrastructure investors to expand beyond typical core assets into capital-heavy healthcare assets such as hospitals and diagnostic imaging. Healthcare assets share many characteristics with core infrastructure assets, particularly if investors think outside the box in relation to barriers to entry. Major listed players in the sector include Dexus, Centuria, HomeCo, Elanor Investments and Charter Hall, while QIC has teamed up with Nexus and the Singaporean sovereign fund GIC has joined forces with NorthWest Healthcare Properties. Andrew Hemming, managing director of the $1 billion Centuria Healthcare fund, said the scalable and quality assets now available to seed the funds and high-quality developments had underpinned the demand for the sector. Mr Hemming said the arrival of COVID-19, the vaccine rollout and the need for preventative medical care were also catalysts to investment in the sector.

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

Our briefing for Friday March 19, 2021:

  • Just 58 days since being elected as President of The United States, Joe Biden has reached his goal of vaccinating 100 million people. The news comes a day after the U.S. agreed to loan surplus vaccines to Canada and Mexico. Awaiting authorization from domestic health authorities, the U.S. has already secured tens of millions of doses of the Astra-Zeneca vaccine, which has been approved for use by the World Health Organization. The U.S. is currently administering an average of 2.2 million doses of coronavirus vaccines a day and that number is likely to increase in the near future as the Astra-Zeneca vaccine is approved and supply chains widen. While American vaccination efforts are improving, the number of American deaths stemming from the virus has already surpassed 530,000 in the country to date.

  • Roughly a third of Canada’s long-term care workers have not yet received a Covid-19 vaccine, despite being eligible since December. According to the Ontario Ministry of Long Term Care, nearly 95 per cent of long-term care residents have received at least one shot of two coronavirus vaccines, while only 67 per cent of workers have received their first shot. The discrepancy is being blamed on a number of factors including long wait times, changing public health guidelines and economic factors. However, as Sharleen Stewart, president of SEIU Healthcare, a union representing staff in many of Ontario's long-term care homes says, the “number one” reason for workers not receiving the vaccine is the lack of sick days allotted to healthcare workers. "These very low-wage earners, predominantly women ... they cannot afford to lose, you know, $200, $300 a paycheque by having to stay home for a couple of days to rest after their vaccination.

  • The United Kingdom has announced today over 1.7 million doses of a Covid-19 vaccine must be retested before they are able to be administered to public. While U.K. is leading Europe in vaccination rates, they are expecting less vaccines to come into the country in April than they did in March. Prime Minister Boris Johnson has said that the rollout of vaccines will be slower in the coming month, it will still be better than what was expected in February. Many countries around the world are feeling the crunch to have their citizens vaccinated as soon as possible, which is negatively effecting supply chains. Johnson avoided putting blame on India, where the majority of vaccines destined for Britain are being produced, saying “there is a delay as there often is, caused for various technical reasons, but we hope to continue to work very closely with the Serum Institute [of India], and indeed with partners around the world.”

  • The European Union has announced a proposal to create a Digital Green Certificate to indicate whether an individual has been vaccinated against Covid-19, received a negative test result, or has recovered from the virus. It will be issued in the form of a QR code, or in paper format to allow free passage within member states of the union. Commissioner for Justice, Didier Reynders, said “with the Digital Green Certificate, we are taking a European approach to ensure EU citizens and their family members can travel safely and with minimum restrictions this summer.” While the certificate will be valid throughout the bloc, individual member states will still have the authority to decide which travel restrictions to abide by when screening entry into their jurisdictions. Reynders continued by stating that the certificate “will not only help us to gradually restore free movement within the EU and avoid fragmentation. It is also a chance to influence global standards and lead by example based on our European values like data protection.” 

  • A new wave of infections sweeping the Philippines have prompted government authorities to tighten restrictions in the nation’s capital of Manila on Friday. Surging infection rates have brought restaurants, arcades and bars back down to 30 per cent capacity as the city struggles to contain the virus. Just over 7000 new infections were reported on Friday, marking the highest number of cases since pandemic began. Experts in the country are suggesting that infection rates are expected to hit 11,000 a day by the end of the month unless strict action is taken to curb the outbreak. The Philippine’s drug regulator on Friday approved the administration of the Russian Sputnik V vaccine, the fourth vaccine to be approved in the country. The government has also imposed night-time curfews, and a ban on foreigners entering the country in an attempt to avoid locking down Manila as was this case earlier in the pandemic.

Covid-19 – Due Diligence And Asset Management

Borrowers hit hardest by COVID risk paying £1000s more in monthly repayments, new research from Legal & General reveals

Brief : UK borrowers who have seen their income fall due to the COVID-19 crisis may soon be paying thousands of pounds more in monthly repayments as one in three (32%) borrowers consider staying on their lender’s Standard Variable Rate (SVR) once their existing mortgage product expires, according to new research from Legal & General Mortgage Club. 32% of borrowers who have been negatively financially impacted by the pandemic say they are likely to move onto their lender’s Standard Variable Rate (SVR) rather than remortgage. These buyers could face a £2,500 annual increase in their repayments if they don’t consider their remortgage options, impacting their finances which may already be stretched. One in two (50%) homeowners are also concerned that their decision to take a payment ‘holiday’ will affect their future ability to borrow. For homeowners whose finances have been adversely impacted by the pandemic, exploring their mortgage options is essential to understanding where better alternatives are available, but the research suggests that the impact of COVID-19 is deterring thousands of borrowers with maturing loans from remortgaging. This could impact over 700,000 borrowers who will reach the end of their two- and five-year residential fixed-rate mortgages in 2021.

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How The COVID-19 Pandemic Shifts Insurtech Investment Priorities

Brief: The pandemic has had a dramatic impact on the entire economy, and the insurance business is no exception. The socially distanced environment has forced many insurers to focus on technology that can help customers purchase insurance, interact with their policies and file claims online, according to Deloitte. In addition, companies are focusing more on providing more comprehensive offerings instead of point solutions. The Insurtech Numbers: The good news for the insurtech industry is that the pandemic didn’t appear to negatively impact overall investment. In 2020, insurtech funding hit a record $7.1 billion, according to WillisTowersWatson. Total funding was up 12% and the total number of funding deals were up 20%. In the fourth quarter of 2020, property & casualty (P&C) insurtechs accounted for 67% of the $2.1 billion in funding raised.

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Easy money? Gen Z invest online to beat coronavirus woes

Brief: Juggling homework, friends and his personal YouTube channel, 12-year-old Kwon Joon is often too busy to check on his investments – not that the South Korean schoolboy is too concerned. With impressive returns of 42% since he began dabbling in the stock market last year, Kwon believes online trading can safeguard his financial future, in a world made increasingly insecure by the economic fallout from COVID-19. “To be honest, I sometimes forget to check my stock account because of my school work or when I’m playing with my friends,” said Kwon, who has made 14 million won ($12,364) in profits since he invested 25 million won in seed money last April. “I’m going to take the shares with me until I become an adult. I think this is the benefit of investing in stocks as a young person because you can invest in it for the long term,” he told the Thomson Reuters Foundation from southern Jeju Island. From South Korea to the United States, a growing number of teens and young adults born after 1996 – dubbed Generation Z – are turning to online investment platforms that offer the chance to make a living with a swipe, but often pose unforeseen risks.

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Wall Street Week Ahead: Investors got the stimulus boost, but now face tax worries

Brief: Investors are turning their attention to prospects that higher taxes could threaten the rally in U.S. stocks as President Joe Biden's administration moves forward with its agenda and seeks ways to pay for its spending plans. In recent days, investors have focused on a rise in bond yields that has pressured share prices, though indexes remain close to their record highs. Nevertheless, some worry that at least a partial rollback of the corporate tax cuts that fueled stock gains during the Trump era could eventually drag on equities, whose valuations have already grown rich by some measures. "It is an issue," said Quincy Krosby, chief market strategist at Prudential Financial. "It's going to be talked about as it becomes a reality. But the market's focus right now is clearly on getting to the other side of this pandemic." The S&P 500 has gained more than 4% this year, with Biden's newly passed $1.9 trillion coronavirus relief plan providing the latest fuel for the economy and the stock market. The pace of the economic recovery and COVID-19 vaccinations will remain in investors' focus next week, along with the rise in U.S. bond yields that has pressured tech and growth shares and further supported bank and other value stocks.

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Tech Leads Stocks Higher; Yields Retreat From Peak

Brief: A rebound in the technology sector pushed U.S. stocks into the green and Treasury yields retreated from the highest levels of the day as investors weighed the risk of inflation with economic growth accelerating. The yield on the benchmark 10-year Treasury had spiked earlier after the Federal Reserve let a capital break for big banks expire. Crude oil rebounded after tumbling Thursday. The S&P 500 edged higher, led by the energy and communication services sectors. JPMorgan Chase & Co. and other banks weighed on the Dow Jones Industrial Average in the wake of the Fed ruling. Facebook Inc. helped the tech-heavy Nasdaq 100 rebounded from Thursday’s 3.1% slump. Traders are bracing for quadruple witching Friday, a major expiration of options and futures contracts that can exacerbate swings in asset prices. “What we have to watch out for is a persistent rise in inflationary expectations and that’s how the rise in the 10-year Treasury could potentially get out of control,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. “That’s today probably the biggest risk for the stock market.”

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Fed easy monetary policy means it's time for active management: Mohamed El-Erian

Brief: Last year, it was tough to find an asset class that was underperforming. U.S. stock benchmarks rose in 2020, after plunging at the onset of the coronavirus pandemic. Government and corporate bond prices rose as yields contracted. Bitcoin quadrupled. Gold rose 24%. That uniform outperformance has been a lot harder to come by thus far in 2021. All three major stock averages have hit highs on multiple occasions, but the Nasdaq (^IXIC) has fallen about 7% since its most recent record on Feb. 12. Bitcoin (BTC-USD) has suffered a couple of double-digit percentage pullbacks, although it remains higher year-to-date. Many of the declines in risk assets have been triggered by rapid increases in Treasury yields, reflecting markets digesting the potential for inflation and the Federal Reserve's willingness to let the economy run hot. Now one of the best-known macro strategists, Mohamed El-Erian, is saying that because of the Fed's current policy, investors should get more active. "It's going to be an environment for very active management, building portfolios from a bottom-up perspective," El-Erian tells Yahoo Finance Live.

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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 March 18, 2021:

  • Medical experts believe the United States could be in for a fourth surge of Covid-19 infections, but this time the death toll could be considerably lower. This is thanks to the number of high-risk individuals having already received vaccinations to protect against the virus. As state-leaders begin to ease restrictions across the country, including the practice of wearing masks, all signs point to case numbers rising. New infections had been declining for a number of weeks before appearing to hit a plateau earlier this week. This type of regression has previously indicated a forthcoming surge in new cases. The plateauing numbers combined with the contagion rates of new variants of the virus – which are expected to be the dominant form by late March - lead experts to believe that a fourth wave is imminent.

  • White House press secretary Jen Psaki has confirmed that Canada has petitioned the United States for any surplus doses of Covid-19 vaccines. On Wednesday, Psaki said that both Canada and Mexico had formally requested the help of the United States in securing more vaccines. Today, the United States has said that it will distribute 4 million doses via loan agreements to Canada and Mexico. As Canada begins to roll out vaccinations, a third wave of the virus is beginning to take shape in the more densely populated areas of the country. “It’s a pipe dream to believe that anything other than additional measures are going to cause this to abate,” said Dr. Andrew Morris, an infectious-diseases specialist at Mount Sinai Hospital, “our vaccination efforts are not going to simmer this down.” Meanwhile, Quebec’s premier Francois Legault has suggested that all adults in the province should have at least one dose of a vaccine by Quebec’s Fete Nationale, a provincial holiday on observed on the 25th of June.

  • The United Kingdom has announced today that the Oxford/Astra-Zeneca vaccine is safe and effective. Despite rare side-effects like blood clotting in the brain, the U.K. believes that the risks do not outweigh the positives for vaccine. Emer Cooke, executive director of the European Medicines Agency has said “[the Oxford/Astra-Zeneca vaccine] benefits in protecting people from COVID-19, with the associated risks of death and hospitalization outweigh the possible risks.” Out of the 20 million people that have tested the vaccine, there has been comparatively low instances of side-effects being seen after inoculation. "The evidence we have is, at the moment, not sufficient to conclude with certainty whether these adverse events are indeed caused by the vaccine or not," said Dr. Sabine Straus, chair of the EMA's Pharmacovigilance and Risk Assessment Committee. 

  • A new surge of Covid-19 infections in India is causing a dire shortage in vaccines that were scheduled to be exported to the United Kingdom. The rising cases in India has nearly halted the distribution of vaccines to U.K. which will result in people under 50 in Britain having to wait a up to a month longer before they will be vaccinated. India, like many other nations is citing new variants of the virus as the catalyst for the increasing cases. The Indian government has instructed the Serum Institute of India, the world’s largest vaccine producer and the largest administrator of doses for the Covax program to keep more vaccines for use domestically. India is leading the rest of the world in terms of vaccines shared, with over 60 million doses being sold or gifted to other countries thus far in the pandemic.

  • Australia will send roughly 8000 doses of its own Astra-Zeneca vaccines to Papua New Guinea to help alleviate the neighboring country of a new wave of infections. This week, Australian Prime Minister Scott Morrison said that the country will be “making a formal request to Astra-Zeneca and the European authorities to access 1 million doses of our contracted supplies of Astra-Zeneca not for Australia, but for PNG, a developing country in desperate need of these vaccines.” Earlier this month, the European Union blocked a shipment of 250,000 doses of the Astra-Zeneca vaccine to Australia saying the need for vaccines elsewhere outweighs the need for vaccines in Australia where the virus has largely been kept under control. Papua New Guinea has reached out for help with sourcing vaccines as healthcare workers in the country continue to contract the virus due to lack of resources in the developing nation.

Covid-19 – Due Diligence And Asset Management

One year on: How Covid-19 has impacted private equity

Brief : Spear Capital’s Bryan Turner reflects on the last year and analyses the impact of the pandemic on private equity. Over the past year or so, we’ve all become familiar with a whole host of terms we knew nothing about at the start of 2020. “Lockdown”, “rate of transmission”, and “social distancing” all entered our collective vocabularies. At the same time, we had to get used to new ways of working and doing business. That’s as true for private equity (PE) as it is for any other sphere of business. And, initially, it looked like the economic devastation wrought by Covid-19 would hit global private equity markets incredibly hard. But after falling off a cliff in April and May, deal and exit value snapped back vigorously in the third quarter. Even as the mass rollout of vaccines around the globe brings a glimmer of hope that life may return to some semblance of normal, it’s likely that the conditions of 2020 will be with us for some time to come. It’s therefore imperative that private equity firms, their investors, and the firms they fund use the lessons of 2020 to inform their approach going forward.

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Taper Tantrum, Inflation Becomes The New Fear of Fund Managers; Not Covid-19: BofA Survey

Brief: Since its inception and unstoppable spread of Coronavirus across the globe, the investors feared it as a “tail risk”, but not anymore! The latest survey of global Fund Managers by Bank of America (BofA) shows that the global pandemic Covid-19 is not the major cause of worry for the fund managers, instead the inflation and the “Taper Tantrum”. In the survey for March by Bank of America (BofA), Fund managers view higher-than-expected inflation (37% of the total investors) and a tantrum (35% of the total investors) in the bond market can pose a danger to the market, making the market less attractive and worrisome to investors. 220 investors with $630 billion in assets under management were polled between March 5 and 11, showing the mean cash balance increasing to 4.0% from 3.8%, hedge funds’ net exposure to equities ticks highest since June 2020, and hedge fund allocation to commodities is an all-time high. The survey says, 48% of the fund managers expect the economy of the world, which includes Indian economy, to deliver a V-shaped recovery, as compared to only 10% in the May 2020 survey.


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Analysis: Private equity investors fret over record U.S. buyout prices

Brief: Private equity firms are paying more for leveraged buyouts to keep pace with soaring valuations of acquisition targets, making some investors leery of whether the industry can keep delivering on promises of lucrative returns. The booming stock market and cheap debt financing have helped push leveraged buyout prices to a record high, driven by sectors that have grown as people work and stay at home during the COVID-19 pandemic, such as technology and business services. Private equity firms paid an average 13.2 times a company's annual earnings before interest, tax, depreciation, and amortization (EBITDA) for U.S. leveraged buyouts in 2020, an all-time high, up from 12.9 times in 2019, according to financial data provider Refinitiv. Some investors are growing concerned about whether buyout firms can deliver the 15% to 20% annual returns they target when they raise new funds. "We can tilt towards better valuations and opportunities," said David Holmgren, who oversees $3.5 billion in endowment and pension assets at Connecticut-based hospital system Hartford HealthCare. He said he has been shifting his portfolio away from private equity funds that invest in pricey buyouts to those that specialize in middle-market deals and emerging markets.

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Centaur Hedge Fund clients produce strong performance in 2020

Brief: Hedge fund clients of Centaur Fund Services performed strongly in 2020, according to data released by the independent fund administrator. The company says that increased market volatility caused by the Covid-19 pandemic, optimism over vaccines, US elections and huge government stimulus programmes created a set of opportunities for hedge funds to prove their worth, and on the whole, they responded well. Almost 10 per cent of Centaur's clients generated returns in excess of 50 per cent, with nearly 25 per cent of our clients posting gains of over 20 per cent. In addition, more than 35 per cent of our client portfolios grew between 10-20 per cent. While most strategies produced positive returns, the stand out performers tended to focus on equity long/short based strategies with strong gains in a number of sectors including technology, emerging markets and healthcare. Centaur's data set is broadly in line with published industry data.

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UK tech investment hits record $15bn despite COVID and Brexit

Brief: Tech venture capital investment in the UK hit a record high of $15bn (£10.8bn) in 2020 despite the economic fallout of the coronavirus pandemic and complications of Brexit, a new study revealed. According to Tech Nation's latest report, health and wellness companies raised $38bn in 2020, an increase from $28bn in 2019. The report quoted UK prime minister Boris Johnson as stating that: "In North West England we saw an increase in health tech investment of over 200%, while across the UK our digital sector continues to make an enormous contribution to fighting the pandemic: from connecting locked-down patients with their GPs to offering NHS staff free access to workplace mental health platforms." He added that 2020 was "a year in which the brutal necessity of restricting human contact has escalated the importance of tech of all kinds, from the NHS app to Zoom calls." Augmented reality, e-sports and gaming accounted for over $2.4bn of total venture capitalist investment to companies including US-based Caffeine, which raised $126m for their gaming, entertainment and creative arts broadcasting platform.

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Omers Survey Finds Dealflow Rose or Held Steady During Covid-19 For Most Canadian VCS

Brief: One year into the pandemic, research suggests that for the majority of Canadian venture capital (VC) firms deal activity has increased or remained relatively consistent, according to a recent survey conducted by OMERS Ventures. In January, OMERS Ventures, the tech-focused investment arm of OMERS, one of Canada’s largest pension funds, surveyed 99 VC firms across North America and Europe, 24 percent of which were Canadian. Given that the pandemic is likely going to have a lasting impact on the way that VCs evaluate companies for investment, OMERS said it decided to share its findings to help the community adapt. The new report, which was released today, follows OMERS’ July 2020 survey and aims to illustrate how VC behaviour and activity have changed due to COVID-19. “We felt now was a good time to conduct our study once again, to capture current sentiment around how VCs are approaching investing today, and any lasting changes we should expect to see in the deal process in a post-COVID world,” wrote Alyssa Spagnolo, associate at OMERS Ventures. Of the Canadian VC firms OMERS spoke to, 46 percent have seen the same amount of deals compared to before COVID-19, while 25 percent have seen more deals than normal. On the flip side, 21 percent have seen deals decline by at least a quarter, while eight percent have seen deals decline by at least half.

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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 March 17, 2021:

  • In the United States, Bloomberg is reporting Americans are sitting on a stockpile of savings that rivals the price tag of the latest COVID-19 relief package. According to the report, those who were lucky enough to have disposable income saved during the pandemic and nowhere to spend it, have approximately $1.7 trillion saved through January. That number is expected to rise, bolstered by the latest round of new stimulus payments. Economists at Wells Fargo and & Co. are predicting as the economy reopens, consumer spending over the next two quarters is likely to be the strongest such period in at least 70 years.

  • In Canada, former Bank of Canada Governor, Mark Carney weighed in on the country’s pandemic preparedness on Wednesday. Carney appeared on a CTV News morning show and said Canada needs to build up its manufacturing capacity for both vaccines and personal protective equipment (PPE). “We, like many other countries, thought we could buy our PPE from abroad, ultimately buy vaccines from abroad in a timely way. That just hasn’t been the case for either and we’re suffering as a consequence. We need to think about all the essential items on which we can’t rely on international markets for,” said Carney. The former Canadian banking head was hired last year by Brookfield and serves as their Vice Chair and Head of ESG and Impact Fund Investing.

  • The United Kingdom’s Department of Health and Social Care (DHSC) said on Wednesday that nearly half of all adults across the country have now received at least their first inoculation of a COVID-19 vaccine. The latest data shows between December 8th and March 16th, over 25 million have received their first dose of the Pfizer and Oxford/AstraZeneca vaccines, while close to 1.76 million are fully vaccinated. Prime Minister Boris Johnson weighed in upon hearing the numbers, calling them an “incredible achievement” and hailing the milestone as “25 million reasons to be confident for the future”, as the government prepares to ease restrictions.

  • The European Union (EU) is flexing its muscles and turning its glare towards the UK, threatening to ban exports of COVID-19 vaccines to the country to safeguard doses for its own members that are dealing with a third wave of the coronavirus pandemic. EU Commission Head Ursula von der Leyen called the current situation, “the crisis of the century” and the need to accelerate vaccination rates. Von der Leyen said the flow of vaccine exports from the United States was fine but criticized Britain over their lack of deliveries of the AstraZeneca vaccine. Ironically enough, many EU bloc nations have suspended their AstraZeneca shots on their citizens, citing pending safety checks.

  • Bloomberg is reporting vaccine nationalism is likely going to derail the efforts of the World Health Organization’s (WHO) Covax initiative. The governing health body was wanting to deliver 2 billion doses of vaccines to poorer and middle-income nations by the end of the year, but Adar Poonawalla, CEO of the Serum Institute of India, the world’s largest vaccine maker, says this is unlikely to happen. Appearing on Bloomberg Live, Poonawalla blamed wealthier nations like the United States, and larger nations like India stockpiling doses for their own citizens first. Poonawalla went on to add it will likely take two or three more months for Covax shipments to really pick up, which means hitting the 2 billion benchmark likely won’t happen until sometime in 2022. 

  • China is resuming visa processing for foreigners from dozens of countries, but there is a catch: they must have been inoculated against COVID-19 with a Chinese-made vaccine. The announcements made by Chinese embassies in 20 countries, including the United States, India and Australia, vary slightly for each country, but pledge a return to pre-pandemic visa processing for some groups to resume “people-to-people exchanges in an orderly manner.” The move has raised eyebrows about the motivations behind China’s demand as their vaccines have not been approved in many of the countries to which it has opened travel and they will not accept foreign vaccines made elsewhere, including those approved by the WHO.

Covid-19 – Due Diligence And Asset Management

Some UK Financial Firms Blame COVID for Missing Target of Women in Senior Roles

Brief : Most financial firms and institutions signed up to a UK finance ministry backed charter met their 2020 targets for women in senior management as those who fell behind blamed hiring freezes due to COVID-19, a review said on Wednesday. The fourth annual review from think tank New Financial for Britain’s finance ministry, said the Women in Finance Charter faced its biggest test yet after the COVID-19 pandemic struck in 2020. Over 70& of the 209 signatories, including the finance ministry, have met their self-imposed targets, or were on track to meet future targets, the review said. Just over 60% of the signatories have set a target of at least 33% of female representation in senior management. A group of 81 firms were due to hit their target by the end of 2020, but 44 of them failed to do so, citing deliberately ambitious targets, and recruitment or promotion freezes due to COVID, the review said.

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At Long Last, Wall Street sees Path to Return to the Office

Brief: New York City is reopening, vaccinations are accelerating and spring brings with it an air of optimism. For Wall Street’s banks, that means a return to offices may finally be in sight. At JPMorgan Chase & Co., hundreds of interns are set to work in the lender’s New York and London offices in the coming months. Citigroup Inc. is providing workers with rapid COVID tests as it sketches out its plans to safely return people to its buildings. Goldman Sachs Group Inc. has said it hopes to have more employees back by summer. One year after Wall Street sent employees home in droves to stop the spread of the coronavirus, the prospects of a broad return are starting to get clearer -- and not a moment too soon for some companies in the industry. From Zoom fatigue to the exhaustion of jobs colliding with home life, many bankers say the strains of long-term remote work are growing for bosses and underlings alike. There are exceptions, and signs of growing flexibility as companies such as Apollo Global Management Inc. consider hybrid models. But as other industries look at dramatically reshaping work in a post-COVID world, the stance of New York’s financial giants is clear: Employees should be at offices. It’s just a matter of how quickly -- and safely -- their leaders can get them there.

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U.S. Travel Spending Sank 42% in 2020 Due to the Pandemic

Brief: Travel spending by Americans plunged by 42%, or $492 billion, in 2020, according to a report by an industry group, amid social, travel and business restrictions aimed at curbing the spread of COVID-19. The U.S. Travel Association said the industry shed 5.6 million direct and indirect jobs last year, and the decline in travel dragged down total economic output to $1.5 trillion, from 2019’s $2.6 trillion. U.S. tax revenue collected from travel plummeted by $57 billion in 2020. “While the gradual progress of vaccinations has provided hope that a turnaround may be on the horizon, it is still unclear when travel demand will be able to fully rebound on its own,” said U.S. Travel Association President and CEO Roger Dow. As millions of Americans get vaccinated and travel destinations begin to reopen, the industry is optimistic that demand will return this spring. Disney said Wednesday its California theme parks will reopen April 30.

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This Is the ‘Biggest Risk of All’ for Investors, According to Howard Marks

Brief: Consumers have $1.8 trillion in extra cash to spend. That increase in disposable income since the beginning of the pandemic — combined with the Federal Reserve’s promise to keep interest rates low — is why Howard Marks, co-founder of Oaktree Capital Management, is feeling pretty optimistic about the economy. “A related positive to consider is that market tops usually occur with the economy several years into the up-leg of the cycle and vulnerable to recession,” Marks wrote in a new investor letter. “This time, however, we have strong markets at the beginning of what may prove to be a long economic recovery.” In this latest memo, Marks focused on how the markets behaved in 2020 and what investors should do this year. This included addressing the disappointingly brief window in 2020 to buy assets at huge discounts, investors’ fears of missing out, and re-energized buying after the initial market downturn in March. All that led to the market hitting new highs later in the year, he said.

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Suspended Property Funds Collect £40m in Management Fees over 2020

Brief: Investors trapped in suspended open-ended property funds have paid out more than £40m in management fees over the course of 2020, with some still paying fees in 2021 as £2.8bn of investor capital remains locked away across three funds. According to Investment Week calculations utilising fee and fund size data from Morningstar Direct and share class classifications from FE fundinfo, investors have shelled out approximately £40m in management fees across nine suspended property funds over the course of 2020, with the total figure likely larger than this, as data for St James's Place, Aviva Investors and Canlife's property funds were unavailable. The costs calculated only apply to the management fees of the fund, with various other fees such as property, transaction and dealing costs that comprise the total ongoing charge not included. From Morningstar Direct, the fees were taken from the firm's MiFID files and total fund size was based on "surveyed figures obtained from the firm" on a month-to-month basis. Main share classes have been selected according to the methodology employed by FE fundinfo.

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HSBC Closes Main Hong Kong Office After Multiple Covid Cases

Brief: HSBC Holdings Plc’s main Hong Kong office was closed until further notice after three people working in the building tested positive for COVID-19 amid a renewed wave of infections among the city’s business and expatriate community. The Center for Health Protection has published a formal notice requiring visitors who stayed at the building for more than two hours between March 3 and 16 to undergo a mandatory test at a government-approved center by March 19, according to an internal memo. The move means staff and customers will have no access to the lender’s biggest branch in the city. “It is our understanding that HMB can return to normal business when virus testing of colleagues and deep cleaning of the facility are complete,” HSBC wrote in the memo distributed on Wednesday. “The exact timing is yet to be confirmed.” In a statement, a spokeswoman for HSBC said the bank is following the guidelines from the authorities and taking all necessary measures to reopen as soon as practicable. “For banking services, we have well-developed contingency measures that ensure our services and critical processes continue to be maintained,” she 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 Tuesday March 16, 2021:

  • In the United States, while the vaccination drive continues to pick up speed, there is more than just the virus standing in the way: politics. Recent polls have found vaccine hesitancy falling overall, but opposition among Republican voters is still notably strong. A poll from the Associated Press found that 42% of Republicans say they probably, or definitely will not get a COVID-19 inoculation, compared with 17% of Democrats – a 25-point split. “This is going to be the big issue,” said Ashish Jha, Dean of the Brown University School of Public Health. “And if we get stuck at 60 or 65% vaccinated, we are going to continue to see significant outbreaks and real challenges in our country…”
  • While countries in Europe continue to have their doubts on the AstraZeneca COVID-19 vaccine, Canada seems to be moving in the opposite direction. The country’s National Advisory Committee on Immunization (NACI) has now expanded its recommendation for the use of the AstraZeneca vaccine to include people 65 years of age and older. When pressed in a news briefing on Tuesday to address the possible impact on vaccine confidence from the change in guidance in such a short period of time (AstraZeneca was approved in Canada last month), NACI chair Dr. Caroline Quach-Thanh said the following: “It’s not that we’re flip-flopping, it’s just that we try to monitor the evidence. It’s always easier if Health Canada and NACI agree, but it doesn’t have to be…” 
  • In the United Kingdom, The Guardian is reporting senior doctors, government scientific advisers and a former head of the civil service have spoken out in favour of a public inquiry into the government and Prime Minister Boris Johnson’s handling of the COVID-19 pandemic. The UK’s death toll due to the coronavirus currently sits at almost 126,000, which is one of the worst death tolls per capita of any of the world’s large economies. The potential inquiry will look into everything from lockdown tactics to test and trace programmes. Last July, Prime Minister Johnson promised to set up an “independent inquiry”, but the government has since backtracked on this, instead stating now is not the time to launch such a task and they are focussed on protecting and saving lives.
  • Reuters is reporting coronavirus infections are rising exponentially again in Germany, putting at risk further plans to lift lockdown restrictions. An epidemiologist appeared on a German TV network and stated the country was indeed in the third wave of the pandemic, driven by the fact it has loosened restrictions in recent weeks, just as a more transmissible variant has spread. The number of cases per 100,000 reported on Tuesday were 83.7, up from 68 a week ago, and the Robert Koch Institute, Germany’s government body responsible for disease control and prevention, said that number could reach 200 per 100,000 by the middle of next month.
  • The Philippines government has said the recent surge in coronavirus infections will have limited impact on the economy as officials opt for localized lockdowns. Economic Planning Secretary Karl Chua also mentioned the rise in vaccinations should help – the government expects 2.4 million doses to arrive over the next several weeks. The Philippines will also limit foreign arrivals in its main Manila airport to 1,500 passengers a day starting March 18th. Most foreigners are still barred from entering the country.
  • Brazil is moving on to its fourth health minister since the coronavirus pandemic began in the country. President Jair Bolsonaro announced on Monday night that Dr. Marcelo Queiroga will take over for Eduardo Pazuello. Dr. Queiroga was previously president of the Brazilian Society of Cardiology, while Pazuello was a former army general before taking on the health leader role. President Bolsonaro said Dr. Queiroga will choose his working team and a transition will take place “in one or two weeks”. Brazil really needs the fourth time to be the charm as they deal with one of the darkest stretches any country in the world has seen during the pandemic. Close to 280,000 Brazilians have died from COVID-19 and currently the intensive care units in 22 out of 26 states are nearing capacity.

Covid-19 – Due Diligence And Asset Management

Private Equity Investors Fret Over Record U.S. Buyout Prices

Brief : Private equity firms are paying more for leveraged buyouts to keep pace with soaring valuations of acquisition targets, making some investors leery of whether the industry can keep delivering on promises of lucrative returns. The booming stock market and cheap debt financing have helped push leveraged buyout prices to a record high, driven by sectors that have grown as people work and stay at home during the COVID-19 pandemic, such as technology and business services. Private equity firms paid an average 13.2 times a company’s annual earnings before interest, tax, depreciation, and amortization (EBITDA) for U.S. leveraged buyouts in 2020, an all-time high, up from 12.9 times in 2019, according to financial data provider Refinitiv. Some investors are growing concerned about whether buyout firms can deliver the 15% to 20% annual returns they target when they raise new funds.

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Private Equity’s Presence in Health Care is Growing

Brief: Private equity is expanding in health care, becoming a larger source of industry capital across buyout, growth, and venture strategies, according to UBS Group’s chief investment office. Health care represented 14 percent of deal activity in private equity last year, up from 9 percent in 2007, UBS said in a note this week. Digital health companies are turning to private equity firms as their main source of capital, receiving $35 billion of investments in 2020, according to the report. Although health care accounts for 5 percent of the world’s data, UBS said the industry remains one of the least digitalized. The investing opportunity for private equity is vast in the sector, with a total 146,000 private companies dwarfing the 2,700 publicly-traded health-care companies globally, according to the report. “The universe of potential investable companies for private equity is larger,” UBS said. “Private equity is a primary source of capital for innovation, especially for early-stage drug discovery where corporate funding is often scarce.”

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Apollo to Test Partial Remote Work as Vaccinations Increase

Brief: Apollo Global Management Inc. will test giving employees the option of working remotely two days a week through the end of the year, according to a person familiar with the matter. The exact start of the experiment will depend on when Covid-19 vaccines become more broadly available, the person said. Employees will be given at least 30 days’ notice. Firms across Wall Street have been struggling with how -- and when -- to get employees back at their desks. Many are treading lightly or delaying the effort, given looming virus variants and the difficulties in obtaining vaccines. Apollo’s decision, made in response to employee feedback over the past year, is also an attempt to attract top talent, the person said. The plans were announced Thursday at a town hall meeting led by incoming Chief Executive Officer Marc Rowan and co-Presidents Jim Zelter and Scott Kleinman, the person said. “Our teams have proven to be highly productive in remote and hybrid settings,” a company spokesperson said Tuesday in a statement. “As vaccines soon allow us to welcome back more of our workforce, we will be testing a hybrid approach designed to uphold our apprenticeship model and team camaraderie, while offering our colleagues, and future colleagues, greater flexibility to do their best work.”

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Bridgewater Co-CIO Sees Inflation Spiral Forcing Fed Into Action

Brief: The world is on the verge of a new inflationary wave that could force the Federal Reserve to raise rates earlier than planned, according to the co-chief investment officer of the world’s largest hedge fund. The Biden administration’s “extreme” approach to fiscal stimulus looks set to turbocharge consumer prices while threatening the post-crisis bond and stock rally, Greg Jensen at Bridgewater Associates said in an interview. “The pricing-in of inflation in markets is actually the beginning of a major secular change, not an overreaction to what’s going on,” Jensen said. “Economic conditions and inflation will adjust faster than either markets or the Fed are expecting.” While market-derived inflation expectations have surged near a 12-year high, the Fed has signaled patience with a heating economy and projected no rate hike for the coming two years. It’s a stance policy makers are expected to reiterate at the end of their meeting Wednesday. Between the upcoming $1.9 trillion stimulus program and the ending of lockdowns, traders are betting the economic revival will force the Fed’s hand sooner. Eurodollar contracts suggest a roughly 75% chance of tighter policy by December 2022.

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Inflation is Coming – And Active Funds Aren’t Prepared, Bank of America Warns

Brief: Actively managed funds aren’t positioned for rising inflation — which is coming, according to Bank of America Corp. “They remain persistently overweight mega caps but underweight small caps,” Bank of America’s equity and quant strategists said in a research report Monday. That’s despite small-cap stocks being better positioned as the economy reopens from shutdowns during the pandemic, as well as having historically outperformed during the “mid-cycle” when inflation rises, they said.  A majority of actively managed U.S. large-cap funds failed to beat the Standard & Poor’s 500 index in 2020 for an eleventh straight year of underperformance, according to a report released last week by S&P Dow Jones Indices, a unit of S&P Global. Amid expectations for an economic rebound this year, the Bank of America strategists estimated the U.S. has now shifted into a “mid-cycle” phase.  “In this phase, small caps and value have typically outperformed large caps and growth,” the strategists said in the report. “Small caps and value stocks were also some of the best-performing assets during the inflationary period of the late 60s.”

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Why Every Real Estate Investor Will Become an Impact Investor

Brief: Covid-19 is set to dramatically accelerate the intersection of real estate and ‘impact investing’, the practice where positive and measurable social and environmental outcomes are placed alongside financial returns as the ultimate objective for fund managers and their institutional allocators. Impact strategies have attracted growing volumes of capital in recent years, reflecting an emerging consensus that investors can do well by doing good. As an asset class that is physical, local and designed explicitly with communities in mind, real estate has always had an intrinsic impact dimension and has been at the forefront of impact investing’s journey from specialist focus to mainstream product. But it may be the pandemic that proves the defining moment in this convergence – initially and most visibly in the areas of homes, healthcare and education. In addition to its enormous public health ramifications, Covid-19 has exposed a range of systemic problems in advanced economies. The experience will shock investors into profoundly rethinking their role and responsibilities, beyond solely maximising financial returns, to encompass tackling structural societal challenges.

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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 March 15, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) said America could still see another surge of coronavirus cases as more states relax restrictions and more people start to travel for spring break. The Transportation Security Administration (TSA) said screenings have topped one million every day since Thursday, hitting the best stretch in a year, but CDC Director Dr. Rachel Walensky is warning Americans of any non-essential trips. “I’m pleading with you, for the sake of our nation’s health. Cases climbed last spring, they climbed again in the summer, they will climb now if we stop taking precautions when we continue to get more and more people vaccinated.” According to the CDC, 37.5 million people, or just 11% of the American population have been fully vaccinated so far.

  • The European Union’s (EU) big three – Germany, France and Italy - all said Monday they would pause the usage of the AstraZeneca COVID-19 vaccine throwing the 27-nation bloc’s vaccination campaign into further disarray. Denmark and Norway stopped giving the inoculation last week after reported isolated cases of bleeding, blood clots and a low platelet count. Iceland and Bulgaria followed suit, then Ireland and Netherlands announced similar moves over the weekend. The World Health Organization appealed to EU nations to reconsider the suspension of the AstraZeneca vaccine saying systems are in place to protect public health.

  • Following the moves made by Germany, France and Italy on Monday, Canadian Prime Minister Justin Trudeau tried to offer reassurances to the country that the AstraZeneca COVID-19 vaccine is indeed safe to use. “Health Canada and our experts and scientists have spent an awful lot of time making sure every vaccine approved in Canada is both safe and effective. Therefore, the very best vaccine for you to take is the first one that is offered to you,” said Trudeau. The Prime Minister added that none of the AstraZeneca doses Canada received are from the batch linked to possible side-effects reported in Europe.

  • In the United Kingdom, Prime Minister Boris Johnson weighed in on the AstraZeneca coronavirus vaccine as well. During a virtual news conference, Prime Minister Johnson reiterated his confidence in one of the vaccines his government is currently using in its vaccination push. “In the MHRA (Britain’s medicines regulator), we have one of the toughest and most experienced regulators in the world. They see no reason at all to discontinue the vaccination programme. So, we continue to be very confident about the programme and it’s great to see it being rolled out at such speed across the UK.”

  • Bloomberg is reporting Dubai is conducting a clinical trial to assess the accuracy of a breath test to detect the coronavirus within one minute. The rapid test is being developed by the National University of Singapore’s Breathonix and being trialled on 2,500 patients in coordination with the Dubai Health Authority and Mohammad Bin Rashid University of Medicine and Health Sciences. 

  • According to the media source, The Age, Australia and Singapore are moving towards establishing a travel bubble that will hopefully be ready to go by July or August. The two nations would allow each other to have their fully vaccinated citizens travel back and forth for work or leisure. The Age reported Australia’s Trade Minister Dan Tehan and Government Services Minister Stuart Robert were driving the plan and behind-the-scenes policy work. The reported travel bubble would be well before the broader reopening of international borders by Australia thought to be sometime in October, depending how the pandemic is throughout the rest of the world.

Covid-19 – Due Diligence And Asset Management

A Year Since Black Monday 2 and a Round Trip for Markets

Brief : It’s a year since COVID-19 mayhem sent the S&P 500 index reeling 12% for its second-worst day ever, yet the bull market born from that selloff has in the subsequent 12 months added more than $40 trillion to the value of world stocks. On March 16, 2020, when the S&P 500 endured its worst one-day fall since the “Black Monday” of October 1987, MSCI’s global equity index plunged almost 10%, only to rise back thanks to huge central bank support. Effects have rippled out to every market sector. Here is a look at markets that day and in the year since: As COVID-19 spread around the world between late February and the end of March 2020, triggering unprecedented lockdowns, world stocks saw their market value collapse by $21 trillion. Markets troughed on March 23, then claimed a record high five months later. The market capitalisation of the MSCI global index has risen $40 trillion between March 23 and now, making it a $65 trillion round-trip.

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Two Sigma Plans to Test Remote Work Twice a Week After Labor Day

Brief: Two Sigma Investments won’t require employees to return to the office until at least September and will experiment with a hybrid model that allows them to work remotely two days a week. Employees should expect to return after Labor Day, “but that’s going to depend on the science, the availability of vaccines, and schools opening, global regulations,” Two Sigma Chief Technology Officer Jeff Wecker said Monday during the AI and Data Science in Trading conference. The $58 billion quant firm, which has gradually allowed staff to return to its U.S. offices, plans to re-evaluate the hybrid model before the middle of next year. Employees have been working remotely since last March. Wecker joined New York-based Two Sigma in July from Goldman Sachs Group Inc. -- in the middle of the pandemic -- and said he hasn’t been able to meet many of his new colleagues in person. “I’m looking forward to seeing everybody,” he said.

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IMF Research Shows Top Firms Becoming More Dominant During Pandemic

Brief: The coronavirus pandemic has significantly strengthened the market power of dominant firms, which could drag on medium-term growth and stifle innovation and investment, the International Monetary Fund said on Monday in a new research paper. Key indicators of market power are on the rise, including price markups over marginal costs, and the concentration of revenues among the four biggest players in a sector, the IMF study said. Part of this was due to increased bankruptcies as the pandemic caused competition to fall away. “Due to the pandemic, we estimate that this concentration could now increase in advanced economies by at least as much as it did in the 15 years to end of 2015,” IMF Managing Director Kristalina Georgieva said in a blog post accompanying the paper. “Even in those industries that benefited from the crisis, such as the digital sector, dominant players are among the biggest winners.”

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CEOs Become Vaccine Activists as Back-to-Office Push Grows

Brief: Some chief executive officers are so eager for their employees to get vaccinated against Covid-19 that they’re granting workers time off or cash incentives to get shots. In the U.S., retailer Lidl is giving its staff $200, while Aldi, Dollar General Corp. and Trader Joe’s Co. are offering extra hours of pay. Online grocery delivery firm Instacart Inc. is providing a $25 stipend for workers and contractors. Yogurt makers Chobani LLC and Danone SA are offering as much as six hours of paid leave, and the French company says it will cover the cost of inoculation in countries where vaccines aren’t free. Other companies are taking a harder line. U.K. handyman empire Pimlico Plumbers Ltd. has said it plans a “no jab, no job” policy for new members of its workforce. United Airlines wants to make shots mandatory, drawing concerns from unions. Many CEOs see themselves as leaders of the fightback against a pandemic that’s killed more than 2.6 million people. They’re standing up against anti-vaccination sentiment that’s strong in countries like the U.S., France and Russia, and trying to keep their workers safe. For some, there’s also a more pragmatic motivation: Vaccination will facilitate a return to the office after a year of working from home that’s strained corporate cultures and spawned a new epidemic of Zoom fatigue.

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PE Investors Expect a ‘U-Shaped’ Recovery, says Mazars

Brief: PE investors expect a ‘U-shaped’ recovery, according to ‘Covid-19 and the world of private equity: optimism in an uncertain environment’, a survey released today by audit firm Mazars, that gauges investor sentiment in the institutional funding market. While the majority (63 percent) of respondents still anticipate a U-shaped recovery - compared to 82 percent in June - the number of respondents expecting a V-shaped recovery has increased from 10 percent to 27 percent - likely on the back of vaccinations starting in Q1 2021, in combination with business support schemes being implemented by governments. Meanwhile, around 70 percent of respondents report seeing more distressed opportunities, according to the research. This figure compares to 54 percent of respondents in June saying they had come across distressed opportunities. Despite expectations that revenues will fall over the next 12 months, participants in the survey view the decline as less severe than previously reported. Some 30 percent of respondents expect a fall in revenue of 11 percent to 25 percent, compared to 50 percent of respondents in the June 2020 survey. A little over one third, or 39 percent, of respondents said they focus on originating new platform opportunities.

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Euro Finance Chief sees Need for Fiscal Aid Even as Crisis Fades

Brief: Euro-area governments should be ready to keep up emergency support for their economies even after the worst of the coronavirus crisis is behind them, according to the official who leads meetings of the region’s finance ministers. Speaking before chairing a virtual gathering of his counterparts on Monday, Paschal Donohoe warned that the currency zone will require ongoing aid as it recovers lost ground to reach its pre-pandemic growth levels. “There will be a need for the euro area and for finance ministers to continue to support our economies beyond the acute emergency of large parts of last year and parts of this year,” the so-called Eurogroup president said in an interview. “The risk and consequences of cutting support too early are currently bigger than the risks of pulling support too late.” Donohoe, who is also Ireland’s finance minister, spoke before a discussion with colleagues that is expected to result in a pledge to keep fiscal policy in the region supportive through next year, and to only gradually ease support for businesses and workers. Such a commitment would help cement more aid that already totaled about 8% of euro zone output in 2020, along with a new stimulus fund and liquidity schemes worth around a fifth of gross domestic product. To allow that support, the European Commission this month signaled it will extend its suspension of rules limiting debt through next year.

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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 March 12, 2021:

  • During his first prime-time address as President of the United States Thursday evening, Joe Biden set out another goal for his administration in addressing the coronavirus pandemic. President Biden stated he wants all adults in the U.S. made eligible for vaccines by May 1st with a goal of having Americans return to a state of normalcy by the Fourth of July, which coincides with the country’s Independence Day. President Biden made another declaration before he entered office when it came to coronavirus vaccine distribution – 100 million doses into American arms in the first 100 days of his administration. According to Bloomberg, America was already close to nearing a pace of one million shots a day by Biden’s inauguration, so it should come as no surprise that he proudly proclaimed on Thursday that the nation would hit that threshold by next week – just 60 days into his presidency. 
  • In Canada, Prime Minister Justin Trudeau and his government is in no hurry to reopen the U.S. land border to non-essential travel. Speaking to a Canadian news morning show on Friday, Prime Minister Trudeau said the country will not reopen its land border to its southern neighbours until vaccination rates and case counts reach levels that would make doing so safe for Canadians. The prime minster when questioned didn’t rule out waiting until September or possibly later to reopen the land border, which has been closed since March 2020. The news comes as some American politicians have called for the border to be opened between the two countries for the start of the summer. Prime Minister Trudeau said the border closure has been renewed on a monthly basis and that plan will remain in place. 
  • In the United Kingdom, the economy shrank less than expected during the country’s lockdown in January. The UK’s GDP fell 2.9%, much less than the 4.9% contraction economists had forecasted thanks to stronger than expected gains in construction and stronger activity in the health sector. Prime Minister Boris Johnson and his government’s COVID-19 vaccine rollout, which has been deemed a success, especially compared to the European Union’s ongoing struggles, continues to bolster the economy in hopes that restrictions will be fully lifted by the middle of the year. The Bank of England is supposed to decide next week on whether the UK needs more stimulus to recover from their biggest economic slump in three centuries. 
  • Italy and its citizens might be having a case of déjà vu as one year out from their first coronavirus lockdown, new Prime Minster Mario Draghi is evoking a another one. Under the new rules, regions with more than 250 weekly case per 100,000 inhabitants will be automatically designated as high-risk “red zone”. According to Bloomberg, this could as send as many as 14 of Italy’s 20 regions, including those surrounding Milan and Rome, into lockdown as of Monday. Prime Minister Draghi also made the following declaration in one of his rare public appearances since becoming leader: “Italy is administering about 170,000 doses a day, our aim is to triple that. It is only with widespread vaccinations that we will be able to do without restrictions like the ones we had to adopt.”
  • India reported its worst single-day increase in COVID-19 cases since late December on Thursday, which forced a densely populated city into an upcoming lockdown. Close to 23,000 new cases were reported in a 24-hour span, according to India’s health ministry – the highest daily rise since December 25th. Fresh outbreaks in the western state of Maharashtra have forced officials to announce a lockdown of Nagpur from March 15th-21st. India’s overall COVID-19 caseload of 11.3 million – trails only the United States and an increase in recent public gatherings and travel before a majority of Indians were vaccinated are being blamed for reasons in the spike of cases.
  • The African Development Bank (AfDB) said Friday in its economic report that the coronavirus pandemic is forcing millions more into extreme poverty. Even though Africa is projected to rebound from its worst slump in half a century, the AfDB expects as many as 39 million more people will be pushed into extreme poverty in 2021. In 2020, about 30 million Africans suffered that fate, which means 34.4% of the continent’s population, or 465.3 million, could be living on less than $1.90/per day. Last year, Zambia became the first country in Africa to default on its debt and a United Nations Economic Commission member said last month more African nations will probably seek restructuring of their obligations.

Covid-19 – Due Diligence And Asset Management

Apollo Bets a New Roaring ‘20s Will Revive Vegas After Vaccines

Brief : The theater where Tony Bennett and Steely Dan once performed is still dark. Players at the blackjack tables are separated by plastic partitions. The gondoliers offering rides along faux canals wear face masks and aren’t allowed to sing. The Venetian Las Vegas isn’t the resort it was a year ago. But that didn’t stop Apollo Global Management Inc. and its real estate partner, Vici Properties Inc., from plunking down $6.25 billion to purchase the property, the neighboring Palazzo and the adjacent Sands Expo Convention Center from Las Vegas Sands Corp. last week. The deal surprised observers such as Stephen Miller, director of the Center for Business and Economic Research at the University of Las Vegas, Nevada. “Are they off their nut or are they on to something?” he asked. Despite a long list of problems, Apollo partner Alex van Hoek sees opportunity -- for soaring tourism and a return of convention travel that made the city one of the top destinations for business groups. “We are very bullish on the recovery of Las Vegas,” said van Hoek, who led the investment firm’s purchase. It’s no sure thing. A year after the coronavirus shut down its famous casinos, America’s gambling capital is trying to crawl back from one of its deepest slumps ever. The glittering palaces along the Strip began reopening last June, but business is still slow. Unemployment, at 10%, is the highest among big U.S. cities. Tourist traffic in January slumped almost two-thirds from last year. Gambling revenue on the Strip was off 44% and the convention business nonexistent.

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Deutsche Bank CEO’s 46% Pay Rise Prompts Backlash

Brief: Deutsche Bank paid Chief Executive Christian Sewing 7.4 million euros ($8.8 million) in 2020, up 46% from a year earlier, prompting criticism from unions and politicians. The bank’s bonus pool was up 29% as it rewarded staff for a pandemic-related trading boom, which helped the German lender to eke out a profit after years of losses. The disclosure in the bank’s annual report on Friday came as Deutsche said revenue would be “marginally lower” this year. In Germany, which is facing an election year and where the public disapproves of high pay, the Verdi labour union called the payouts “grossly disproportionate” and politicians were critical. “It doesn’t fit with the times that Deutsche Bank, which has also indirectly benefited from bailouts time and again, is having a coronavirus party,” Fabio De Masi, a member of Germany’s parliament, said in a statement to Reuters. Last year marked a turnaround for Deutsche and Sewing, who took up his post in 2018, after the bank had faced a series of costly regulatory failings, including over money laundering. The bank has lost 8.2 billion euros over the last decade.

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EU Recovery Fund Risks Delays With Spending Plans Judged Sub-Par

Brief: The European Union’s pandemic recovery fund has run into early trouble, with the bloc’s executive arm judging that most of the national spending plans submitted so far still need work to get approved, raising the risk of delays in disbursements to some of the region’s battered economies. Germany’s submission is among those deemed to fall short of expectations, with southern European nations including Greece and Spain having the strongest plans, according to officials familiar with the discussions who asked not to be identified. Some countries haven’t made proposals at all yet, and others are way behind, they said. The German government is in talks with the Commission to reduce some of the hurdles to investment in its plan, one official said. A commission spokeswoman said that staff are in “intensive dialogue” with member states with the aim of making disbursements starting from mid-2021, but that “it is also essential” that these plans meet the key objectives of the fund. A spokesperson for the Greek government also declined to comment, and spokespeople for the German finance ministry and Spanish government didn’t immediately respond to a request for comment.

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Americans Support Restricting Unvaccinated People From Offices, Travel

Brief: A growing number of Americans want to get the coronavirus vaccine, and a majority also support workplace, lifestyle and travel restrictions for those not inoculated against COVID-19, according to a Reuters/Ipsos poll released on Friday. Altogether, 54% of respondents said they were “very interested” in getting vaccinated. That was up from a January survey, when 41% expressed the same level of interest, and 38% in a May 2020 poll before a coronavirus vaccine was developed. Interest in the vaccine increased over the past year among whites and racial minorities, with about six in 10 whites and five in 10 members of minority groups now expressing a high level of interest. Twenty-seven percent of Americans said they were not interested in getting vaccinated, which was relatively unchanged from a similar poll that ran in May. But foreshadowing the social challenges that may emerge as the United States begins to pull out of the yearlong pandemic, the latest poll showed a majority of Americans want to limit the ways in which unvaccinated people can mix in public.

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The ‘Reflation’ Sensation: Emerging Markets Poised to Benefit From Vaccine Rollout and Sustained Global Recovery

Brief: In the first part of the year, the vaccine rollout is supporting a robust economic recovery and global central banks continue to operate very loose monetary policy. This scenario favours the emerging markets (EM) asset class, which is relatively well placed to benefit from the global 'reflation' trade. We are, however, mindful of the impact of higher US Treasury yields (and especially a rapid rise) on EM fixed income, especially some of the higher quality parts of EM. This is because the credit spread in this EM sector is insufficient to absorb the total return drag implied by a sell-off of US Treasuries. Today, higher yielding EM is better placed to navigate these challenges, although even in this asset class it is important to differentiate between the high yield EM sovereigns with positive credit stories and those with impaired balance sheets and a weakening outlook Another positive driver for EMs is the new US President. The Biden administration is, on balance, supportive for EM as it implies more international co-operation and less isolationism. Yet, the stance towards China is unlikely to change very much and remains a source of risk while attitudes to Russia may also become harsher.

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Private Equity Sets Sights on Strengthening Portfolios with 35 Per Cent Jump in Buy and Build Deals

Brief: The number of private equity buy and build transactions in the UK rose by 35 per cent during 2020, as private equity houses looked to bolster their portfolio during the Covid-19 pandemic, according to research by Rickitt Mitchell.  Analysis by the corporate finance boutique, in partnership with Experian Market iQ, reveals that a total of 370 bolt-on transactions were completed in 2020 – up from the 276 seen over the course of the previous year.  The bounce back following the Covid-19 pandemic is highlighted by the active second half of 2020, with 232 transactions completed during that period. In contrast, just 46 deals were completed during the second quarter, at the height of the national lockdown.  Despite the rise in volumes, the total value of transactions fell by a small portion over the last year. GBP1.2 billion of deals were completed in 2020, just lower than the GBP1.3 billion seen in 2019, which further highlights the trend of bolt-on deals during this period, which typically have smaller average values than other deal types. 

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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 March 11, 2021:

  • In the United States, President Joe Biden changed his mind on Thursday and decided to sign the COVID-19 stimulus bill into law. The bill arrived at the White House last night and according to an official, President Biden wanted to sign it into law ASAP. Media reports had President Biden signing the bill into law on Friday originally. It also likely helps that the president will make a prime-time address to the nation Thursday evening to commemorate the grim milestone of one year since COVID-19 shut down much of the United States, and likely wants to try and lift the spirts of the American public.

  • Speaking in the House of Commons on Thursday, Canadian Prime Minister Justin Trudeau said March 11th, 2020 will be remembered as the day when life in Canada changed. Thursday marks the one-year anniversary of the World Health Organization (WHO) declaring the novel coronavirus a pandemic. “Every Canadian we lost to the virus will be remembered. Every shift done by a frontline nurse, every mask made by a Canadian worker will not be forgotten. We are stronger together, today, tomorrow and always,” said Prime Minister Trudeau. Elsewhere in the country, one-year into the pandemic there are still signs it is far from over. CTV News is reporting a new status report by Ontario’s COVID-19 Science Advisory Table has found that 42% of the province’s coronavirus cases are variants of concern. 

  • In the United Kingdom, the leader of the Tory’s backbench MPs warned Prime Minister Boris Johnson that lockdown rules will look “silly” if COVID-19 cases continue to decline. Sir Graham Brady, chairman of the 1922 committee of backbench Tory MPs, also criticized the government’s five-week gaps between each stage of the roadmap out of lockdown. Brady’s words are in direct contrast to England’s Chief Medical Officer Chris Whitty who warned earlier in the week that easing of restrictions would significantly increase the risk of a large surge in COVID-19 cases and more deaths.

  • Bloomberg is reporting Spain’s government plans to dedicate around two-thirds of the €11 billion fiscal package on direct aid to struggling firms. Prime Minister Pedro Sanchez’s socialist government plans to channel €7 billion in transfer payments directly to companies with about €3 billion towards a restructuring of state-backed loan guarantees and €1 billion for a separate restructuring fund. Prime Minister Sanchez announced the package last month but didn’t provide details on how the funds would be distributed.

  • According to Reuters, the European Union (EU) is about to suffer yet another setback in COVID-19 vaccine supplies after the United States told the EU they should not expect to receive AstraZeneca COVID-19 vaccines manufactured in America anytime soon. The EU has been an ongoing battle with AstraZeneca and its COVID-19 vaccine supply since the beginning of the year. The drugmaker had previously told the 27-nation bloc that they would be receiving 90 million doses in the second quarter – which is about half of what was expected. Lately, AstraZeneca offered to partly plug the gap with vaccines produced outside Europe, including the United States, but Thursday’s news throws a wrench into that plan.

  • Australia’s government has unveiled a $1.2 billion AUD package aimed at the country’s struggling tourism sector due to the coronavirus pandemic. The stimulus will be aimed at boosting local travel while international routes remain closed due to the pandemic. The government will subsidise 800,000 tickets on domestic flights to 13 destinations around Australia that mostly rely on international tourists and offer cheap loans to small tourism operators. “Our tourism businesses don’t want to rely on government support forever, they want their tourists back. This package, combined with our vaccine roll-out… is the bridge that will help get them back to normal trading,” said Prime Minister Scott Morrison.

Covid-19 – Due Diligence And Asset Management

KKR Seeks $12 Billion for Flagship Infrastructure Fund

Brief : Buyout firm KKR & Co Inc is seeking to raise $12 billion for its flagship global fund that will invest in infrastructure assets such as oil and gas pipelines and renewable energy projects, according to people familiar with the matter. The fundraising comes as President Joe Biden has been pushing U.S. lawmakers to back a plan for trillions of dollars in new spending on projects to restore America’s crumbling infrastructure. KKR began raising the fund, KKR Global Infrastructure Investors IV, late last year alongside its other flagship funds, including the North America private equity fund, which is aiming to attract more than $15 billion. A KKR spokeswoman declined to comment. Private equity firms tend to raise successor funds that are 10% to 20% larger than their predecessors. But KKR’s latest global infrastructure fund would be significantly bigger than KKR Global Infrastructure Investors III, which amassed $7.4 billion from investors in 2018.

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ECB Doesn’t Intend Faster Bond-Buying to Mean More Stimulus

Brief: Most European Central Bank policy makers have no intention of expanding their 1.85 trillion-euro ($2.2 trillion) emergency stimulus program despite their pledge on Thursday to step up the pace of bond buying to keep yields in check, according to officials familiar with the matter. The Governing Council’s decision to make purchases at a “significantly higher pace” over the next three months means buying debt at a faster rate than the program’s timeline suggests, the officials said, asking not to be identified. Buying would then be slowed if the economic outlook allows. The pandemic purchase program is due to run until at least the end of March 2022, and has almost 1 trillion euros of firepower left. The ECB says it can be “recalibrated” -- ie increased -- if needed.

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U.K. Banks Lost about 10,000 Women Last Year in Diversity Blow

Brief: More women than men have left British banks during the pandemic, undermining the sector’s pledges to become more diverse. The number of women at the U.K.’s five biggest lenders shrank by 3% during 2020, according to data compiled by Bloomberg News, while men saw a decline of about 2.1% as the banks pushed ahead with long-planned cost cuts and adapted to Covid-19. At NatWest Group Plc, roles filled by women dropped by 9% compared to a 5.2% fall for men. Standard Chartered Plc kept roughly the same number of men but its female staff declined by 2.2%. The banks -- along with Barclays Plc, Lloyds Banking Group Plc and HSBC Holdings Plc -- employ about half a million people globally, broadly even between genders. The stark split has a variety of causes. British lenders have spent years closing branches -- which are staffed more by women -- as they see customers shifting to online banking. This trend accelerated during lockdown. Some women are also withdrawing from the workforce, rather than being cut. At Standard Chartered, the gap between male and female job losses “probably relates to the fact that children were home being home-schooled and that burden within the family fell disproportionately to women,” Chief Executive Officer Bill Winters said on a call with reporters after recent earnings.

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Equity Investment into Smaller Private Companies Hit New Heights in 2020

Brief: Equity investment into private smaller companies reached new heights in 2020, rising by 9 per cent on 2019 levels to GBP8.8 billion, according to the British Business Bank’s Small Business Finance Markets Report. Average deal size continues to increase, primarily driven by a small number of very large deals. Equity deal sizes increased by 3 per cent in 2020 and the number of deals greater than GBP10 million increased from 173 in 2019 to 176 in 2020. The time taken for some companies to achieve unicorn status reduced in 2020. Beauhurst estimates the average age of all companies gaining unicorn status was seven years, but Hopin gained unicorn status only after one year and Cazoo after two years. Of the six UK companies to achieve unicorn status in 2019, five were backed by venture capital. Judith Hartley, CEO of British Patient Capital, says: "The British Business Bank’s Small Business Finance Markets report was published today and it reveals that, despite the global pandemic, equity investors continue to find smaller private UK companies highly attractive.

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Why Investors Will Keep Up a ‘Dash for Trash’

Brief: Investors will keep reaching for riskier assets to get returns in a U.S. economy poised for growth this year, according to Natixis Investment Managers. The “dash for trash” will continue, Jack Janasiewicz, portfolio manager and strategist at Natixis Investment Managers, predicted Tuesday during the firm’s web event discussing markets amid the easing Covid-19 crisis. Financial conditions are “highly accommodative,” he said, adding that “it’s tough to see anything but a continued stretch for risk assets.” At the same time, some investors worry that massive fiscal stimulus and easy monetary policy could stoke high inflation, according to Janasiewicz. The Natixis portfolio manager said the concern often comes up in client conversations, particularly with the recent jump in Treasury yields, but that he isn’t expecting a meaningful rise anytime soon.

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PLSA Strengthens Stewardship and Voting Guidelines to Reflect Pandemic and New Climate Regulations

Brief: Pension fund investors must be watchful this AGM season as to how company responses to the pandemic have impacted governance and workforce practices, the Pensions and Lifetime Savings Association (PLSA) has warned in its updated annual Stewardship and Voting Guidelines. Published to coincide with the PLSA’s annual Investment Conference, the Stewardship and Voting Guidelines 2021 are an important resource for pension trustees, providing practical guidance for schemes considering how to exercise their vote at annual general meetings. Having undertaken a substantial review of the guidelines in 2020, the PLSA has this year focused on ensuring they remain relevant amid the challenges posed by Covid-19 and a fast moving regulatory environment. Since the UK entered the first period of lockdown in March 2020, virtual AGMs have become the "new normal", enabled in law by the Corporate Insolvency and Governance Act on 26 June. The PLSA supports the provisions introduced by the Government and companies to ensure that AGMs can happen virtually during these unprecedented times.

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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 March 10, 2021:

  • In a narrow vote of 220-211, the United States House of Representatives passed the Biden administration’s $1.9 trillion coronavirus relief bill on Wednesday. The legislation passed without a single Republican vote, as the GOP argued the job market has recovered enough to warrant little, or no new stimulus spending. President Joe Biden released a statement shortly after the vote celebrating the bill’s passage and plans to make it official when he signs it into law on Friday. “This legislation is about giving the backbone of this nation – the essential workers, the working people who built this country, the people who keep this country going – a fighting chance,” Biden said.
  • In Canada, the country’s central bank is keeping its interest rate target on hold at 0.25%, stating economic conditions still require it, even if things are going better than anticipated. In a statement, the Bank of Canada says it expects economic growth in the first quarter of 2021 to be positive, as opposed to forecasts just a few months ago that estimated a contraction to start the year. The statement from the bank also pointed to the new, more transmissible variants of COVID-19 as the biggest risk to an economic bounceback, warning localized outbreaks could “restrain growth and add choppiness to the recovery.”
  • A new study, published in the British Medical Journal confirmed that the COVID-19 variant first identified in the United Kingdom, is more deadly than the original strain. The study showed while individuals infected with the UK strain were likely 32% to 104% more likely to die than those who caught the previously circulating variants, the absolute risk of death remained low. There were 227 deaths among the 55,000 people infected with mutant strain of COVID-19, compared with 141 among the same number of cases with earlier strains. The other relative good news is that previous studies have shown that UK approved vaccines from AstraZeneca, Moderna and Pfizer/BioNTech are effective against the variant.
  • Reuters is reporting the United Arab Emirates (UAE) and Israel governments have entered formal talks to establish a quarantine-free travel corridor between the two countries. The news comes as the two nations try to boost a bilateral exchange, following a normalisation deal just a few months prior. State news agency WAM reported on Wednesday, the travel corridor will apply to fully vaccinated passengers against COVID-19, which will help facilitate travel for commercial, tourism and official purposes. The UAE and Israel remain among the countries with the world’s fastest COVID-19 vaccination programs.
  • The Philippines have reintroduced targeted lockdowns and nighttime curfews as government authorities battle a resurgence in infections. According to the Agence France-Press (AFP), the number of new cases has soared past 3,000 in recent days – twice as many than just two weeks ago and the highest in five months as the more contagious variants of the virus spread. Most of the new cases were in Metro Manila where officials have been quarantining compounds, streets, neighbourhoods and even hotels – anything to limit the clusters and minimize the economic impact on the country.
  • Brazil recorded close to 2,000 deaths due to the coronavirus on Tuesday – a new record. Latin America’s largest country is experiencing the perfect storm of year-end carnival gatherings and a new, more contagious variant circulating. The result is a hospital system on the verge of collapse. More than 80% of intensive care beds are occupied in the capitals of 25 of Brazil’s 27 states. The country only has China’s Sinovac and the UK’s AstraZeneca vaccines in circulation, but the Health Ministry announced last week the intention to purchase 100 million doses from Pfizer.

Covid-19 – Due Diligence And Asset Management

The World Isn’t Building Back Better After the Pandemic

Brief : The exuberance of vaccine rollouts in rich countries is masking an ugly reality. Greenhouse gas emissions are already creeping higher than before the pandemic as economies come back to life. That shouldn’t be a total surprise. Even as governments around the world have spent trillions of dollars to aid their nation’s recoveries, only a tiny fraction has gone toward initiatives that would also cut pollution. Many politicians, including U.S. president Joe Biden, have adopted the phrase “build back better.” But they have yet to deliver on the promise. That’s the conclusion of a new report from the University of Oxford and the United Nations Environment Programme (UNEP). Researchers found that, out of the $14.6 trillion in spending announced by the 50 largest economies in 2020, only 2.5% has been for green activities. And that limited stimulus isn’t evenly spread across the globe. “The vast majority of the green spending has been driven by only five countries,” said Brian O’Callaghan, project manager of the economic recovery project at the University of Oxford and a lead author of the report. Much of the initial spending, about $11 trillion, was directed toward rescuing ailing firms, providing loans to small businesses and cash to individuals. Economists mostly agree that was necessary to avoid an even worse outcome. But much of the rest of the stimulus money could have been better spent.

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Opportunity from Crisis: How Investors are Playing the Post-Pandemic Property Market

Brief: With its striking facade, Palazzo delle Poste in the heart of Milan is one of the more elegant office spaces in Europe, hosting the likes of JPMorgan and Italy’s first ever Starbucks outlet. Having lain empty for part of 2020 as the COVID-19 pandemic sent office workers home, the early 20th-century building was sold this month to a group of private investors coordinated by Italy’s Mediobanca for 246.7 million euros ($293.3 million), 27 million euros above the original asking price. The 2.8% capitalisation rate - the return the property is expected to generate - was a record for office real estate in Milan. Following a year in which remote working and social distancing have become well entrenched, leaving city-centre offices, retail and hospitality venues deserted, the richness of the deal may seem counterintuitive. But market participants say it illustrates a confidence among investors that the top end of office real estate will withstand the coronavirus shock - even as questions hang over the viability of shabbier and less well-located spaces.

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Money Managers Restart London Office Moves After Pandemic Pause

Brief: Companies are reviving plans to move offices in London, in a sign that some executives believe in a return to city centers after the coronavirus pandemic. AllianceBernstein Holding LP is close to signing a lease on new space in the U.K. capital after pausing work on a move last year, people with knowledge of the deal said. The New York-based asset manager is in discussions to rent over 50,000 square feet at 60 London Wall, the people said, asking not to be identified as the plans are private. The company originally entered negotiations on the space before the coronavirus hit, but suspended talks to reassess its office needs, the people said. A spokeswoman for AllianceBernstein declined to comment. Asset manager Mondrian Investment Partners Ltd. is also moving ahead with previously shelved plans to rent space in the same building, two other people familiar with the matter said. It is in discussions to rent about 25,000 square feet in the new development, they added. Neither lease has been signed and there’s still a chance that the deals could fall apart. A spokeswoman for Salle Investment Management, whose clients own the building, declined to comment. A spokesman for Mondrian declined to comment.

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Legal & General CEO Wary of Uneven Economic Recovery

Brief: The world is likely to emerge from the coronavirus crisis in an uneven K-shaped recovery that could leave some parts of the economy behind, Legal & General’s CEO said on Wednesday as the British insurer reported a dip in full-year profit. A K-shaped scenario is one in which some sectors, such as manufacturing, bounce back sharply while others, such as tourism, continue to struggle. “The thing that worries us is the K-shaped recovery,” L&G Chief Executive Nigel Wilson told Reuters. “We do need to make sure that levelling up does not mean levelling up for the few.” The life insurer and asset manager, which invests directly in companies as well as investment markets, aims to counter such a scenario with investments including a regeneration project in the northern city of Sheffield, Wilson said.

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Hedge Funds Now Front-Runners to Boost Investor Returns This Year, says Credit Suisse Survey

Brief: A majority of investors now believe hedge funds are best placed to enhance the performance of a traditional 60/40 equities and bonds portfolio, with the prevailing rate environment driving a “sense of urgency” among allocators to tap into new sources of returns, a new Credit Suisse survey has found. The bank’s 2021 Hedge Fund Investor Survey, titled ‘A New Dawn’, quizzed more than 200 institutional investors, collectively representing USD800 of hedge fund investments globally. Survey participants – which included pensions, endowments, foundations, consultants, private banks, family offices, and funds of hedge funds – were probed on strategy preferences, allocation plans, and growth and return forecasts, among other things. The annual study found that more than two-thirds – 70 per cent – of investors plan to amend their portfolios this year due to the lower bond yield environment. Hedge funds are the most favoured asset class to bolster the current 60/40 equities/bond mix and plug the funding gap, followed by high-yield credit, equities, and private credit.

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Wall Street A-Listers Fled to Florida. Many are Eyeing a Return.

Brief: The “Upper East Side” cocktail at Sant Ambroeus is just the same as in Manhattan, the carpaccio at Cipriani as meaty red as on Wall Street. Here is the private-equity billionaire Stephen Schwarzman, on his way to La Goulue, the clubby French bistro popular with Park Avenue socialites. There is David Solomon, the Goldman Sachs Group Inc. chief, a team of financiers in tow. The names and the money say New York, but the aquamarine pools, the swaying palms and the sultry Atlantic breezes say something else: Florida, the would-be Wall Street South. For months now, A-listers and lesser-lights from the world of high finance have been traveling to the Sunshine State while riding out Covid-19. Hopeful locals see evidence that the area’s long-elusive dream of luring Big Finance for good might be coming true at last. Along Worth Avenue in Palm Beach, real estate agents count commissions from a pandemic-induced real estate boom. Private schools fantasize about attracting the Spence set. The reality is more nuanced -- much more. Only a small percentage of Manhattanites moved permanently to Florida last year. And as vaccinations stir fresh hope that the pandemic’s end is near, ebullient talk of South Florida drawing Wall Streeters en masse is already beginning to fizzle.

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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 March 9, 2021:

  • In the United States, the House of Representatives will take up the Biden administration’s $1.9 trillion COVID-19 relief bill on Wednesday. The Senate passed its version of the bill over the weekend and eliminated or pared back some provisions in the original House bill, such as the increase to the federal minimum wage of $15 an hour. Democrats only hold a small majority in the House, but it is expected to pass the chamber’s approval, meaning President Biden should be able to turn the bill into law later this week.

  • In Canada, Global News is reporting a joint letter from senior scientists from a number of major health institutions are raising questions about the plan to delay second doses of COVID-19 vaccinations by four months. The draft of the letter, obtained by Global News, was sent to Canada’s Chief Public Health Officer Dr. Theresa Tam, as well as the governments of Ontario, Alberta and British Columbia – all of which have indicated they are on planning on implementing the four-month delay. The document, signed by doctors with the University of Toronto, University Health Network (UHN), Sunnybrook Research Institute, Princess Margaret Cancer Centre and Montreal Clinical Research Institute, raised concerns about COVID-19 variant speed and the effect a delayed second dose could have.

  • The United Kingdom’s chief medical officer is trying to tone down the government’s optimistic set of assumptions when it comes to COVID-19. Professor Chris Whitty has told government MPs another surge in coronavirus cases is inevitable and could hit in the late summer. Professor Whitty went on to add at the Science and Technology Committee, that even under the most optimistic set of assumptions, a further 30,000 lives could be lost in the UK due to COVID-19. The country’s chief medical officer attributes this to not everyone in the country being vaccinated, or having full protection, as restrictions are eased, causing the virus to circulate in pockets of the population that remain susceptible.

  • In Germany, the country’s four leading business associations agree with the government and are pushing companies to expand coronavirus testing in an effort to curb the spread of the new variants until more people are fully vaccinated. The four groups – the BDI industry association, DIHK Chambers of Industry and Commerce, the BDA employer association and ZDH skilled trades association represent companies with more than 90% of the 30 million private sector employees making social insurance contributions. However, the business associations call for more testing, while influential, have no real direct power to enforce such a mandate over companies operating in Germany.

  • The United Arab Emirates (UAE) government has extended a freeze on service fees in Dubai until 2023 in a decision to help ensure economic and social stability as the world continues to feel the impact of COVID-19. Sheikh Hamdan bin Mohammed bin Rashid Al Maktoum, Crown Prince of Dubai and Chairman of the Executive Council, made the move on Tuesday to strengthen the region’s competitiveness, attract entrepreneurs and investors, while keeping pace with market trends. According to UAE media, the move compliments the five economic stimulus packages launched by the Dubai government since March 2020 with the aim of helping businesses survive over the course of the pandemic. 

  • Multiple media sources are citing the Kyodo news agency saying Japan has decided to stage this summer’s Tokyo Olympics and Paralympics without overseas spectators due to the coronavirus pandemic. Japanese citizens have been wary of holding the global event since it was canceled last summer due to COVID-19 and the latest polls have showed most don’t want international visitors to attend the Games. The Olympics are scheduled for July 23rd until August 8th and Paralympics from August 24th to September 5th. In the last Olympic Games held in 2018 in South Korea, local fans accounted for 80% of ticket sales, with international fans buying the remaining 20%.

Covid-19 – Due Diligence And Asset Management

ESG Investment Market set to Double in 2021

Brief : The environmental, social and governance-based investment market is set to double in 2021 as investors plan to move funds to support companies with a positive ESG rating or impact, a new report shows. The study by OnePlanetCapital, a new sustainability driven investment house focused on climate change, revealed that a tenth of (9 per cent) investors currently hold ESG investments. The market is set to double this year as over one in 10 (12 per cent) investors who do not currently invest in ESG plan to move investments to ESG related funds in 2021. Furthermore, an additional 17 per cent of investors are planning to move to ESG in 2022 or later, showing the potential the market has to grow in the coming years. Even of those who do not plan on moving investments to ESG this year or next, two fifths (40 per cent) are still considering moving them in the future, which is a higher proportion than those who are not considering moving them at all (30 per cent). ESG is now a key factor for investors when making decisions about their portfolio, with the research suggesting investors are becoming increasingly concerned about global environmental issues such as climate change… As the UK economy plots a course to economic recovery post-Covid 19, it is clear that there is a very real opportunity for this recovery to be built upon investment in green business and technology.

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CVC Capital Partners Is Said to Near $2.6 Billion Deal for Pharma Firm Cooper

Brief: CVC Capital Partners is nearing a deal to acquire European over-the-counter drugmaker Cooper for about 2.2 billion euros ($2.6 billion), people familiar with the matter said. The private equity firm is negotiating detailed terms of an agreement with Cooper’s owner, Charterhouse Capital Partners, according to the people. CVC beat out rival suitors including a consortium led by PAI Partners, the people said, asking not to be identified because the information is private.  No final agreements have been signed yet, and talks could still fall apart, the people said. Representatives for Charterhouse, CVC and PAI declined to comment. A deal would add to almost $11 billion of health-care acquisitions by private equity firms in Europe so far in 2021, a figure that’s up more than 700% year-on-year, according to data compiled by Bloomberg. Charterhouse bought Cooper in 2015.

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Banks Press Fed to Preserve $600 Billion in Balance-Sheet Leeway

Brief: Thanks to the pandemic, U.S. banks won a long-sought regulatory break that let them expand their balance sheets by as much as $600 billion without adhering to profit-denting safeguards. Now, firms are frantically lobbying to extend that relief before it expires at month’s end. The reprieve from what’s known as the supplementary leverage ratio -- granted a year ago as Covid-19 rocked markets and the economy -- gave lenders free rein to load up on Treasuries and deposits, while avoiding a requirement that they hold more capital as a buffer against losses. The Federal Reserve and other agencies eased the rules because they said they wanted excess capital deployed to struggling businesses and households. As watchdogs mull letting the relief continue, Wall Street isn’t shying away from offering arguments and even warnings. Executives point out that the pain from coronavirus is far from over, and JPMorgan Chase & Co. has cautioned that it might have to shun customer deposits if tougher rules are reinstated. Analysts have also said recent bouts of wild trading in the $21 trillion Treasury market could be tied to concerns that banks will be forced to hold less government debt, even selling some of their holdings.

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The Pandemic Forced a Massive Remote-Work Experiment. Now Comes the Hard Part.

Brief: In March 2020, companies across the US abruptly shuttered their offices and instructed employees to work from home indefinitely as a result of the pandemic. At first, many thought the shutdowns would last a couple months. But one year later, millions of workers are still working remotely. The pandemic has forced a large segment of the global workforce to go through a remote-work experiment on a scale never seen before -- and a lot has changed in the last 12 months. The boundary between our work and our personal lives has become blurred. Working at the kitchen table has become common and, for parents, juggling virtual school while trying to hit work deadlines has become a daily challenge. Employers have also been forced to become more nimble. They've had to loosen restrictions on where employees can work, equip them with the tools do so and support them both professionally and personally. We've learned many lessons as a result: meetings aren't always necessary, working a standard eight-hour shift may not be the best schedule for everyone, sitting at a desk doesn't always mean you're being productive and perhaps, you miss your coworkers more than you thought you would.

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Ireland sees 9% Asset Increase Despite Pandemic Year

Brief: Ireland saw a bumper year in fund sales last year, which was reflected in higher funds under administration. At the end of December 2020, net sales for the year had reached €245 billion – the highest across all European fund jurisdictions, according to Irish Funds, the country’s industry body. This included a strong December, when €72.2 billion worth of fund sales were recorded. Net assets closed the year at €3.32 trillion - the highest level ever reached in Ireland and a 9% year-on-year increase. Irish Funds also said it had seen 27 financial firms entering or expanding their presence in Ireland in January, bringing the total to 137 new entries or expanded offers since January last year. Membership is also up 30% over the past four years. The trade body said the primary driver of the expansion over the past year was alternative investment fund managers. Sales for Ucits funds during December 2020 were of €64.8 billion, while alternative investment funds had sales of €7.3 billion.

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Value Investing Gains US$100B and Wipes out Pandemic Losses

Brief: The left-for-dead value trade has roared back to life to wipe out all its pandemic losses, with its revival reshaping the US$2 trillion world of factor investing. The strategy that bets on low-priced stocks and against expensive counterparts has surged back to levels last seen before the onset of the once-in-a-century outbreak, a long-short index from Bloomberg shows. As the market braces for US$1.9 trillion in fresh U.S. stimulus and an economic rebound spurred by falling virus cases, a deluge of cash has rushed back into cyclical shares whose valuations were flattened by the 2020 doom and gloom. “Value crushed it for the right reasons,” Evercore ISI strategists led by Dennis DeBusschere wrote in a note. Exchange-traded funds following the systematic investing style have drawn new money for 10 straight weeks, with inflows and the market rally fueling a US$100 billion jump in assets since the start of November. These products are on course for their best-ever quarter for new cash and are just US$5 billion away from overtaking their nemesis -- the growth factor -- in assets. Put another way: A famously misfiring trade for the last decade now looks set to overtake one of the hottest strategies of the bull market.

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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 March 8, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) unveiled new guidelines for fully vaccinated Americans. According to CDC Director, Dr. Rochelle Walensky, individuals fully inoculated against COVID-19 can meet in small groups indoors without wearing masks but should keep wearing them outside of the home. “It’s important to realize…. that still over 90 percent of the population is not yet vaccinated, and that is our responsibility to make sure, in the context of 60,000 new cases a day, we protect those remain unvaccinated and vulnerable,” Dr. Walensky said. Elsewhere in the country, White House Press Secretary Jen Psaki told reporters on Monday that President Joe Biden will give his first prime-time address on Thursday to mark the one-year anniversary of COVID-19 shutdowns. 
  • Similar to the United States, Canadian Prime Minister Justin Trudeau announced on Monday the federal government is designating March 11th – a national day of observance to commemorate those who have died due to COVID-19. The March 11th date signifies the one-year anniversary of the World Health Organization (WHO) declaring COVID-19 a global pandemic. Prime Minister Trudeau is calling on Canadians to think this week about those who have died and the health-care and other essential workers who have been on the front line of the fight against the coronavirus. More than 22,000 Canadians have lost their lives due to COVID-19.
  • The United Kingdom started the first of their four phases towards a full reopening with children returning to the classroom in England on Monday. Prime Minister Boris Johnson marked the occasion, praising teachers and parents, stating it signified a “big day and an emotional day” for millions of families across England. However, it wasn’t all good news as The Times reported National Health Service chiefs have warned they will start cutting patient care unless Chancellor Rishi Sunak finds £8 billion this week for extra COVID-19 costs. Hospitals have accused Sunak of “robbing NHS budgets” following news of ministers one per cent pay rise offer to frontline staff.
  • Italy’s government is considering tighter coronavirus curbs, including making the entire country a high-risk “red zone” at least during the weekends to counter the recent surge. “The second wave never stopped, we’re seeing a very strong pickup due to the variants, which is leading us to take measures that are ever-more restrictive,” Health Minister Roberto Speranza told an Italian newspaper. Italy currently has a three-tier system in place that classifies regions by low, medium and high-risk based on the number of cases. The system involves closures of bars and restaurants, and strict limits on people’s movements, depending on the tier they fall under.
  • Over the weekend, China announced they will launch a programme aimed to help vaccinate its nationals abroad against the coronavirus, while also introducing a digital health passport for global travel. The announcements were made by Foreign Minister Wang Yi and said the vaccination programme would “help and fight for” Chinese nationals outside the country to either receive a Chinese-made vaccine, or one made by other countries. As for the proposed health passport – it would allow China and other countries to verify the result of a traveller’s COVID-19 nucleic acid test and whether that person had been vaccinated against he the coronavirus. The proposed passport would launch on the premise of “fully protecting personal privacy”, but the foreign minister didn’t elaborate on how that would be achieved.
  • Australia is on a remarkable run when it comes to local transmission of the coronavirus. According to the Australian Associated Press, the state of New South Wales, home to Sydney, reached 50 straight days without a locally transmitted COVID-19 case on Monday. Victoria state extended its run to 10 days, which is also the same number for the national mark. The largest immunization program in the nation’s history is a few weeks in and as of Sunday, 81,000 Australians have been vaccinated, but that is below the federal government’s target. The reason being given is the complicated logistics involved in the rollout plan, coupled with the initial speed, which has started with front line workers and nursing home residents.

Covid-19 – Due Diligence And Asset Management

Apollo Global to buy Insurance Affiliate Athene for $11 Billion

Brief : Apollo Global Management Inc said on Monday it will merge with Athene Holding Ltd in an $11 billion all-stock deal, bringing in-house an annuities provider that helped turn it into one of the world’s largest corporate credit investors. Apollo has been getting paid lucrative fees by Athene, in which it controls a 35% stake, for more than a decade, providing asset allocation services and directly managing a portion of Athene’s assets across its investment platform, primarily in its ever-expanding credit business. Yet Athene’s shares underperformed the insurance sector following its stock market debut in 2016, prompting a bid from Apollo for its assets. Apollo estimated the tax-free combination could result in its earnings more than doubling from 2020. Its existing stake in Athene did not contribute to earnings under accounting rules, despite representing 40% of Apollo’s assets under management and 30% of its fee-related income. A merger would allow Athene’s business and assets to be integrated into Apollo’s, providing both sides with enhanced earnings potential and a simpler ownership structure going forward, Marc Rowan, Apollo’s incoming chief executive officer, told an analysts call.

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Takeovers by UK Investors in Continental Europe Fell by 30 Per Cent in 2020

Brief: The number of takeovers by UK acquirers of continental European businesses fell 30 per cent from 488 in 2019 to 342 in 2020 as Brexit and Covid-19 hampered deal activity, shows new research from Accuracy, the global independent financial and strategic consulting firm. In comparison, the overall number of deals targeting continental European companies fell by 27 per cent from 6,665 to 4,843 over the same period. The number of acquisitions by US businesses in continental Europe declined by 25 per cent in the same period. Accuracy says concerns over the potential impact of a no-deal Brexit deterred UK corporates from making purchases of European businesses last year. The shock to the economy caused by the Covid-19 lockdown reduced the number of deals across Europe. However, deals from UK businesses targeting European companies fell even more rapidly than overall deal numbers across all countries. Covid-19 travel restrictions between the UK and continental Europe also made it harder for UK based executives to meet face-to-face with possible bid targets on mainland Europe.

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Vaccines Keeping Risk on Table – For Now

Brief: A year into the coronavirus crisis, there's broad consensus among asset owners that vaccination programs will give risk assets a further lease on life this year but less agreement about the pandemic's longer-term effects on portfolio construction. The short-term picture appears bright. Continued momentum on vaccines should help the global economy rebound strongly midyear as households in the U.S. and Europe emerge from lockdown, predicted Rupert Watson, London-based head of asset allocation with Mercer Investments. "Everybody I know wants to go and do stuff, whether it's go on holiday, go to a bar, catch up with friends, see relatives. And with the massive buildup in savings over the past year, "people have the cash to do it," Mr. Watson said. That's not to say the horizon lacks clouds — such as a potential sustained uptick in inflationary pressures — but for now they remain distant.

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Profile: How Viable is the Office Sector?

Brief: Experts at real estate specialist AEW look at a recent office acquisition in Barcelona and speak about the viability of the sector in a post-Covid world. In November last year, AEW made its third investment in Barcelona’s office market with the acquisition of a development in the city’s trendy @22 area, also known as Barcelona’s ‘innovation district’. Located in the old industrial neighbourhood of Poble Nou, @22 has seen ongoing redevelopment with the aim of creating a technological hub of for the city. At the time of the acquisition, AEW fund manager Carsten Czarnetzki said, regardless of the Covid-19 pandemic, the need to bring people together to interact face-to-face remains.  “Ultimately this means that, while the way offices are used will change, they will remain integral to our working lives,” he said. But compared to 2019, office uptake in the Catalan city nearly halved in 2020, the fund manager highlighted, speaking to Funds Europe earlier this year. Despite this, the firm remains confident in the sector.  “With occupiers actively assessing their short, medium and long term space requirements in the context of an ongoing pandemic, we see a long term shift towards larger space requirements per employee, offset by a higher home office component,” explains Czarnetzki.

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Barclays Plans to Cut Around 60 Jobs at Investment Bank

Brief: Barclays Plc is planning job cuts at its corporate and investment bank as part of its cost-saving measures, according to people with knowledge of the matter. The reductions will affect around 60 jobs, including some senior roles in the U.S. and other countries, said one of the people, who asked not to be named discussing private information. A spokeswoman for Barclays declined to comment. The London-based bank’s securities division reported a 45% annual rise in markets revenue last month, beating forecasts as well as rival global investment banks. But Covid-19 has slammed its lending businesses -- an impact Barclays has said will likely endure this year. Like other banks, Barclays paused job losses during the pandemic, but mounting cost pressures have led firms to start resuming these cuts. In London, Societe Generale SA is planning to cut about 80 positions as it scales back securities services to asset managers, banks and brokers.

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ECB Pandemic Purchases Stay Muted Amid Drag of Maturing Debt

Brief: The European Central Bank kept up a muted pace of pandemic bond-buying for a second week as maturing debt acted as a brake on officials’ stimulus efforts. The institution settled 11.9 billion euros ($14.2 billion) of net buying under its Pandemic Emergency Purchase Program last week, similar to the 12 billion-euro outcome of the prior week. That’s well below the average purchase pace of 18 billion euros since the tool’s inception. More than 30 billion euros in government bonds matured in the region last week, some of which the ECB would have owned, acting as a weight on the overall total. That was confirmed by a statement from the institution provided by a spokeswoman. “Weekly net purchase data are affected by seasonality factors and in particular redemptions,” the ECB said. “Recently there have been large redemptions which lower the net purchases and temporarily delay the increase in our stock of bonds.” A global bond sell-off has sparked varying levels of concern among euro-area officials, aware that sovereign yields are used by banks as a reference point for lending. The region’s recovery is already expected to be slower than that of many other advanced economies amid stubbornly high rates of infections and slow vaccine roll-outs that forced longer and in some places even harder lockdowns.

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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 March 5, 2021:

  • The United States Senate was voting on a series of amendments to the $1.9 trillion coronavirus relief package on Friday. The bill, which now differs from the House version passed last week, will see jobless Americans get a smaller weekly boost to unemployment benefits but receive those payments for an additional month under the last-minute revisions. Progress on the overall bill paused as senators negotiated various issues within the bill. The lawmakers self-imposed deadline of March 14th is fast approaching as that is when unemployment benefits in the two programs set-up during the pandemic start to run out.

  • Canada received good news on the COVID-19 vaccine front on Friday with a fourth being cleared for use and a plan to accelerate deliveries for a previous approved inoculation. Health Canada gave the green light to use Johnson & Johnson’s COVID-19 vaccine, which is widely seen as one of the easier to distribute because it only requires one dose and can be stored for longer periods of time at regular refrigeration temperatures. Just hours after the Health Canada announcement, Prime Minister Justin Trudeau confirmed that Pfizer had agreed to move up 3.5 million doses of its COVID-19 vaccine – originally scheduled to arrive in the summer – to the next three months. 

  • In the United Kingdom, a court order showed on Friday that Prime Minister Boris Johnson “misled parliament” over the publication of coronavirus contracts. The prime minister had claimed the contracts were in the public domain, for everyone to see, however a High Court order showed the government only published “608 out of 708 relevant contracts”. Critics of Prime Minister Johnson said unless contract details are published, they can’t be properly scrutinized and there’s no way of knowing where taxpayers’ money is going and why. 

  • France’s Health Minister Olivier Veran said the country may follow suit with Italy in regard to blocking future COVID-19 shipments. “Of course, I understand what Italy did. We could do the same thing,” said Veran during an interview. Veran went on to add, “we are closely discussing with Italians, as well as with all our European partners to have a European approach to the issue. Since the first day, France has believed in a shared European approach.” On Thursday, Italy pulled backed a shipment of 250,000 AstraZeneca COVID-19 doses to Australia, thus sparking concerns of vaccine nationalism.

  • In response to Italy and the EU’s move to block vaccine shipments, Australia is seeking assurances that future shipments of vaccines won’t be blocked by the executive arm of the bloc of nations. While Australian Finance Minister Simon Birmingham acknowledged the country received 300,000 doses of the AstraZeneca vaccine last week that would see its current distribution plan work, “we are obviously very disappointed and frustrated by this decision. It is very much a reminder of the desperation that exists in other parts of the world, compared with the very good position we found ourselves here in Australia.”

  • Brazil’s President Jair Bolsonaro was at it again on Thursday, telling supporters in the midwestern state of Goias, where nearly 9,000 people have died due to the pandemic, to “stop all this fussing and whining. How long are you going to keep on crying?” The tone-deaf leader of Latin America’s largest COVID-19 outbreak continues to go downhill with the World Health Organization (WHO) weighing in on Friday, stating the epidemic in Brazil is “very, very concerning”. “If Brazil is not serious, then it will continue to affect all the neighbourhood there and beyond, said WHO chief Tedros Adhanom Ghebreyesus. The Guardian was reporting President Bolsonaro’s outlandish statements were seen to distract the media and Brazilians from his son’s recent purchase of a luxury mansion.

Covid-19 – Due Diligence And Asset Management

NYC’s Financial District Faces Office Glut as Tenant Exits Loom

Brief : New York’s Financial District is suffering as a glut of office space builds with the pandemic keeping workers home. JPMorgan Chase & Co. is the latest high-profile tenant to look for an exit from the neighborhood, a historic part of lower Manhattan that is home to the New York Stock Exchange and Federal Reserve. S&P Global and Fitch Ratings Inc. are also marketing big blocks of offices, driving an 80% surge in the amount of sublease space available. That’s more than double the rate in Midtown, according to data from CoStar Group Inc. “The sublet spaces currently on offer at deeply discounted rates is a veritable flood of biblical proportions, with more likely to come online soon,” said Ruth Colp-Haber, chief executive officer of brokerage Wharton Property Advisors. Manhattan’s office market has taken a big hit in the past year, with the pandemic emptying out skyscrapers and pushing cost-conscious companies to reconsider how much space they need after months of remote working. In Midtown, where there’s been a 36% increase in sublease space, roughly 18% of office space is currently available, either because it’s empty or a company is trying to unload it. There’s a similar amount space for rent in lower Manhattan. The area had been clawing its way back after being battered by the 9/11 terrorist attacks and the global financial crisis. In 2011, when the magazine publisher Conde Nast announced a move to the rebuilt World Trade Center from Times Square, it was a pivotal moment in the bid to draw companies downtown.

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Working at Home Won’t Last Long After Covid, BOE’s Haskel says

Brief: Most companies in the U.K. will ask employees to return to the office after the pandemic because working from home hurts productivity, a Bank of England policy maker said. Jonathan Haskel, a member of the central bank’s monetary policy committee, said information and communications technology is the only industry that indicating that staff can get more done from home. He analyzed data from an Office for National Statistics survey. “A net balance of firms across the vast majority of industries does not intend to use home working as a permanent feature,” Haskel said in a webinar on Friday. “It’s likely that the majority of industries will return to the workplace when the pandemic restrictions are lifted, lessening the impact of structural change from this quarter.” The remarks help explain why more people are traveling to work during the U.K.’s third national lockdown. Almost half of people reported leaving home for jobs at least once this week, reducing the portion of home working over the past few weeks. The number of people in offices now is similar to what it was in June when pandemic rules were looser. Prime Minister Boris Johnson plans to slowly loosen restrictions through the middle of the year, starting with reopening schools on March 8. He’s urged people to stick to the rules until the rules are loosened.

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Why ‘Vaccine Passports’ Could Be Complicated to Pull Off in the US

Brief: While both the European Union and China are committed to moving ahead with "vaccine passports," a government-mandated system for citizens to prove they’ve been inoculated against COVID-19 could be complicated to carry out in the U.S. because of privacy, equality, and practical concerns. This week, European Commission president Ursula von der Leyen said the EU would propose a “digital green pass” for EU citizens. China’s government said it intended to develop a certification program for citizens to show proof of vaccination or negative test results. And in February, Israel initiated its “Green Badge” system to exclude non-vaccinated individuals from certain activities. While some experts say there's a chance the U.S. government could pull off a successful and legal certification scheme, data privacy and anti-discrimination hurdles, as well as technical ones, could make a federal vaccine passport system tough to impose on Americans.

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Insurers Rewrite Business Policies After Pandemic Legal Tussles

Brief: U.S. insurers are strengthening language in policies that cover business losses to protect them from future claims related to the coronavirus pandemic or other widespread illnesses that disrupt operations, industry sources say. New policies and renewals now define terms like “communicable disease” or “microorganism” – something existing policies often lacked, and which led to a flood of lawsuits that insurers have so far largely won. An exclusion drafted by the Lloyd’s Market Association, for example, says insurers will not cover any claim “directly or indirectly arising out of, attributable to, or occurring concurrently or in any sequence with a Communicable Disease.” Another, used by Farmers Mutual Hail Insurance Company of Iowa, excludes losses from even the “fear or threat” whether “actual or perceived” of a communicable disease or “any action in controlling, preventing, suppressing” it.

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BentallGreenOak Raises $1 Billion for Real-Estate Lending Fund

Brief: BentallGreenOak has raised 869 million euros ($1 billion) for its latest European real estate debt fund as the private equity firm muscles in on property lending amid a retreat by banks. The fund, which started raising cash before the onset of the pandemic, exceeded its initial target of 800 million euros, according to a statement Thursday. It issues loans secured against offices, warehouses and homes in Germany, the Netherlands, the Nordics and Ireland. “Post-Covid we have faced a lot less bank competition on the lending side,” said Jim Blakemore, a London-based managing partner and global head of debt. “This is a good market to be a lender in today.” The outbreak prompted banks to make hefty provisions for soured loans as widespread lockdowns threatened borrowers’ rent collections and their ability to repay loans. That’s diminished their appetite for new real estate lending, particularly to malls, stores and hotels that have seen their income wiped out. Non-bank lenders have spied an opportunity to step in and back investors seeking to reinvent those impaired properties. GreenOak Europe Secured Lending Fund II has so far lent 382 million euros, the statement said. The eight loans agreed to date have been for properties in the Netherlands and Ireland.

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Energy Hedge Fund Deep Basin Returning Capital After Retail Rout

Brief: Energy hedge fund Deep Basin Capital LP is returning capital to investors after retail traders drove market volatility to extreme levels, overwhelming the fund’s positions, according a letter to investors reviewed by Bloomberg News. “I do not believe that risk markets are functioning properly and am deeply concerned about the immediate investment climate,” Matthew J. Smith, managing partner of the Stamford, Connecticut-based fund, wrote in the letter. “Further, the market structure has changed and become more dangerous in ways that at this point are difficult to quantify and understand, and I cannot fully study these changes while taking risk with partner capital,” he wrote. Hedge funds have struggled to make money for much of the last decade as equity markets surged, and there have been more hedge funds closures than launches since 2014, according to Hedge Fund Research. During the first three quarters of 2020, 619 funds shut compared with 364 that opened. Stock rallies driven by retail investors caused pain for short sellers this year, with funds like Melvin Capital Management and Maplelane Capital losing billions during January’s GameStop Corp. short squeeze. Melvin made up for some of its losses after gaining 22% in February. A spokesperson for Deep Basin declined to comment. An influx of retail traders weighed on the fund’s stock picks, with retail flows in stocks and options exceeding 50% of the daily volumes in Deep Basin’s positions.

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

Our briefing for Thursday March 4, 2021:

  • In the United States, ahead of a lengthy debate on the $1.9 trillion coronavirus relief package, Democratic Senators have modified it to steer more aid to smaller states. The move to increase the minimum amount each state would get was seen as a move to ensure all 50 of their members support the bill, with no votes to spare. A 50-50 split along partisan lines in the Senate would mean a tiebreaking vote would go to Vice President Kamala Harris. According to a Reuters report, the Republicans are expected to drag out the process, requiring a full reading of the legislation, which could take up to 10 hours, followed by 20 hours of debate. If all this takes place, a vote likely won’t happen until well into the weekend. 
  • Canada’s National Advisory Committee of Immunization (NACI) has advised that second COVID-19 vaccine doses should be delayed by up to four months in order to get more Canadians with at least one dose of the vaccination. The country’s Deputy Chief Public Health Officer Dr. Howard Njoo was left trying to explain during a news briefing on Thursday the differing opinions between the committee and Health Canada, stating the difference in messaging from the two national bodies is different by design. “As the regulator, Health Canada authorizes each vaccine for use in Canada according to factors based on clinical trial evidence, whereas NACI bases its guidance on the available and evolving evidence in a real-world context, including the availability of other vaccines,” said Dr. Njoo.
  • In the United Kingdom, Health Secretary Matt Hancock said he is “more optimistic than ever” that Britons will be able to enjoy some form of a “staycation” this summer. Speaking during a visit to a Glasgow, Scotland laboratory, Hancock said “I’m confident, because of the vaccine, we will be able to make that progress and then be able to, all of us, to travel freely wherever we are within these islands.” The health minister did caution that new variants of COVID-19 could threaten the roadmap with manufacturers forced to alter their inoculations to ensure they are effective against them. 
  • The European Union (EU), along with Italy have made their first intervention into the supply of COVID-19 vaccines, blocking a shipment to Australia. Reuters was reporting, citing two sources, that AstraZeneca requested permission from Rome to ship 250,000 doses from its Anagni plant. However, the Italian government refused. Following a dispute with AstraZeneca in January regarding COVID-19 deliveries, the EU placed temporary controls on the export of vaccines made inside the bloc. The EU has been under repeated pressure for the slow rollout of coronavirus vaccines.
  • German Chancellor Angela Merkel announced an extension of the coronavirus lockdown until March 28th, but also tried to provide some light at the end of the tunnel with an eventual plan to ease restrictions and reopen businesses. After a nine-hour meeting with Germany’s 16 state leaders on Wednesday, Chancellor Merkel announced there will be a five-step plan to relaxing restrictions on a regional or state level. Each step will be taken every two weeks if regional infection numbers are stable or reduced and an emergency brake system to be used to current lockdown levels if there are three consecutive days with an incidence rate above 100 per 100,000 people per week. 
  • The Wall Street Journal is reporting the World Health Organization (WHO) team investigating the origins of the coronavirus pandemic, is scrapping its interim report from its recent mission to China amid mounting tensions between the United States and Beijing. The WHO probe into Wuhan, China was hindered by delays, and limited to visits organized by their Chinese hosts, which prevented them from contact with community members due to health restrictions. Washington lawmakers have accused China of hiding the extent of the initial outbreak, while Beijing has countered, believing the coronavirus pandemic was already appearing in clusters throughout the world before it hit Wuhan back in December, 2019.

Covid-19 – Due Diligence And Asset Management

Powell Says ‘Disorderly’ Market Conditions Would Concern Him

Brief : Federal Reserve Chair Jerome Powell said he is monitoring financial conditions and would be “concerned” by disorderly markets, but stopped short of offering specific steps -- which sent Treasury yields higher. “We monitor a broad range of financial conditions and we think that we are a long way from our goals,” he said in a Wall Street Journal webinar on Thursday. “I would be concerned by disorderly conditions in markets or persistent tightening in financial conditions that threatens the achievement of our goals.” Bond yields have shot higher in recent weeks on mounting expectations of stronger economic growth and faster inflation. Trading has been turbulent at times as dealers have struggled to keep up with the order flow. Investors also have moved forward their expectations for the first Fed rate hike to early 2023 as they begin to question the central bank’s commitment to keeping policy easy until inflation overshoots 2%.

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Large Hedge Funds Dominate Industry Landscape, as 2020 Proves to be the “Year of Outsourcing”

Brief: The biggest hedge fund firms topped performance charts and drew the most investor capital over the course of last year, with 2020 proving “the year of outsourcing” for a range of middle office functions, as the industry demonstrated its value to investor portfolios, according to new analysis by Citco. Citco Fund Services’ ‘2020 Hedge Fund Report: A Year In Review’ said the past 12 months had been a “huge year” for the industry, as managers went from “strength to relative strength”, withstanding surging trading volumes and spikes in volatility. Citco, which provides asset servicing solutions to the global hedge fund and alternative investment industry, probed performance data, trade volumes, treasury services, and investor flows.  Its report suggested hedge funds’ resilience ultimately underlined the sector as a key portfolio diversifier during turbulent times. A vast majority – 77.6 per cent – of funds delivered a positive annual return last year, with all strategies and assets under administration categories finishing 2020 in the black.

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ESG Leads UK Investors as They Return to Equities

Brief: UK equity funds saw inflows for the first time in eight months during February, which is seen as a sign of recovery from Covid-19’s impact on markets. Latest fund inflow data also suggests records being set for ESG investment funds, according to two separate pieces of research. However, the return to UK equities was described as “tentative” with UK investors adding £145 million to their holdings, which followed outflows of £2.2 billion in the previous eight months, according to Calastone, a fund transaction network. Calastone also cautioned that in the final week of February, UK equity funds saw £19 million of outflows. Edward Glyn, head of global markets at Calastone said: “UK funds have been so out of favour for so long that some rotation is clearly taking place now…”.

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China’s $1 Trillion Wealth Fund Gains 12% in ‘Very Unusual Year’

Brief: China Investment Corp. posted a return of more than 12% on overseas investments in 2020 after markets rallied on loose monetary policies, marking a breakout year for China’s $1 trillion sovereign wealth fund. The unaudited returns bring the Beijing-based fund’s 10-year rolling average to more than 6.6%, beating its target. Executive Vice President Zhao Haiying expects calmer markets this year even as policy makers try to stimulate growth without spurring runaway inflation. “2020 was a very unusual year,” Zhao, also a member of the Chinese People’s Political Consultative Conference, said in an interview before the top advisory body convenes for its annual meetings in Beijing. CIC stuck to its position as a long-term investor despite market gyrations, Zhao said. “We withstood the test of strong winds and waves, and delivered relatively good returns.”

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Scaramucci to Bring SALT Hedge Fund Conference to NYC to Give City a ‘Boost’

Brief: Hedge fund impresario Anthony Scaramucci, the managing partner of $9.2 billion fund-of-funds SkyBridge Capital, is bringing his famed SALT Conference to New York City in September. "I thought it was important to bring the conference back at a time where New York could use the boost. We did something very similar in Las Vegas after the global financial crisis," Scaramucci told Yahoo Finance Live exclusively. SALT, one of the widely-attended hedge fund conferences, first debuted in Las Vegas in 2009, during the depths of the global financial crisis. In the last 11 years, SALT, which is traditionally held at the Bellagio in mid-May, has held ten conferences in Las Vegas and other forums in Abu Dhabi, Singapore, and Tokyo. The New York City version will take place in-person at the Javits Center from Sept. 13 to 15. SALT's programming will center around alternative investments, bitcoin, fintech, healthcare, infrastructure, and sustainability. The conference will also offer a hybrid format for remote attendees to watch content and network virtually. There will also be outings and entertainment in the city.

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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 March 3, 2021:

  • The United States’ Centers for Disease Control and Prevention (CDC) is urging Americans not to give into COVID-19 fatigue as the state of Texas plans to lift its mask mandate and end restrictions on businesses. Speaking during the White House COVID-19 Response Team briefing, CDC Director Dr. Rochelle Walensky said, “I think we at the CDC have been very clear that now is not the time to release all restrictions.” Texas Governor Greg Abbott made the announcement of reopening on Tuesday stating businesses of any type will be allowed to open 100% beginning March 10th. The state of Texas approximately has a population of 29 million people and according to statistics from Johns Hopkins University, as of Monday, only 6.57% of Texans have been fully vaccinated. The state of Mississippi is also looking to lift their COVID-19 restrictions.

  • In Canada, Prime Minister Justin Trudeau announced the government on Wednesday would extend the Canada Emergency Wage Subsidy and the Canada Emergency Rent Subsidy until June. Speaking at a news briefing, Prime Minister Trudeau said while the Canadian economy has shown encouraging signs of rebounding, and vaccines continue to roll out, support is still needed to get struggling citizens and businesses through at least the spring. The wage subsidy will continue to provide 75% coverage to eligible employers while the rent subsidy will remain at 65%.

  • In the United Kingdom, Chancellor Rishi Sunak revealed the government’s budget on Wednesday and pledged another £65 billion to extend emergency support measures for workers and businesses in the wake of the pandemic. Chancellor Sunak also announced Britain will hike taxes on the country’s largest companies as it tries to repair government finances and recover from the worst economic slump in more than three centuries. Starting in 2023, Britain will hike its corporation tax from 19% to 25%, which Chancellor Sunak stated would still be below the level in most major economies. The UK government has borrowed £400 billion during the pandemic, making the total government debt soar to £2 trillion.

  • Reuters is reporting a blast struck a coronavirus testing site, north of Amsterdam, Netherlands on Wednesday, shattering windows, but luckily causing no injuries in what police called an intentional attack. The police found a metal cylinder at the scene stating it must have been placed as something like that just doesn’t happen by accident. The Dutch are expected to go to the polls on March 17th and vote in national elections, which will be widely seen as a referendum on the government’s handling of the pandemic. Citizens have become increasingly angry at healthcare authorities in 2021, frustrated by the lockdown measures with Wednesday being the first day in several months where measures were slightly eased.

  • Seeing the success of Israel’s COVID-19 vaccine rollout, a couple of European Union bloc members are jumping ship to team with the nation to produce second-generation vaccines against coronavirus variants. Frustrated by the EU’s vaccine rollout, Austrian Chancellor Sebastian Kurz and Danish Prime Minster Mette Frederiksen plan to meet with Israeli Prime Minister Benjamin Netanyahu later in the week on vaccine research and cooperation. According to the EU, almost 33 million doses of vaccine have been given so far, but only 11 million Europeans have been fully vaccinated. Israel, a country of 9.3 million, has immunized over half of its population since late December. 

  • Japanese Prime Minister Yoshihide Suga said the government will hold an advisory board meeting on Friday to decide on extending the state of emergency in Tokyo beyond the March 7th deadline. Prime Minister Suga is concerned by a shortage of hospital beds in the capital region, along with a slow decline in infections, and is considering a two-week extension of the state of emergency. Speaking to reporters, the prime minister stated, “I think that about two weeks will be necessary, so I would like to make a final decision after hearing the opinions of the experts and people concerned.”

Covid-19 – Due Diligence And Asset Management

US$2.9T Consumer Savings to Power Global Economic Recovery

Brief : Consumers in the world’s largest economies amassed US$2.9 trillion in extra savings during COVID-related lockdowns, a vast cash hoard that creates the potential for a powerful recovery from the pandemic recession. Households in the U.S., China, U.K., Japan and the biggest euro-area nations socked money away when forced by the coronavirus to stay home and out of the shops, according to estimates by Bloomberg Economics. They are likely continuing to do so as restrictions remain and governments dole out stimulus. Half that total — US$1.5 trillion and growing — is in the U.S. alone, the data show. That’s at least double the average annual growth of gross domestic product witnessed in the last expansion and equivalent to the annual output of South Korea. Such savings should provide fuel for economies to rebound once COVID-19 is finally wrestled under control and as vaccines roll out. The optimists are betting on a shopping spree as people return to retailers, restaurants, entertainment venues, tourist hot spots and sports events as well as accelerate those big-ticket purchases they held back on. Those who are less confident wonder if the money will instead be used to cover debts or hoarded until the health crisis passes and labor markets look stronger. In the U.S., a running down of all the money saved in the past year would propel economic growth to as much as 9 per cent rather than the 4.6 per cent currently projected for 2021 GDP, according to BE. By contrast, if the savings go unspent, the economy will likely grow just 2.2 per cent.ompared to Q1. The sector reported 31 attacks between March and May alone.

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Apollo to Acquire Retailer Michaels for $3.3 Billion in Cash

Brief: Michaels Cos., the U.S. crafting and hobby retail chain, has agreed to a sale to Apollo Global Management at an equity value of about $3.3 billion. Apollo will pay $22 a share to Michaels shareholders, representing a 22% premium from Tuesday’s close. The Michaels board has unanimously approved the deal, according to a statement Wednesday. Although the offer was unsolicited, Michaels Chairman James Quella said it made sense. The company’s management “firmly believes Apollo’s offer represents a compelling value to our shareholders.” Apollo’s interest in Michaels comes on the heels of the company’s best annual stock performance since its latest initial public offering in 2014. Shares rose 61% last year, fueled by all the crafting items and home decor purchased by families stuck at home during the pandemic. That marked a major turnaround from prior years, when the growth of Amazon.com Inc. and flagging sales had forced the chain to shutter dozens of locations.

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UK Businesses Told to Review COVID-19 Claims as UK Cracks Down on Fraud

Brief: British businesses were on Wednesday urged to review how they claimed for government support during the coronavirus pandemic as the country launched a 100 million pound ($140 million) taskforce to tackle fraud. Britain’s spending watchdog said last October that companies may have fraudulently claimed up to 3.9 billion pounds in public money by accepting funds from schemes such as salary support packages while ordering furloughed staff to continue working during national lockdowns. Unveiling the Taxpayer Protection Taskforce in Wednesday’s budget, Finance Minister Rishi Sunak said the new body would investigate, prosecute and recover unlawfully claimed payments through schemes such as furlough and the Self-Employment Income Support Scheme (SEISS).

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Pandemic Puts 1 in 3 Nonprofits in Financial Jeopardy

Brief: More than one-third of U.S. nonprofits are in jeopardy of closing within two years because of the financial harm inflicted by the viral pandemic, according to a study being released Wednesday by the philanthropy research group Candid and the Center for Disaster Philanthropy. The study's findings underscore the perils for nonprofits and charities whose financial needs have escalated over the past year, well in excess of the donations that most have received from individuals and foundations. The researchers analyzed how roughly 300,000 nonprofits would fare under 20 scenarios of varying severity. The worst-case scenario led to the closings of 38% of the nonprofits. Even the scenarios seen as more realistic resulted in closures well into double digit percentages. Officials of Candid, which includes the philanthropic information resources GuideStar and Foundation, and the Center for Disaster Philanthropy, which analyzes charitable giving during crises, said the most dire scenarios could be avoided if donations were to increase substantially — from the government as well as from private contributors.

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SocGen to Cut Investment Bank Bonuses 20% After Trading Losses

Brief: Société Générale SA will cut the bonus pool at its investment bank by about 20%, after trading hits in 2020 handed the group its first losing year in more than three decades. Across the company, payouts are being reduced by an average of 15%, according to a person familiar with the matter, who asked not to be named discussing confidential matters. SocGen’s markets unit, which posted a net loss last year, saw even bigger pay reductions, with some equity derivatives traders facing a bonus cut of more than 80%, another person said. The sweeping cuts cap a damaging year for Chief Executive Officer Frederic Oudea, who has seen shares of the French lender slump by more than two thirds since he took over in 2008. SocGen’s payouts are likely to be among the lowest among global investment banks after most peers seized on the pandemic market swings to deliver trading and deal-making gains. The bank’s traditionally-robust equity trading unit delivered a 49% revenue drop in 2020. On Wall Street, investment banks posted double-digit gains and bonuses to match.

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Asset Managers Ended 2020 With Record Revenues

Brief: Publicly traded asset managers’ revenues and profit margins were up in the fourth quarter, but most gains are going to a small group of firms that have been able to capitalize on trends like investors’ appetite for alternatives, according to an analysis from strategy consultant Casey Quirk, which is owned by Deloitte. “At the beginning of 2020, we would have expected to see more margin and revenue pressure than we’ve seen. But it’s been a positive year for the industry writ large,” said Amanda Walters, a principal at Casey Quirk, in an interview. “The dispersion of winners and losers, however, is more pronounced and accelerating.” Walters said the consultancy included five publicly traded alternatives firms in its most recent analysis. “That group of firms is doing very well,” she said. “But it’s also larger traditional firms that have both active and passive, are managing their expense base efficiently, and have a significant portion of their asset base aligned with equity markets. So you can’t say only the alternatives firms are winning.” According to Walters, the asset managers that are winning can also be characterized as having profitable growth. “We’re not seeing them cutting their way to profitability,” she 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 Tuesday March 2, 2021:

  • In the United States, the Senate could take up the COVID-19 relief bill that was passed in the House of Representatives last week as early as Wednesday. The version of the bill passed in the House would pay for vaccines and medical supplies, send a new round of emergency financial aid to households, small businesses, state and local governments, as well as $1,400 direct payments to individuals. However, with the relief bill expected to hit roadblocks in the Senate divided practically right down the middle with little wiggle room, some lawmakers are trying to inject their own pet projects. For instance, Senator Angus King, an independent who aligns with Democrats, has been pushing for billions of dollars to expand high-speed broadband service in rural areas – an idea that could attract Republican support. 
  • In what should come as a surprise to no one, official data from Statistics Canada showed the country’s economy shrunk by 5.4% in 2020 – the worst year for Canada’s economic output since record keeping began. The data agency did say Canada’s GDP grew by 2.3% in the last three months of 2020 but couldn’t offset the plunge due to the shutdown of large parts of the economy in March and April during the first wave of the coronavirus pandemic. For comparison purposes, Canada’s economy contracted almost twice as much as the United States did during the pandemic in 2020, despite seeing far fewer virus cases per capita.
  • In the United Kingdom, the head of immunization for Public Health England (PHE), along with others in the scientific community said inoculations are working “better than any of us could have imagined.” During an interview with a British radio station, Dr. Mary Ramsay, head of immunization at PHE, said while they don’t know how long vaccinations may achieve halting community transmission over time, “there’s really very good signs that is going to at least reduce infection rates across the population, and hopefully… prevent people passing it on almost completely if they’ve been vaccinated fully.”
  • Multiple media reports are stating Germany and France are facing mounting pressure to come up with creative solutions to get the AstraZeneca COVID-19 vaccine into the arms of its citizens. On Monday, France’s medical regulator reversed its decision on advising not to use the AstraZeneca inoculation on those over the age of 65, and Germany’s vaccination committee is under increasing pressure to follow suit to avoid a pile-up of unused doses in the coming weeks. According to The Guardian, two-thirds of the 1.4 million delivered doses of the AstraZeneca vaccine to Germany remain in storage. 
  • In Brazil, hospital ICUs are reaching their capacity, causing state officials to beg the government for stricter lockdown measures to reduce COVID-19 transmission. Last week, the Oswaldo Cruz Foundation (Fiocruz), a Brazilian Ministry of Health research institution, said the ICU occupancy rates are the worst since the start of the pandemic. Eighteen of Brazil’s 26 states have ICU’s at over 80% capacity, and nine of those are at the edge of collapse with over 90%. Health Minister Eduardo Pazuello has acknowledged the crisis, stating “the mutated virus has three times more contamination capacity, and the speed can surprise governors in terms of structure and support. This is the reality we have today in Brazil.”
  • China plans to inoculate 40% of its population with COVID-19 vaccines by the end of June, according to a respiratory disease expert in the country. While at first glance, 40% of a country’s population doesn’t seem like an overly daunting task – one must remember the population of China – 1.4 billion. Therefore, 40% represents roughly 548 million people. This goal now seems overly ambitious, especially considering that same respiratory disease expert speaking at a panel on Monday revealed China has only vaccinated about 3.56% of its population – roughly 51 million people.

Covid-19 – Due Diligence And Asset Management

Data Extortion Ransomware Attacks on Financial Sector up 350 Per Cent During Covid-19 Pandemic

Brief : The global Covid-19 pandemic has disrupted the cybersecurity landscape, with ransomware seeing some of the largest pivots in attacker strategy, leaving organisations across sectors – including finance – vulnerable. Data from the CrowdStrike Intelligence team reveals a surge in ransomware attacks during the pandemic, with data extortion becoming the most used attack method for all sectors – with 1,430 incidents reported globally in 2020. The financial sector was one of the most targeted by cybercriminals in 2020 during the Covid-19 pandemic at a time when rapid shifts in working practices left organisations vulnerable. In the first emergency phase of the pandemic in Q2 2020, ransomware attacks on financial organisations using data extortion techniques were up 417 per cent compared to Q1. The sector reported 31 attacks between March and May alone.

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Polar Fund Manager Guy Rushton Took his Own Life Following Extreme Stress

Brief: Polar Capital fund manager Guy Rushton took his own life in May last year having been “uncertain about the future” and “extremely stressed” about his health, the pressures of work and the dwindling size of his fund, a coroner’s court has heard. Rushton, 36, was found dead in a barn near his home in Wiltshire shortly after he went missing on 22 May, 2020. Two weeks before his death, he had been discharged from a psychiatric hospital and had been prescribed antidepressants following a previous suicide attempt. His widow Alannah Rushton told Wiltshire and Swindon assistant coroner Ian Singleton that the manager of the Polar Capital UK Absolute Return fund had “experienced high stress due to a number of factors”, the Times reported. Rushton (pictured) had been diagnosed in October 2019 with high blood pressure which his family attributed to the stress of being sole manager of the fund and not feeling like he could take time off. The Polar Capital UK Absolute Return fund had been among the top-performers in the Investment Association Targeted Absolute Return sector, but its performance faltered during the coronavirus sell-off. It had held £472.17m at the time of its February factsheet but that had fallen to £292.2m by the time Polar decided to wind up the fund.

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Saudi Wealth Fund May Close its Biggest-Ever Loan Deal This Week

Brief: Saudi Arabia’s sovereign wealth fund is set to close a deal for its biggest loan ever as soon as this week, according to people familiar with the matter. The Public Investment Fund is raising about $15 billion from a group of international banks to finance new investments, the people said, asking not to be identified as the information is private. The final bank group participating in the facility is still being determined, and the size of the loan as well as the timing may change, they said. The PIF declined to comment. The wealth fund has more than doubled the size of the loan from an initial plan to raise up to $7 billion, Bloomberg reported last month. The $400 billion sovereign investor fund is tapping banks for its third loan so far, after borrowing $11 billion in its debut debt raising, and another $10 billion bridge facility in 2019 that it paid off last year. The fund has also received cash injections in the form of the $30 billion proceeds from the sale of shares in Saudi Aramco and a $40 billion transfer from the kingdom’s foreign reserves last year as it looked to finance an asset-buying spree during a slump in equity markets caused by the coronavirus.

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Paper Source Sets Sale to Apollo-Backed Lender in Bankruptcy Bid

Brief: Paper Source Inc., the stationery and craft supplies chain, filed for bankruptcy with plans to sell itself after Covid-19 hampered expansion plans. The company intends to hand control of the business to an affiliate of MidCap Financial, a lending arm of Apollo Global Management, in exchange for debt forgiveness, court papers show. Paper Source owes about $103 million to lenders, including more than $55 million under a first-lien term loan. Paper Source, which has 158 stores across the U.S., expanded its reach last March when it bought about 30 stores from rival chain Papyrus out of bankruptcy. Less than three weeks later, Paper Source temporarily shut down all of its own stores, which generated more than 80% of sales in 2019. The company brought in gross sales of $104 million in 2020, down more than 30% from $153 million in 2019. In an attempt to preserve cash, Paper Source asked landlords for breaks on rent and stretched payment terms with vendors. Its rent concessions expired in January and vendors have threatened to stop doing business with the company, court papers show.

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U.S. Airlines Remain in ‘Dire Straits,’ Need New Government Assistance

Brief: The head of a group representing major U.S. passenger airlines and a senior union official made the case to lawmakers on Tuesday for a third round of federal government assistance, according to testimony seen by Reuters. Since March 2020, Congress has awarded passenger and cargo airlines, airports and contractors nearly $90 billion in government assistance and low-cost loans, including two prior rounds of payroll assistance for U.S. passenger airlines totaling $40 billion. The $1.9 trillion COVID-19 relief package approved by the U.S. House last week includes another $14 billion for passenger airlines to keep workers on payrolls for an additional six months. It awaits action by the U.S. Senate. “We are still struggling and in dire straits,” Nick Calio, who heads Airlines for America, a trade group representing American Airlines, Delta Air Lines, United Airlines and others, said in testimony before the House Transportation and Infrastructure’s aviation subcommittee. “We were hoping it would be better by now.”

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Real-Estate and Covid-19: Accelerating Trends

Brief: It is stating the obvious, but the pandemic has had a negative impact on real estate investment in Europe, with volumes for the year projected to be around 15-20% lower than in 2019, but still similar to 2016. This is only a superficial impact on the market and masks what are more profound changes. The cause of the reduction in real estate investment in Europe is not simply due to the restrictions in mobility that frustrate capital movements in what is now an increasingly internationalised industry, but may be more substantially attributed to the undermining of capital market confidence in occupier markets and not just in the short term, but more importantly into the long term. Although important, this isn’t just about confidence in occupier covenant strength as a result of the financial strain of the pandemic, but rather it is to do with the manner in which the pandemic is revolutionising the way in which we occupy real estate. Trends that were evident pre-pandemic are being accelerated both for good and bad. This might be most evident in the trauma being experienced in the retail sector and the contrasting exuberance of the industrial sector, but it also applies to the future use of offices and even the homes within which we live, indeed the entire built environment is being rethought.

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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.