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Covid-19 Diligence Briefing

Our briefing for Monday May 31, 2021:

  • In the United States, citizens are on the move for the first time in a while to celebrate their Memorial Day long weekend. According to AAA, an estimated 37 million Americans travelled at least 50 miles from their home over the weekend – a 13% drop compared to 2019 but a 60% increase from last year. The Transportation Security Administration said the United States set a pandemic era record of 1.9 million people travelling through American airports on Friday and that number is expected to be eclipsed on Monday with people returning home.

  • Canada’s two most populous provinces seem to be turning a corner with the latest COVID-19 case wave. On Monday, Ontario reported 916 new cases, the first time the province has logged under 1,000 daily cases since mid-February. In Quebec, the province reported 276 new infections – their lowest case count since mid-September and downgraded several regions – including Quebec City - from their highest pandemic-alert level on Monday. The province’s largest city – Montreal, along with Laval are expected to remain in red zones, but Premier Francois Legault expects that to change as of June 7th.

  • In the United Kingdom, a scientific adviser to the government, has called for plans to lift all coronavirus restrictions by June 21st to be reconsidered due to the Indian variant. Speaking to BBC Radio, Ravi Gupta, Professor of Microbiology at the University of Cambridge, said the following: “What we are seeing here is the signs of an early wave that will probably take longer than previous waves to emerge because we do have quite high levels of vaccination in the population.” Gupta went on to add while cases are still relatively low at the moment; they could soon rise to “explosive levels”, with a high number of infections likely to be asymptomatic. Environment Secretary George Eustice said the government could not rule out a delay to the planned lockdown easing, but business leaders have warned of the harmful impact of any change to the proposed dates.

  • Hong Kong authorities have made a move to keep financial services up and running during the coronavirus pandemic. Each of the four regulatory bodies responsible for the city’s financial services have agreed to exempt four vaccinated, senior executives of each company from three weeks of quarantine when they visit the city. Hong Kong marked a day of zero new coronavirus cases for the first time (May 27th) in more than six months, suggesting a turnaround in the city that has been battling a fourth wave of the virus since November.

  • The Philippines government has extended partial coronavirus curbs in Manila and surrounding areas until mid-June to contain infections that have been decreasing since hitting their peak in April. Non-essential travel remains prohibited with religious gatherings remaining capped at 30% of venue capacity while dining in at restaurants can operate at 20% capacity. President Rodrigo Duterte has also extended a ban on inbound travel from India, Pakistan, United Arab Emirates (UAE) and several other nations to prevent circulation of the Indian coronavirus variant.

  • Australia’s latest coronavirus cluster has exceeded 50 cases in Victoria state and has authorities warning the situation could worsen in the coming days. Victoria state, home to the city of Melbourne, went into a strict seven-day lockdown on Friday after new COVID-19 infections ended the region’s three month run of zero community cases. Government authorities have identified several Melbourne schools, supermarkets, department stores and gyms, among hundreds of exposure sites. “The challenge ahead of us is a very, very significant one. We are seeing a small number of cases infecting a large number of contacts,” said Victorian acting Premier James Merlino.

Covid-19 – Due Diligence And Asset Management

Forecast: Global Economy Rebounding, Faces Multiple Threats

Brief : The global economic rebound from the pandemic has picked up speed but remains uneven across countries and faces multiple headwinds. Most worrisome: the lack of vaccines in poorer nations, which could lead to new virus variants and more stop-and-go lockdowns. Those were key points from the latest economic outlook published Monday by the Paris-based Organization for Economic Cooperation and Development. The OECD said that relief and stimulus measures in the more developed world had done much to get the economy through the pandemic recession and back on the path of growth. It forecast global output would rise 5.8%, raising its forecast from 4.8% during its previous outlook in December. This year's predicted rebound follows last year's contraction of 3.5%, and would be the fastest since 1973. The U.S. economy was expected to grow 6.9%, upgraded from a previously forecast 6.5%. The OECD cited wide-ranging support from government spending on additional unemployment benefits, financial assistance for local governments and support for low-income households.

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Assets Rebound from Depths of Pandemic

Brief: Even as the coronavirus knocked markets and sent most money managers' assets under management sliding in March and April of 2020, the industry bounced back quickly. In 2020, growth managers came out on top in a big way, U.S. passive strategies continued to pull in assets, outcome-oriented investing fared well as factor investing floundered and ESG continued to grow at an impressive clip. Pensions & Investments annual survey of the largest managers found that global institutional assets under management of nearly 500 money managers grew 10.8% over the year ended Dec. 31 to $54.17 trillion. Overall, total worldwide assets for surveyed managers was $82.45 trillion, up 10.1% for the year and 53% for the five-year period ended Dec. 31. The gains for the year include a dismal first quarter — P&I previously reported that the AUM of 89 of the 100 largest managers declined by 10.4% during the quarter ended March 31, 2020. In terms of the big winners, BlackRock Inc. and Vanguard Group Inc. remained the largest managers in terms of total global AUM, but Fidelity Investments Inc. and State Street Global Advisors swapped positions from the prior year, with Fidelity moving up to third place and SSGA moving down to fourth.

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Who Benefits? US Debates Fairest Way to Share Spare Vaccine

Brief: In April, the Biden administration announced plans to share millions of COVID-19 vaccine doses with the world by the end of June. Five weeks later, nations around the globe are still waiting — with growing impatience — to learn where the vaccines will go and how they will be distributed. To President Joe Biden, the doses represent a modern-day “arsenal of democracy,” serving as the ultimate carrot for America’s partners abroad, but also as a necessary tool for global health, capable of saving millions of lives and returning a semblance of normalcy to friends and foes alike. The central question for Biden: What share of doses should be provided to those who need it most, and how many should be reserved for U.S. partners? The answer, so far at least, appears to be that the administration will provide the bulk of the doses to COVAX, the U.N.-backed global vaccine sharing program meant to meet the needs of lower income countries. While the percentage is not yet finalized, it would mark a substantial — and immediate — boost to the lagging COVAX effort, which to date has shared just 76 million doses with needy countries. The Biden administration is considering reserving about a fourth of the doses for the U.S. to dispense directly to individual nations of its choice.

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India’s Economy Showed Momentum Before Virus Crisis Hit Home

Brief: India’s economy expanded faster than expected last quarter before a resurgent coronavirus pandemic unleashed a new wave of challenges. Gross domestic product rose 1.6% from a year earlier in the three months ended March, the Statistics Ministry said Monday. That was faster than the 1% median estimate in a Bloomberg survey of economists. The number marks the second straight quarter of expansion following a rare recession, which tipped the economy into an unprecedented 7.3% contraction for the full fiscal year ended March. That compares with a median 7.5% decline estimated in a Bloomberg survey. Stocks jumped 1%, the biggest advance in 10 days, before the GDP numbers were published. The yield on the benchmark 10-year government bond rose two basis points to 6.02%, while the rupee slipped 0.2% ahead of the data. While pent-up demand for everything from mobile phones to cars revived consumption in Asia’s third-largest economy after it reopened last year from one of the strictest lockdowns that lasted more than two months, India’s status now as the global virus hotspot could hurt those prospects. It could temper what will be the fastest pace of growth among major economies this year.

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A Survey Shows that the Pandemic has Made Cryptocurrencies More Attractive to Investors, but the Biggest Barrier to Entry is a Lack of Knowledge

Brief: The pandemic has made cryptocurrencies more attractive, according to a recent survey from the Economist Intelligence Unit . As more people stayed indoors to curb the spread of the virus, they found themselves with more time on their hands, while flush with multiple rounds of stimulus money from the government. Data from the Economist Intelligence Unit showed 46% of people surveyed found the case for owing cryptocurrencies more compelling due to covid-19. "It's a function of continued demand across both retail and institutions," Mathew McDermott, managing director and global head of digital assets at Goldman Sachs, was quoted saying in the study. He added: "Given the huge amount of stimulus we're seeing across countries because of covid-19 and low-interest rates, it's the right place at the right time for companies to offer the ability for people to buy, hold, and use digital currencies and have digital wallets." The first part of the study surveyed 3,053 people in February and March from developed economies - US, UK, France, South Korea, Australia, and Singapore - as well as developing countries including Brazil, Turkey, Vietnam, South Africa, and the Philippines.

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Brookfield to Spend $1.2 Billion on London Offices, Times says

Brief: Canadian private equity giant Brookfield Asset Management Inc. is set to buy two properties in and around the City of London, the Times reported. Plantation Place, an 18-story building that houses the offices of Accenture UK Ltd. and Aspen Insurance UK Ltd, is being sold for 635 million pounds ($901 million), and Milton Gate, a glass-fronted office block, for 215 million pounds, according to the Times. The U.K. government’s work-from-home guidance is still in force, which has kept footfall in central London to only a fraction of pre-pandemic levels. That in turn has depressed investment in London offices by 53% in the first four months of 2021, the Times says citing real-estate agent Savills.

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

Our briefing for Friday May 28, 2021:

  • The United States’ Homeland Security Secretary stated on Friday the Biden administration is taking a close look at vaccine “passports” for international travel. Homeland Security Secretary Alejandro Mayorkas was speaking to ABC’s Good Morning America ahead of the Memorial Day long weekend in the country and said if such a passport is made available – it should be accessible to all, so that no one is disenfranchised. After the interview, a spokesperson for the department said Mayorkas was referring to work already underway and that there will no federal vaccination database or a federal requirement for Americans to prove they’ve been vaccinated.

  • In Canada, an advisory body is looking for the federal government to relax its border rules for vaccinated travelers and scrap the requirement that international air passengers quarantine in a hotel when they arrive. In a report released Thursday, the COVID-19 Testing and Screening Expert Advisory Panel stated people who have received two COVID-19 vaccine shots should be exempt from quarantine and pre-departure virus tests. As of right now, the majority entering Canada have to go through a 14-day quarantine and those arriving via air, are supposed to spend as long as three days in government mandated hotels while they await test results. In a joint statement from the federal Health Minister and Public Safety Minister, both defended the government’s border measures, calling them “effective” and that they would review data and “be prudent in its approach” to changing measures.

  • The United Kingdom has approved the single-shot coronavirus vaccine from Johnson & Johnson. The vaccine developed by J&J subsidiary, Janssen, will be available in the UK later in the year and has been proven to be 67% effective in preventing moderate to severe COVID-19 symptoms and 85% effective in preventing severe disease or admission to hospital. The UK has ordered 20 million doses and is now the fourth vaccine approved for use in the country’s largest vaccination program in history. 

  • Australia’s second largest city, Melbourne entered its fourth lockdown on Thursday due to a rapid spread of infections from a coronavirus variant. The lockdown for Melbourne and the rest of Victoria state is set for at least a week after city infection rates rose to 26 confirmed cases and another 10,000 people having some degree of contact with those already infected. The federal government has declared the city a hot spot entitling it to additional resources, which is coming in the form of 218 military personnel that will help with pandemic operations. Prime Minister Scott Morrison said more can be sent if acting Victoria state Premier James Merlino asks for them. 

  • Japan’s government has extended its state of emergency that includes Olympic host Tokyo and other major cities. Prime Minister Yoshihide Suga said the state of emergency was set to expire on May 31st, but has extended to at least June 20th, which would make it a little more than a month out of the already once postponed Tokyo Summer Olympic Games. The extension to Tokyo, Osaka and several other prefectures comprises about half of the world’s third largest economy. Prime Minster Suga said in a news conference he is aware of the concerns of Japanese citizens in holding a worldwide event but will continue with the preparations and seek further cuts in the number of people visiting Japan in connection with the Olympic Games.

  • Hong Kong is dangling a carrot in the form of a $1.4 million apartment as a prize for those who have been vaccinated for COVID-19. The catch is that it is only open to residents who have received both shots of an approved vaccine. Local authorities are grappling with widespread reluctance of residents not wanting to get inoculated and are fearful that the current surplus of shots could hurt future procurement of vaccines. Hong Kong’s government has also been working to encourage residents to get their shots by providing policy incentives such as reopening bars and shortening quarantines.

Covid-19 – Due Diligence And Asset Management

Credit Suisse’s RenTech Fund Holds Back Some Client Withdrawals

Brief : Credit Suisse Group AG is temporarily barring clients from withdrawing all their cash from a fund that invests with Renaissance Technologies after the strategy tanked and investors rushed to exit. The bank has invoked a so-called hold back clause, after assets in the CS Renaissance Alternative Access Fund slumped to about $250 million this month from approximately $700 million at the start of 2020, according to people with knowledge of the matter. While investors will receive 95% of their redemption requests after two months, the remaining 5% is expected to be paid out in January, after the fund’s year-end audit, the people said. The fund lost about 32% last year, in line with the decline in the Renaissance Institutional Diversified Alpha Fund International fund that it invests into, the people said. Renaissance, regarded as one of the most successful quant investing firms in the world, was rocked by billions of dollars in redemptions earlier this year after unprecedented losses in 2020. Three of its funds open to external investors fell by double digits last year. Credit Suisse and Renaissance declined to comment.

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CEO Pay Rises to $12.7M Even as Pandemic Ravages Economy

Brief: As COVID-19 ravaged the world last year, CEOs’ big pay packages seemed to be under as much threat as everything else.Fortunately for those CEOs, many had boards of directors willing to see the pandemic as an extraordinary event beyond their control. Across the country, boards made changes to the intricate formulas that determine their CEOs’ pay — and other moves — that helped make up for losses created by the crisis. As a result, pay packages rose yet again last year for the CEOs of the biggest companies, even though the pandemic sent the economy to its worst quarter on record and slashed corporate profits around the world. The median pay package for a CEO at an S&P 500 company hit $12.7 million in 2020, according to data analyzed by Equilar for The Associated Press. That means half the CEOs in the survey made more, and half made less. It’s 5% more than the median pay for that same group of CEOs in 2019 and an acceleration from the 4.1% climb in last year’s survey. At Advance Auto Parts, CEO Tom Greco’s pay for 2020 was in line to take a hit because of a mountain of pandemic-related costs. Extended sick-pay benefits and expenses for hand sanitizer and other safety equipment totaling $60 million dragged on two key measurements that help set his performance pay.

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Female CEOs saw Ranks Dwindle in 2020: Median Pay Fell 2%

Brief: Most of the women running the biggest U.S. companies saw their pay increase last year, even as the pandemic hammered the economy and many of their businesses.  Despite those gains, however, the median pay for female chief executives actually fell in 2020. Already a small group, they saw several high-profile women leave their ranks last year. That means changes in pay for only a few helped skew the overall figures, highlighting just how slow diversity has been to catch on in Corporate America’s corner offices. Of the 342 CEOs in the AP’s and Equilar’s compensation survey of S&P 500 companies, only 16 were women. That’s down from 20 a year earlier, as CEOs like IBM’s Virginia Rometty left their posts. The survey includes only CEOs who have served at least two full fiscal years at their companies, in order to avoid the distortions of big sign-on bonuses. The companies must have filed proxy statements between Jan. 1 and April 30. The majority of female CEOs in this year’s survey saw a raise in compensation: 81% of them (13 of 16), versus 60% of all male CEOs in the survey. But Duke Energy CEO Lynn Good saw a nearly 3% decline in compensation to $14.3 million. She’s right in the middle of the pay scale among the survey’s women CEOs, so that helped set the median pay for them last year at $13.6 million. Median means half made more than that level, and half made less.

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Money Continues to Pour into Hedge Funds as Investor Interest Remains Strong

Brief: Investors poured another +USD12.47 billion into hedge funds in April, bringing year to date (YTD) inflows to +USD28.81 billion, according to the just-released April 2021 eVestment Hedge Fund Asset Flows Report. Overall hedge fund business AUM stood at USD3.525 trillion at the end of April, according to the new report. “There were several strong underlying metrics behind the net inflow number in April,” says eVestment Global Head of Research and report author Peter Laurelli. “While net inflows alone would seem to be a positive sign, that is not always the case. In April, however, the data just looked good.” Laurelli notes there was a high proportion of reporting managers with net inflows (57 per cent) and the proportion of managers who lost large amounts of AUM during the month – 2 per cent or 5 per cent of AUM – was relatively small at just 15 per cent and 7 per cent, respectively. Additionally, the overall volume of net asset movement was relatively low, just 1.9 per cent of AUM. “This means money wasn’t swirling around wildly during the month, but rather it was just a fairly steady allocation period,” he says. Multi-Strategy hedge funds were big asset winners in April, pulling in +USD4.34 billion, bringing YTD inflows to +USD15.55 billion. April marked the sixth month in the last seven these funds have seen positive flow figures.

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World on Brink of Biggest Tax Reforms in a Century

Brief: Britain and the rest of the world's largest nations are on the verge of agreeing to the biggest global tax reforms for a century, the UK's Daily Mail is reporting today (28 May). An agreement from the G7 group of nations - which also includes the US, Japan and Germany - could be reached as early as 4 June when finance ministers meet in London. The rate of corporation tax in the UK is 19% but this is set to rise to 25% by 2023. The countries are also expected to agree to keep business tax rates above 15%. The deal will force companies to pay tax in the countries where their consumers spend their money, rather than shift them overseas, with some claiming the changes could shift £70bn of tax globally.

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The Old Era of Due Diligence is Over: Here’s What the Post-Pandemic Future Might Hold

Brief: The Covid-19 pandemic impacted every area of our lives, forcing investment professionals to react to ever-changing circumstances. Much has been written about the volatile financial markets and the hectic days of trading over the past 14 months, but now we’re heading into the post-pandemic world. With people across the globe getting vaccinated against this deadly virus, we are wondering, What is the new normal for asset allocators? In particular, how will due diligence evolve? Will it return to its 2019 state — or did the pandemic permanently alter how asset managers get hired? Like everyone else, asset allocators have spent countless hours using Zoom and other videoconferencing tools since the pandemic began. Adapting to the extra screen time proved challenging and definitely caused more than a few impediments to comprehensively completing due diligence. “Pre-pandemic the allocator really drove the meetings,” says Shana Orczyk Sissel, CIO of registered investment adviser Spotlight Asset Group. “In a Zoom setting the manager has much more control in access and creating the image they want.”

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

Our briefing for Thursday May 27, 2021:

  • In the United States, Treasury Secretary Janet Yellen has urged congressional leaders to step up their spending, claiming the government is operating on a budget more than a decade behind the times. Yellen was speaking to a House panel that has a large say over spending and noted the aggressive programs the Treasury has already implemented to help the economy through the COVID-19 pandemic. Yellen’s comments of course are strategic in nature as they come just one day before President Joe Biden releases his first budget, an expected $6 trillion spending plan to be financed by tax increases and deficit spending in the range of $1.3 trillion annually.
  • In Canada, the federal government is urging provinces not to waste thousands of doses of AstraZeneca vaccine that are set to expire in a matter of days. Federal Health Minister Patty Hajdu sent a letter to her provincial and territorial counterparts that called on provinces that weren’t going to use their AstraZeneca doses by the end of May to give them to provinces that can. Hajdu stated in the letter the federal government would help to ensure doses don’t get wasted. Elsewhere on the AstraZeneca vaccine front, Quebec has confirmed citizens can get their second shot eight weeks after they have received their first. The province initially planned on providing the second dose 12 weeks after the first dose and the change was based on a recommendation from Quebec’s immunization committee.
  • The United Kingdom government – most notably Health Secretary Matt Hancock – was busy Thursday trying to defend himself against the bombshell accusations made by former senior official Dominic Cummings and their handling of the coronavirus pandemic. Addressing the House of Commons on Thursday morning, Hancock responded: “These unsubstantiated allegations around honesty are not true. What we have done to handle this coronavirus pandemic has been unprecedented in modern times.” At a press conference, Hancock repeatedly dodged questions such as if Prime Minister Boris Johnson still had confidence in him as secretary. The Prime Minister also faced his share of questions. When asked if the deaths due to the coronavirus were because of his “action or inaction”, Prime Minister Johnson replied: “No, I don’t think so.”
  • In Germany, a team of scientists believe they have worked out why some people who have received AstraZeneca and Johnson & Johnson COVID-19 vaccines develop blood clots and what the manufactures can do to improve their vaccines to avoid it. Rolf Marschalek, a professor at Goethe University in Frankfurt, along with his colleagues, say the key is in the adenovirus – the common cold virus that is used to deliver the spike protein of the coronavirus into the body. The Pfizer and Moderna vaccines, which are mRNA, don’t use this delivery system and therefore have had no known blood clotting cases linked to them.
  • Brazil’s latest COVID-19 wave has left the country with its highest unemployment rate ever recorded. As noted by Bloomberg, the data series only goes back to 2012, but joblessness hit 14.7% in the first three months in 2021. Brazil’s unemployed population has risen to 14.8 million people and the government has pared back emergency aid to the poor. President Jair Bolsonaro and his government injected billions worth of aid into the economy last year but is running out of room for emergency spending while the virus still rages in Latin America’s most populous country.
  • One day after the United States said they would have their intelligence team do a deeper dive into COVID-19 origins; it should come as no surprise China isn’t happy. The Chinese embassy in Washington said politicizing the origins of the coronavirus pandemic would hamper further investigations and undermine global efforts to curb the pandemic. The Chinese embassy said it supports “a comprehensive study of all early cases of COVID-19 found worldwide and a thorough investigation into some secretive bases and biological laboratories all over the world.” The United States though is singularly focused on a Wuhan, China lab after once was thought as a fringe theory on the start of the pandemic, has gained more steam in the last week after a Wall Street Journal report over the weekend. The news outlet reported three Wuhan researchers at the Institute of Virology became sick enough in November 2019 to seek out hospital care.

Covid-19 – Due Diligence And Asset Management

Yellen says Economic Recovery Likely to be ‘Bumpy’

Brief : Treasury Secretary Janet Yellen says that the economic recovery is going to be “bumpy” with high inflation readings likely to last through the end of this year. But Yellen insisted that the inflation pressures will be temporary and if they do threaten to become embedded in the economy, the government has the tools to address that threat. In testimony before a House Appropriations subcommittee Thursday, Yellen was asked about a big jump in prices reported last week, which showed consumer price index rising by 4.2% over the past year, the largest 12-month gain since 2008. Yellen said that the April price increase was the result of a number of special factors related to the economy opening back up. She said as she has in the past that the price jump would be temporary but she indicated it would be more than a one-time gain. “I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year,” Yellen told lawmakers.

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Canadian Banks Signal a COVID-19 All-Clear Earlier than Expected

Brief: Canada’s biggest banks are signaling that financial issues from the COVID-19 crisis are largely in the rear-view mirror in North America -- and earlier than analysts had expected. After a year of stockpiling record amounts of capital to protect against a wave of loan defaults, Royal Bank of Canada and Toronto-Dominion Bank -- the country’s two largest banks -- reversed course last quarter. Toronto-Dominion on Thursday reported a surprise $377 million (US$312 million) release of provisions for credit losses for its fiscal second quarter, while Royal Bank released $96 million. Analysts had projected both lenders would continue setting aside capital to absorb potentially soured loans. With vaccination campaigns putting economic reopenings in reach in Canada and the U.S., strong housing markets fueling mortgage lending, and surging equity markets supporting capital-markets and wealth-management businesses, Toronto-Dominion and Royal Bank are asserting they have more than enough capital to handle any bumps along the road to recovery. Even after reporting smaller set-asides than analysts expected in the fiscal first quarter, bank executives still struck a cautious tone on their preparations for potential credit losses, leading many analysts to expect reserve releases wouldn’t begin until the second half of the year.

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Private Equity Backed Companies Create Over 250,000 Jobs, Growing Six Times Faster than European Average

Brief: Invest Europe, an association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, has published its ‘Private Equity at Work’ report which shows that the PE sector is supporting over 10 million workers across the continent and creating over a quarter of a million jobs in sectors that will help feed the recovery from the Covid-19 crisis. A total of 10.2 million people were employed at 23,009 portfolio companies at the end of 2019, ranging from start-ups and SMEs to large multinationals, according to the second edition of Invest Europe’s ground-breaking employment study. That equates to 4.3 per cent of Europe’s active workforce and is on a par with the entire population of Sweden. Private Equity at Work demonstrates private equity’s outsized contribution to European job creation. Companies backed by private equity added 254,157 net new jobs in 2019, about the same as the working population of Tallinn. The figure represents growth of 5.5 per cent on the previous year and far outstrips the average job growth of 0.9 per cent for Europe as a whole. Around half a million people in Europe found new work with private equity backed companies in 2018 and 2019 combined.

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Cerberus Quadruples Money After Unusual Exit from Hospital Giant

Brief: Cerberus Capital Management, demonstrating the rewards of Wall Street’s rush into health care, made a roughly $800 million profit on its investment in struggling Catholic hospitals, records show. The New York private equity firm quadrupled its money over a decade, according to internal documents and a federal filing this month. Co-founded by billionaire Stephen Feinberg, Cerberus executed an unusual exit. It offloaded its remaining interest to doctors who work in its hospital company, rather than pursue an initial public offering or sale to a rival. Cerberus bought Caritas Christi Health Care in 2010, paying $246 million in cash for Massachusetts hospitals that included flagship St. Elizabeth’s Medical Center in Boston. The company that Cerberus created, Steward Health Care, expanded into a major hospital chain as it also became saddled with a heavy debt load. Private equity firms, saying they are bringing corporate efficiency to an outdated industry, struck $288 billion worth of health care deals over the past five years, according to a report by consultant Bain & Co. Such investments have drawn scrutiny from members of Congress, consumer groups and academics, who say the firms’ use of debt puts pressure on medical providers to cut costs and hurts quality.

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Investors Bet Billions That Health Care’s Long Overdue Digital Shift is Finally Here

Brief: Investors are pouring a record amount of money into young companies trying to transform U.S. health care at an accelerating pace. Spurred by the pandemic, private funding for health-care companies has reached new highs every quarter since Covid-19 emerged. Investors steered a record $6.7 billion to U.S. digital health startups in the first three months of 2021, according to venture firm and researcher Rock Health. In 2011, Rock Health tracked $1.1 billion invested in digital health for the entire year. The flood of money is getting attention from new corners. JPMorgan Chase & Co. last week announced a new business with a $250 million investment arm to transform employer health coverage. Young startups have closed giant deals like the $500 million that online pharmacy Ro, founded in 2017, raised in March. And venture-backed health companies are reaching the public markets: Upstart insurer Bright Health Group, founded in 2015, filed for an initial public offering last week. Sustained low interest rates have investors searching for returns in new arenas, pushing money into assets from junk bonds to Dogecoin. Venture capital is no exception -- with funds raising $32.7 billion in the first quarter, on pace to exceed last year’s record, according to data from the PitchBook-NVCA Venture Monitor. All that money has to go somewhere. As the pandemic eases in the U.S., a growing chunk of venture capital has decided that the upheaval spurred by Covid-19 is accelerating shifts already underway in the notoriously inefficient $4 trillion U.S. health-care sector.

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Investors Lean into Early-Stage Venture Capital Deals in Pandemic Recovery

Brief: Venture capital is back, better, and younger than ever. Start-ups that survived the pandemic are raising venture financing rounds at valuations well above the period before the coronavirus shut down global economies. At the same time, investors are increasingly placing capital in early-stage deals, according to a new PitchBook report.  Although there's a bump in interest in younger companies, venture capital activity is strong for deals in all stages. According to the report, both early- and late-stage venture capital deals experienced growth in pre-money valuations – the value before companies go public or get other kinds of financing. The median and average pre-money valuations for early stage companies hit $40 million and $96.3 million, respectively, in the first quarter. Both are records. For later stage companies, a number of huge deals increased the median and average pre-money valuations to $122.5 million and $1.03 billion, respectively. These were also peaks. Venture capital has had a good run recently, according to multiple third parties looking at different data sets. Returns reached an all-time high in 2020, even as global economies were decimated by the coronavirus pandemic.

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

Our briefing for Wednesday May 26, 2021:

  • In the United States, President Joe Biden is tasking his intelligence community team to “redouble their efforts” in assessing the origins of COVID-19 and report back with their findings within 90 days. In a statement released on Wednesday, President Biden said the following: “The United States will also keep working with like-minded partners around the world to press China to participate in a full, transparent, evidence-based international investigation and to provide access to all relevant data and evidence.” The president also noted he asked National Security Adviser Jake Sullivan in March to prepare a report on their most up-to-date analysis on the origins of COVID-19 and whether or not it emerged from human contact with an infected animal or from a laboratory accident.

  • In Canada, a recent Angus Reid poll suggests Canadians are on board with Prime Minister Justin Trudeau’s handling of the border closure with the United States. The poll results released Wednesday noted nearly half of Canadians (48%) don’t want the land border with the United States to reopen until at least September and when it does, more than three quarters would support a vaccine passport. Canada’s land border has been closed for non-essential travel to their southern neighbours for more than a year now and Prime Minister Trudeau is facing increasing calls from business groups and the main opposition – the Conservative Party – to release a concrete reopening plan.

  • Former United Kingdom senior official Dominic Cummings gave a damning report of the government’s handling of the coronavirus pandemic. Cummings made the comments to the health and science select committees that are holding a joint inquiry into the handling of the pandemic and what lessons can be learned. Cummings alleged Prime Minister Boris Johnson didn’t take the coronavirus serious enough at first jump, treating it is as a “scare story”. Health Secretary Matt Hancock should have been fired 15 to 20 times, including lying on multiple occasions and noted one aide’s colourful comments describing the situation the country was in when realizing there was no real plan to deal with the pandemic. Those still in the government were quick to come out against the maverick former aide, calling Cummings appearance at the joint committee a “sideshow” and suggested he “has his own agenda”.

  • France has decided to move ahead with extra restrictions for passengers coming from the UK to defend against the coronavirus variant first discovered in India. France will request mandatory isolation for all passengers coming across the Channel, a government spokesperson said after a cabinet meeting. At the moment, people from the UK arriving in France don’t need to justify the reason for their trip but must show a negative COVID test and commit to self-isolate for a week, even if they had been vaccinated. Under the new proposed rules, such travelers quarantine would be extended to 10 days and subject to controls at hotels or homes, and fines. Not surprisingly, UK officials aren’t happy with France’s decision calling the move a knee-jerk reaction to headlines in the newspapers.

  • In Italy, whistleblower protection groups urged the World Health Organization (WHO) on Wednesday to launch an independent review into the case of an Italian researcher who reported being pressured to falsify data into a WHO report about the country’s coronavirus response. Dr. Francesco Zambon said he was pressured by then WHO assistant-general director, Dr. Ranieri Guerra, to falsify data about Italy’s preparedness going into the pandemic in a report he and other researchers were writing to help other countries prepare for COVID-19 as it swept around the world last year.

  • In Australia, the next 24 hours are considered critical to see if Melbourne will have to enter a hard coronavirus lockdown. The number of new cases in the cluster reached 15 and exposure sites passed 70, sparking an emergency cabinet meeting on Wednesday. According to The Age and the Sydney Morning Herald, two Victorian state government sources said a decision on additional restrictions would rest on whether any new cases indicated rapid spread or uncontrolled community transmission.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Surpass $4 Trillion in Assets

Brief : Hedge fund assets under management reached an all-time high of $4.146 trillion at the end of the first quarter of 2021, according to a Preqin report expected to be published Wednesday. Commodity trading advisors, which saw the biggest net redemptions to in the first half of 2020, saw significant improvement in the first quarter of 2021. In fact, CTAs experienced the highest quarterly net inflows of $5.8 billion at the start of 2021. So-called niche strategies followed closely behind, ending the quarter with $5.75 billion of inflows.  “We see a bit of a shift towards the top level strategies that didn’t receive the attention in the pre-Covid-19 environment, because risk wasn’t a major factor,” said Sam Monfared, Preqin’s hedge fund expert and author of the report. “It seems like allocators are paying more attention to risk management and putting money into buckets that are there to protect capital.”  Event-driven strategies — which experienced the second-most redemptions in the first half of 2020 — also saw improvements in flows in the first quarter. However, the category still ended the three-month period with outflows of $3.9 billion. Macro-strategies experienced a similar trajectory, ending the quarter with outflows of $2.3 billion. Fifty-six percent of marco-strategy funds experienced outflows, the worst performance among all hedge fund strategy categories. 

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Private Equity Targets U.K. Firms at Fastest Pace Since 2008 Crisis

Brief: Private equity firms are snapping up U.K. companies at a rate not seen since before the 2008 financial crisis. Buyout firms have spent $18.3 billion on takeovers of publicly-traded British targets this year, according to data compiled by Bloomberg. At this rate of investment, they will surpass the $27.5 billion of such transactions struck in 2019, which was a post-crisis high, the data show. The tally has been fueled by a surge of take-privates in May, the latest of which came Wednesday when Carlyle Group Inc. said it would buy drugmaker Vectura Group Plc for about 958 million pounds ($1.4 billion) in cash. Already this month, KKR & Co. had agreed to buy infrastructure firm John Laing Group Plc for about 2 billion pounds and Blackstone Group Inc. confirmed a 1.2 billion-pound offer for St. Modwen Properties Plc.  Clayton, Dubilier & Rice also struck a deal for UDG Healthcare Plc at 2.6 billion pounds. These deals all came after a brief lull in U.K. take-privates in April. Private equity firms remain flush with record amounts of unspent investor money and continue to come to market to raise new funds. Buyout funds are offering shareholders of their U.K. targets an average 33.2% premium this year, the Bloomberg-compiled data show. That’s the third-highest level of the last 10 years.

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Global Dividends Show Signs of Revival in the First Quarter as Economic Growth Accelerates

Brief: There are clear signs of a forthcoming revival in global dividends following the first quarter of 2021, according to the latest Janus Henderson Global Dividend Index. Compared against pre-pandemic Q1 2020 levels, payouts were only 2.9 per cent lower year-on-year at USD275.8 billion. On an underlying basis, dividends were just 1.7 per cent lower than the same period last year, a far more modest decline than in any of the preceding three quarters, all of which saw double-digit falls. Janus Henderson’s index of dividends ended the quarter at 171.3, its lowest level since 2017, but growth is now likely. For the full year 2021, the stronger first quarter along with a better outlook for the rest of the year have enabled Janus Henderson to upgrade its expectations for global dividends. The new central-case forecast is USD1.36 trillion, up 8.4 per cent year-on-year on a headline basis, equivalent to an underlying rise of 7.3 per cent. This compares to January’s best-case forecast of USD1.32 trillion. Over the four pandemic quarters to date, companies cut dividends worth USD247 billion, equivalent to a 14 per cent year-on-year reduction, wiping out almost four years’ worth of growth.

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Brown Rips Bank CEOs for Putting Profits Before Helping Workers

Brief: Senate Banking Committee Chairman Sherrod Brown ripped Wall Street at a high-profile hearing featuring the top executives at the six largest U.S. banks, saying it’s “past time” for the industry to step up and help struggling workers. Brown, a Ohio Democrat, opened the proceedings Wednesday with a blistering attack on how banks operate, arguing that their business model is “built on short-term profits at the expense of long-term growth for everyone.” He challenged the chief executive officers to “be as good to the American people as the nation has been to you,” noting that taxpayers spent billions to rescue banks during the 2008 financial crisis. When employees get sick or lose their jobs, they “don’t get a taxpayer bailout.” Brown said. “And they all remember that Wall Street did.” The remarks set the tone for what’s expected to be hours of tough questions over issues ranging from workforce diversity to minority lending and executive pay. The hearing is the first time the CEOs have been called before the panel -- and, much to the chagrin of some in the industry, it may also not be the last. Brown’s title for the event: ”Annual Oversight of Wall Street Firms.” Among the CEOS testifying is Citigroup Inc.’s Jane Fraser, the first women to lead one of the U.S.’s biggest banks. Appearing with her are JPMorgan Chase & Co.’s Jamie Dimon, Goldman Sachs Group Inc.’s David Solomon, Bank of America Corp.’s Brian Moynihan, Morgan Stanley’s James Gorman and Wells Fargo & Co.’s Charles Scharf.

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Workers Return to Weirder Offices with Moveable Walls and Touchless Elevators

Brief: Masked, desk-bound and unable to recognize their colleagues in an elevator, people are starting to return to offices in cities around the world where the pandemic is receding. Many will find their offices transformed, too. In the challenge to make offices both Covid-safe and attractive places to work, firms have been experimenting with working arrangements and space while employees toiled at home. Some gave up floor space to adjust to less rigid schedules, others introduced movable walls to create flexible areas. Many installed safety innovations such as touchless lifts and worked to improve air quality. Lockdowns have provided a “fantastic opportunity to create and recreate a new world for each of us, which may, for each company, be slightly different,” said Neil McLocklin, a Knight Frank LLP partner. Employees of Arcadis NV, a design and engineering consultancy, will be able to choose one of 20 different types of workspace via an app when they move into new offices in the City of London next month. The company’s Building Intelligence app, developed during the pandemic, provides options for meeting spaces, focused work and collaboration, as well as social and wellbeing areas such as a winter garden.

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U.S. Labor Market Needs 18 More Months to Recover, Fitch says

Brief: The U.S. labor market will take about a year and a half to return to full steam after the economic blow from the Covid-19 pandemic, according to Fitch Ratings. Federal stimulus and a gradual reopening of service industries that were hit hardest will help boost demand for workers, Fitch said in a report released Wednesday. Still, analysts led by Chief Economist Brian Coulton don’t expect unemployment levels to reach their natural rate, about 4.3% in Fitch’s view, until the fourth quarter of 2022. Doing so would require the creation of about 7 million jobs. The massive disruption last year will cause some “scarring” because some older workers were permanently discouraged from working, dampening the labor supply. Even so, Fitch sees persistent supply and demand imbalances in the months ahead, limiting upward pressure on wages. “Many office workers in large cities in New York and California successfully worked remotely during the pandemic,” Olu Sonola, a Fitch senior director, said in a statement. “The likelihood that many will continue remote work, in some form, may also prove to be a drag on the pace of labor market recovery in New York and California.”

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

Our briefing for Tuesday May 25, 2021:

  • In the United States, the White House is expected to announce Tuesday that 50% of adults are now fully vaccinated, which is nearly 131 million people. Data published by the Centers for Disease Control and Prevention (CDC) over the weekend noted at least 25 states, including Washington DC, have now fully vaccinated at least half of their adult residents. Elsewhere on the vaccine front – Moderna announced Tuesday that its two-dose COVID-19 vaccine is safe and appears to be effective in children/adolescents aged 12 to 17. The drugmaker plans to submit trial results to the US Food and Drug Administration in early June, along with a request for authorization to use the vaccine among children that age. According to CDC data due to only the Pfizer shot being used for children aged 16 or younger, that demographic along with other pockets of the younger generation are at much lower vaccination rates in America. From ages 12 to 24, less than 11% have received at least one dose of a vaccine. 
  • In Canada, provinces are showing signs of getting through the third wave on the west and east coasts, but one province in the central area is going through its worst-case scenario yet. Out west – British Columbia’s provincial government plans to outline their reopening strategy on Tuesday for getting life and the economy back towards normal as daily case counts drop and vaccinations continue to rise. On the east coast – Nova Scotia’s COVID-19 vaccine plan is ahead of schedule, with most people set to get their second doses two to four weeks earlier thanks to a boost in vaccine supply. Over the weekend the active case count in Nova Scotia dropped below 1,000 for the first time since May 3rd. However, Manitoba is struggling with their most recent wave. The province has the unfortunate distinction of having the highest COVID-19 infection rate in North America with critical patients being flown to once struggling Ontario for intensive care as Manitoba hospitals are overwhelmed.
  • Bloomberg is reporting as the United Kingdom starts its new fiscal year, it will be with a £31.7 billion deficit. The economic shortfall reported by the Office of Statistics on Tuesday was in line with what was predicted and well below the £47.3 billion registered last April when the pandemic first hammered the country’s finances. Nonetheless, Chancellor Rishi Sunak still has a tall task with borrowing expected to be about 10% of the UK’s GDP in 2021-22 putting into doubt that Sunak can deliver on his pledge to balance day-to-day spending and revenue by the middle of the decade without further tax increases.
  • As of June 1st, Israel will lift remaining coronavirus restrictions on gatherings and will no longer limit entry to certain venues only to the vaccinated. “Israel is returning to routine,” Health Minister Yuli Edelstein said. “Less than six months ago, we started the vaccination campaign. Thanks to the excellent work of the workers in the health system… we carried out the best vaccination drive in the world…” While Israelis may return to normal domestically, Edelstein urged citizens not to travel to countries with high COVID-19 morbidity rates, and to stick to social distancing rules when abroad.
  • Bloomberg is reporting, citing sources familiar with the matter, that the Indian government is preparing a stimulus package for sectors worst affected by the latest deadly coronavirus wave. The finance ministry is working on proposals to bolster the tourism, aviation and hospitality industries, along with small and medium-sized businesses. The discussions are said to be in their early stages with no timeline on an announcement decided as of yet. 
  • In Australia, the country’s second largest city – Melbourne – has reimposed COVID-19 restrictions as authorities scramble to find the missing link to a fresh outbreak that has at least attributed to five cases. Until June 4th, home gatherings will be limited to five guests, only 30 people allowed at public meetings and face masks will be compulsory in indoor settings. Victoria state – home to Melbourne – went nearly three months of reporting zero cases before this latest outbreak. Victoria state was hardest hit in Australia last year during the second wave of the virus when it accounted for 70% of total cases and 90% of deaths in the country.

Covid-19 – Due Diligence And Asset Management

Global Business Travel ‘Will Likely be Among the Last Markets to Recover’ from the Pandemic

Brief : When countries went into lockdown to stop transmission of the coronavirus, travel— particularly business travel — took a brutal hit. And though demand for travel is slowly picking up as the country heads into the summer, business travel will still face an excruciating uphill struggle, according to a new Barclays report. "Global business travel — especially long haul — will likely be among the last markets to recover," Barclays economists wrote in a special report on May 25. "Companies were quick to halt international travel as the pandemic struck, and businesses will also be careful when it comes to restarting travel for work purposes." Pre-pandemic, business tourism-related spending accounted for 21.4% of the global travel and tourism industry in 2019, with bigger contributions in countries like Canada, Japan, the United Kingdom, and the U.S., the authors stated. Business tourism contributed to 1.5% of global GDP, and had been growing at an average of 3.6% over the last five years, they added, with the U.S. and China accounting for nearly 45% of all global business travel. But between April and the end of December 2020, global spending on business travel fell 68% and is estimated to have fallen more than 50% year-over-year. (In contrast, in 2001, business travel fell around 11%; in 2009, it fell around 7.5%).

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Geopolitical Flare-Up May “Catch Investors Off-Guard”, warns BlackRock

Brief: Markets are paying less attention to geopolitical risks as focus has shifted to inflation prospects and economic restarts, according to BlackRock Investment Institute. The research arm of the world’s largest asset manager said in a note on Monday that its Geopolitical Risk Indicator is currently at a four-year low, signalling below-average attention on geopolitics. “We believe this is justified, as investors appear more focused on the economic restart and inflation outlook and less concerned about geopolitics since the change in US administration,” write BlackRock’s analysts. “Yet it’s worth watching specific risks as flare-ups can catch investors off guard when attention is low.” Risks including US-China strategic competition, Covid-19 resurgence and Gulf tensions have receded in the minds of investors over the past year, write the analysts. BlackRock’s Geopolitical Risk Indicator ranks the top 10 geopolitical risks, based on mentions of different geopolitical risks in brokerage reports and financial news stories, coupled with the firm’s model for the potential impact on global assets from specific geopolitical events. Two of these risks, a global technology decoupling and a major cyber-attack, remain ‘high’, according to BlackRock.

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IMF Warns of ‘Ricochet Impact’ of Uneven Global Recovery

Brief: Emerging-market nations’ struggle to claw out of the pandemic-induced economic crisis can spill over to hurt the developed world, which should be doing all it can to ensure better access to vaccines and a more equitable recovery, the head of the International Monetary Fund said. Poorer nations are faced with the risk of interest rates increasing while their economies aren’t growing, and may find themselves “really strangled” to service debt, especially if it’s dollar-denominated, Managing Director Kristalina Georgieva said Tuesday in a virtual event hosted by the Washington Post. “That is not only danger for them, it is a danger for global supply chains, it’s a danger for investor confidence -- in other words, it has a ricochet impact on advanced economies,” she said. “Closing our eyes to this divergence can harm not only those countries and their people, which is bad enough, but it can harm the global recovery and it can harm investor sentiment in a way that we see to be significant and requiring very close attention.” Measures taken to stimulate the U.S. economy are, on balance, translating into “good news” for other countries because of the spillover effect of demand, the IMF chief said.

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Acquisitions Made by UK Private Equity-Backed Businesses Hit Record Levels in Q1, says Rickitt Mitchell

Brief: The number of acquisitions made by private equity backed businesses in the UK hit record levels in the first quarter of 2021, with 168 transactions completed in just three months, according to Rickitt Mitchell’s Buy and Build Barometer. The latest analysis from the corporate finance firm, conducted in partnership with Experian Market iQ, reveals an 85 per cent rise in the figures seen in the corresponding quarter last year. Q1 2020 saw 91 deals completed, prior to the first Covid-19 lockdown, with the latest figures nearly triple the 57 deals in Q1 2019. On a local level, the majority of regions saw a significant boom in activity. The South West saw the highest number of transactions, with 18 deals completed in the first quarter. This was followed closely by London and the East of England (both 17), the South East (16), with the North West the first of the Northern regions with 11 bolt-on deals in this period. This was also the third successive quarter that transactions hit triple figures, with the GBP980 million value in Q1 2021 also the highest levels for a quarter since the end of 2018.

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Whistleblowing Drops for First Time in Five Years as Remote Working Hides Wrongdoing says Kroll

Brief: Whistleblowing reports to the FCA dropped by 9 per cent between 2019 and 2020, likely because the majority of the UK’s workforce left the office and operated remotely, according to new research from Kroll, a provider of services and digital products related to governance, risk and transparency. Data obtained by Kroll from the FCA under Freedom of Information Act shows that there were 1,073 whistleblower reports to the FCA last year, down from 1,179 in 2019. Anonymous reports experienced a larger drop of 29 per cent, with just 206 reports compared to 291 in 2019. This is the first year-on-year fall since 2016, with steady growth in reports between then and 2019. Last year brought significant disruption to working patterns across the world, and the majority of UK financial services teams worked from home for most of 2020. It is likely that home working also increased isolation and limited accidental discovery of questionable and illicit business practices.

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BlackRock Joins Funds Betting on Indian Assets Amid Outbreak

Brief: Even as India is attracting all the global attention for the worst virus outbreak, the pandemic has done little to dent the confidence of overseas investors who are betting on a strong rebound. BlackRock Inc. plans to use any weakness in the rupee to add to a modest long position while GW&K Investment Management LLC is boosting its stock holdings following a recent selloff. Invesco Hong Kong Ltd. and Lombard Odier favor debt linked to India’s sustainable investing and renewable energy sectors. Portfolio managers are attempting to navigate India’s pandemic by focusing on the nation’s long-term growth prospects, with consumption expected to drive a recovery once the virus crisis passes. While the outbreak has fueled the world’s worst health crisis, limited stock outflows and a rebound in the currency attest to investors’ confidence in the South Asian economy. “Economic growth will be tempered by the second wave in 2021, but growth will be strong this year and the long-term outlook is quite positive,” said Tom Masi and Nuno Fernandes, co-portfolio managers at GW&K Investment Management. “Short-term investors will be compelled to step aside, but long-term oriented investors understand the opportunity.”

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

Our briefing for Thursday May 20, 2021:

  • In the United States, the Biden administration hinted that unused COVID-19 relief funds could be used to pay for the multi-trillion dollar infrastructure proposal. “The President’s bottom line, as you’ve heard him say a few times before, is that he does not want to raise taxes on people making less than $400,000 a year,” White House Press Secretary Jen Psaki said on Thursday. “We certainly, in that scenario, would need to assess whether these funds are needed, and not take them away from fighting the pandemic that we continue to battle every day.” The Biden administration’s infrastructure bill is not sitting well with Republicans due to the trillion dollar price tag, among other things.

  • In Canada, Prime Minster Justin Trudeau took to Twitter on Thursday to announce the land border with the United States will remain closed for the foreseeable future. “To protect your health and limit the spread of COVID-19, we’re extending the measures currently in place by another 30 days. Non-essential travel between our two countries remains restricted until June 21st,” the Prime-Minister said via social media. Global News though is reporting an American lawmaker would like to see a different plan come next month. New York state Congressman Brian Higgins said it is time both the Canadian and United States government need to provide a “vision” for how the borders could be reopened. “As opposed to announcing another closure, let’s say that when 30 to 60 days (passes), we can look at that category of essential travel or to include more travellers, in recognition of the availability of vaccines and distribution and administration of vaccines,” Higgins said.

  • United Kingdom’s Public Health England (PHE) has noted in a preliminary study that two doses of the AstraZeneca COVID-19 vaccine may be 85% to 90% effective against symptomatic disease. While noting their data is not conclusive due to not having enough information, the PHE said the preliminary findings were the first of its kind on the effectiveness of two doses of AstraZeneca in a real-world setting. The UK was the first country to roll out the AstraZeneca vaccine and it has been hampered by questions ever since ranging from the construction of its clinical trials, the efficacy of the vaccine, the blood clotting side effects, and the optimal gap between doses. 

  • Italy’s government has approved a £40 billion stimulus package that will extend economic support for businesses and families hurt by COVID-19 restrictions. The package will allocate £17 billion for companies and self-employed workers, £9 billion to provide credit and liquidity for struggling businesses and £4 billion to workers in industries hit hardest by the pandemic. The funds included in the new package will be financed with extra deficit spending already approved by the administration and Prime Minister Mario Draghi noted as long as the pandemic situation continues to improve, the country won’t need further support measures in 2021.

  • Bloomberg is reporting the slow rollout of the coronavirus vaccines in Africa could cost the continent $14 billion a month in economic output. Dena Ringold, the World Bank’s Africa regional director for human development noted on Thursday the COVID-19 pandemic has continued to exert pressure on African economies and exacerbate poverty. African governments are struggling to vaccinate their population with less than 0.5% of the continent’s roughly 1.3 billion people fully immunized to date. Africa relies heavily on India and their Serum Institute for their vaccine and that slowed to a trickle this month due to their country dealing with a COVID-19 crisis of their own. 

  • The Philippines’ Health Department says it will no longer allow local governments to announce which brand of coronavirus vaccines will be available at inoculation sites. The move comes after hundreds of people lined up at a Manila site earlier in the week when realized the Pfizer vaccine would be given there. Undersecretary Myrna Cabotaje told a CNN affiliate the following: “From now on, only people already in line at a vaccination site will be told which shot they will get and if you do not like the vaccines given during that time, then they go to the end of the line.” As of Wednesday, less than 1% of the Philippines population of 108 million have been fully vaccinated.

Covid-19 – Due Diligence And Asset Management

How “Omnipresent” Client Conferencing is a Game-Changer for Hedge Fund Manager-Investor Relationships

Brief : The increased frequency of client communications during the pandemic has been a “game-changer” for the hedge fund manager-allocator dynamic, according to speakers on the fundraising and investor relations panel at this year’s hedgeweekLIVE Technology Summit. The discussion explored how investor relations and fundraising has been reshaped by the Covid-19 pandemic, and weighed up how the past 15 months of virtual networking may have permanently altered client communications, capital introduction, investor appetite and more. Greg Zaffiro, partner and head of IR and marketing at Electron Capital, a global long/short equity manager which manages more than USD2 billion and focuses on mainly on public utilities, said the frequency of investor updates has been a seismic shift. “It’s much more than just your quarterly update, or even monthly update,” Zaffiro observed, adding the change is underpinned by a greater degree of transparency which was boosted by an early switch from dial-in telephone calls to video conferencing.  He believes that move has empowered investors to more closely probe managers on portfolio decisions and opportunity sets. “That sort of feedback has really never been omnipresent as it is today,” he added. “It’s been a game-changer in terms of the level of transparency.”

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G-7 To Discuss Ways To Recognize Vaccine Certificates Globally

Brief: The Group of Seven nations will next month discuss ways to recognize Covid-19 vaccination certifications internationally, according to a person familiar with the matter. The group of major economies aims to support the creation of a global framework for mutual recognition of documents showing proof of inoculation, said the person, who asked not to be identified. Such an endorsement, if it leads to the creation of concrete measures, would ease the revival of global travel as more people get the coronavirus jab. It would be especially welcomed by the airline and tourism industries, among the hardest hit by the pandemic. The European Union announced this week that it will soon allow quarantine-free travel to the bloc for vaccinated visitors. The move hasn’t been matched by other G-7 members, with the U.S. yet to loosen rules for European visitors. The U.K. requires travelers from the vast majority of the EU to quarantine and is advising against travel to several nations. The EU is also in the final stages of approving a framework for member states and their vaccination certificates. As part of a declaration that G-7 health ministers will adopt when they meet in Oxford in early June, the group is expected to set out the need for multilateral collaboration on an inter-operable, standards-based solution that can be used internationally to verify vaccinations.

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New Zealand Battles for World’s Wealthiest in Post Covid Plan

Brief: Wealthy investors and highly-skilled workers are very much on New Zealand's radar as it outlined this week a post Covid-19 immigration plan to reduce the economy's dependence on low wage migrants. The Government's economic development minister Stuart Nash said the new border exceptions would allow more than 200 wealthy international investors to come to New Zealand over the next 12 months, the New Zealand Herald reported. In a speech about the Government's intentions for immigration policy, Nash said that it would include making it harder for employers to take on workers from overseas, other than in areas of genuine skills shortages. Chris Moorcroft, of law firm Harbottle & Lewis said in a briefing note that the speech outlining plans to actively seek to court wealthy investor through reforms to its immigration rules, was "light on detail but setting out a clear direction of travel". "They are not alone. In the UK, the non-dom regime and investor regime look to be more secure than for many years. The Italian and Portuguese regimes are now firmly bedded in and attracting the wealthy in greater numbers. 'Golden visa' schemes exist across the globe and continue to thrive."

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Canada Pension Plan Sees Emerging Markets, U.S. Consumer Credit Gains

Brief: Canada Pension Plan Investment Board is bullish on U.S. consumer credit and sees good opportunities in emerging markets, despite the devastating toll the Covid-19 pandemic has taken on leading countries such as Brazil and India. U.S. households are flush with savings and central banks will continue to prime the economy with easy money for a while, new Chief Executive Officer John Graham said in an interview. That’s positive for returns in consumer-oriented investments, he said. “A year ago there was a lot of uncertainty with high unemployment, but with the stimulus that came in the U.S., consumer credit performed very well. Our investment in home improvement loans really exceeded our expectations,” Graham said Thursday. CPPIB returned 20.4% for the year ended March 31, its best showing since it was created in the late 1990s, helped by base effects: Global equity markets were just starting their climb back from the crash of early 2020 as the new fiscal year began. The fund’s holdings of Canadian stocks advanced 40.8% for the year and emerging markets stocks gained 34%, the fund said in a statement. Private-equity investments outside of Canada returned well over 30%.

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UAE to Allow 100% Foreign Ownership of Companies in June

Brief: Foreigners opening a company in the UAE will no longer need an Emirati shareholder or agent under changes to the UAE company law that will take effect on June 1,  said the state news agency WAM. "The amended Business Companies Law aims to boost the country's competitive advantage and is part of the UAE government's efforts to facilitate business," said Economy Minister Abdulla bin Touq Al Marri. The UAE announced the law allowing 100% foreign ownership of companies last year, one of several measures to attract investment and foreigners to the Gulf state. A previous foreign investment law in 2018 allowed foreigners to own up to 100% of some companies, and foreigners could already own up to 100% of those registered in designated business parks known as "free zones."

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Hedge Funds Picks at Sohn 2020 Shows Perils of Covid Investing

Brief: To say investing is tricky during the pandemic would be an understatement. And so it has proved for many hedge-fund managers since last year’s Sohn Investment Conference in Hong Kong. Among those who made investment calls at the September event, Quintessential Capital Management’s Gabriel Grego was a winner after vouching for Japan’s Sun Corp., which owns an Israeli cybersecurity firm that’s going public via one of the trends of the times: a SPAC. Asia Research & Capital Management’s Alp Ercil cashed in on a rally in lower-rated investment-grade bonds issued by U.S. energy companies that were sold off in the March 2020 rout. Meanwhile, some bearish bets have flopped, as stock markets continue to rise on the back of unprecedented global economic stimulus. Anatole Investment Management’s George Yang made a short call against Zara parent Inditex SA, only to see the stock soar. Egerton Capital’s Jay Huck expected similar declines from Arista Networks Inc., which benefited from the migration to cloud computing.

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

Our briefing for Wednesday May 19, 2021:

  • In the United States, the vaccination campaign continues to roll on with the country hitting another milestone. Citing “encouraging national trends” the White House administration and Centers for Disease Control and Prevention (CDC) noted 60% of American adults have received at least one dose of a coronavirus vaccine. In addition, more than 3.5 million people aged 12-17 have received their first dose and in the past two weeks, 51% of those vaccinated were people of colour. That’s higher than the 40% of the general population these groups represent. In the United States, Black, Latino and Native American communities were particularly hard-hit by the coronavirus and some of those groups were hesitant about receiving a COVID-19 vaccine because of medical mistreatment in the past.

  • In Canada, Quebec is set to release some of the country’s toughest COVID-19 restrictions. According to Premier Francois Legault, 75% of Quebec adults will have received a first dose of the vaccine by June 15th, making it possible to ease the lockdown. A nighttime curfew that has been in place since January will be lifted on May 28th and three days later, restaurants will be able to reopen in most regions, including its largest city, Montreal. It also wouldn’t be Canadian if hockey wasn’t involved in this somehow. Up to 2,500 fans could be permitted to Montreal’s Bell Centre for a potential Toronto Maple Leafs-Montreal Canadians playoff game if the best-of-seven series goes at least six games.
  • The United Kingdom has launched the world’s first clinical trial to see whether a booster vaccine dose could protect people against COVID-19 and its variants. Close to 3,000 people aged 30 and older are being recruited at 18 National Health Service sites from London to Glasgow with the first booster shots to be administered in early June. Seven existing vaccines are to be tested in the trial. “We will do everything we can to future-proof this country from pandemics and other threats to our health security, and the data from this world-first clinical trial will help shape the plans for our booster programme later this year,” said Health Secretary Matt Hancock.
  • The European Union (EU) will begin to ease travel restrictions within the 27-member bloc, with the EU Council agreeing on measures to allow fully vaccinated foreign visitors in. The new EU rules are expected to be confirmed on Friday with each member nation free to decide its own policy, meaning some will waive restrictions in return for proof of vaccination and some may require additional paper work or tests. Some nations like Portugal and Greece are already moving full speed ahead saying they will welcome UK tourists. The move by the EU has thrown a wrench into the UK’s messaging on travel over the past few days saying Britons shouldn’t be going to countries that are on their “amber list” for vacations. However, it appears people aren’t listening with travel firms saying bookings were up and flight tickets to “amber list” hotspots were on offer for as little as £5.
  • Medical authorities in the United Arab Emirates (UAE) and Bahrain are going to offer a booster shot of the Chinese-developed Sinopharm vaccine to residents and citizens who have already had two doses. The UAE’s National Emergency Crisis and Disaster Management Authority tweeted Tuesday evening the following: “An additional supportive dose of Sinopharm is now available to people who have received the vaccine previously and who have now completed more than six months since the second dose.” The announcements come amid Sinopharm’s efficacy and reports of COVID-19 reinfections among people who have received their two doses of the shot.
  • After setting daily records for the most coronavirus cases, India has now set the record for highest daily COVID-19 deaths, surpassing the global record held by the United States. The Indian Health Ministry reported 4,529 deaths in the past 24 hours, driving their overall total to 283,248. According to data, the previous record for most daily deaths from the coronavirus was set on January 12th in the United States when 4,475 people died. While large cities such as Mumbai and New Delhi have seen signs of improvements in recent days, there is concern the virus is now spreading through the vast countryside where a majority of the people live and where health care and testing are limited.

Covid-19 – Due Diligence And Asset Management

How Private Equity Plans to Cash in on the Covid-19 Recovery

Brief : Private equity is making a comeback from its pandemic lows — and firms have big plans to capitalize on the booming exit environment. In the second quarter of 2020, private equity exit activity dropped to decade lows, according to the 2021 global private equity divestment study from Ernst & Young. Then, it sprung back, as private equity leaders saw opportunities to produce stronger valuations. From March 2020 to March 2021, PE exits jumped nearly 40 percent to $600 billion, higher than it had been since before 2010.  Firms hope to ride this wave of increased capital access and maximize deal valuations along the way. In the next 18 to 24 months, about half of surveyed PE executives said they are planning exits to public markets through initial public offerings or special-purpose acquisition companies. “I think there are a few dynamics here,” said Pete Witte, EY’s lead analyst for global private equity. “You’ve still got your traditional trade buyers; you’ve got secondaries where PE firms have all this dry powder that they’re looking to put to work. Those buyers are still out there, and they’re still very active. The IPO markets have clearly rebounded, and now you’ve got SPAC buyers in the mix as well.”

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Asset Managers to Hire Data Chiefs After Tech Re-Think

Brief: Many fund managers are to recruit chief data officers after the Covid-19 pandemic caused firms to focus on fixing data problems, research suggests. According to a study by Alpha FMC, a consultancy, 19% of firms surveyed will make the chief data appointments and the research also found that just over half will adopt enterprise data models. Alpha’s report, ‘2021 Data Strategy & Operating Models’, found that the majority of firms are focused on implementing firm-wide data initiatives in recognition of a lack of enterprise-wide data management in many firms. As many as 68% of respondents said that data governance remained siloed by function within their companies. But the focus on firm-wide data projects is likely to come as the expense of experimenting with alternative data. The study found that alternative data usage had fallen since last year with social media and the web being the only sources still commonly used. The survey also revealed some familiar frustrations among asset managers about data capture from third-party sources. The rising cost of market data was one, and the lack of consistency among ESG data providers was cited by 80% of respondents.

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Skyscrapers Rising Next to Vacant Towers Mark New City of London

Brief: When the Gherkin tower opened 17 years ago, its skyline-defining silhouette heralded a new era in the low-rise City of London. Now, a spate of new planned skyscrapers threaten to erase it from view and from relevance. As one of the Gherkin’s main residents weighs a move, even iconic buildings risk struggling to keep or replace tenants in London’s premier financial district. While the pandemic is emptying City offices at the fastest pace in more than a decade, it hasn’t slowed the coming wave of towers. That carries a warning for landlords: if there is a return to the office, it won’t be to drab buildings that only feature endless rows of desks. It all augurs another period of change for the City, a geographical area of just over one square mile with a 2,000-year track record of reinvention. For property firms that have seen the district as a cash cow for decades, the challenge is daunting: how to refill, revamp or sell hundreds of aging offices vulnerable to the twin blows of Brexit and the pandemic. In a financial hub that draws more international capital than any other, the fate of the older buildings could hit the fortunes of some of the world’s biggest real-estate investors, from China Investment Corp. to Norway’s sovereign wealth fund and Malaysia’s biggest pension fund.

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Mizuho Requires Staff Returning to Its U.S. Offices Have Vaccine

Brief: Mizuho Financial Group Inc. is requiring that staff who choose to return to its U.S. offices are vaccinated, according to a spokesman for the Japanese lender. Employees can return to the office through August on a voluntary basis and those who do must have had shots, subject to some limited exceptions, spokesman Jim Gorman said in an emailed statement. Protocols after August are still under evaluation, according to Gorman. Wall Street is seeking to bring staff back as vaccines help the U.S. recover from a pandemic that forced most employees to work from home. JPMorgan Chase & Co., which mandated a return to office for its entire U.S. workforce by early July on a rotational schedule, said in April that it wouldn’t require returning staff be vaccinated, though it strongly encouraged employees to get the shots. Blackstone Group Inc. earlier this month asked U.S. investment professionals to return to the office full-time on June 7 provided they are fully vaccinated. Mizuho’s U.S. offices include locations in New York, Los Angeles, Houston, Dallas, Chicago, Boston and Atlanta, according to its website.

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Aviva Investors Throws in the Towel and Closes Frozen UK Property Fund

Brief: Aviva Investors has decided to shut down its UK Property fund after a near 15-month suspension period. The £367m fund was forced to close its doors last March along with all the major UK property funds after the Covid crisis made it impossible to determine the value of their underlying holdings. Following the re-opening of the M&G Property Portfolio earlier this month, Aviva Investors UK Property and Aegon Property Income were the last funds in the sector to remain shuttered. Aviva Investors explained since the fund’s suspension it had become “increasingly challenging to generate positive returns while also providing the necessary liquidity to re-open the fund” and had made the decision to close the fund and two feeder funds. In its second assessment of value report published in January the fund board recommended the three funds be placed under review to “ensure investors’ long-term interests could continue to be served”. But after taking the review and projected levels of redemptions upon re-opening into account, the asset manager concluded UK Property’s “ability to fully benefit from the economies of scale and diversification of investments that collective investment schemes normally bring would soon be limited”.

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Workers in Canada Want to get Back to the Office, KPMG says

Brief: Most workers in Canada want to return to the office, but about three quarters prefer a “hybrid” model that allows some flexibility to work remotely, according to a survey of about 2,000 people done for KPMG. Half of respondents said they’re more productive and effective in a virtual work environment. That was a drop from 59 per cent in a similar survey a year ago, suggesting that 14 months of work-from-home arrangements are taking a toll on some employees. Canadian office workers in finance, government and other sectors haven’t returned to their places of work as quickly as their U.S. counterparts, in part because the country’s COVID-19 vaccination campaign got off to a slow start. Less than 4 per cent of the population is fully vaccinated, according to the Bloomberg Vaccine Tracker. But Canada’s vaccine supply is improving and Prime Minister Justin Trudeau has pledged that all Canadians who want a vaccine will be able to get two shots by September, providing companies with an impetus to solidify their back-to-the-office plans. Some firms including Manulife Financial Corp. have already committed to retaining some form of flexible work policy when the pandemic is over.

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

Our briefing for Tuesday May 18, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) released a new report that suggests rural communities could be prolonging the pandemic. The report notes through April 2021, vaccination coverage was nearly 39% in rural counties, compared to more than 46% in urban counties. This is despite in September 2020, the incidence of COVID-19 in rural counties surpassed those in urban counties. Obtaining a vaccine can be more difficult in rural areas for obvious reasons: distance to travel and harder access to doctors just to name a few. About 60 million or about one in five Americans still live in what is considered rural communities and if the low vaccination rates continue, it could have a negative impact on the country’s overall effort to control COVID-19 going forward.

  • Canadian Prime Minister Justin Trudeau is suggesting that three-quarters of Canadians will need to be vaccinated against COVID-19 before the federal government considers opening the land border with the United States. Prime Minister Trudeau admitted discussions about the border reopening are ongoing, but he was quick to dampen expectations that travel restrictions would be lifted anytime soon; noting many provinces are still going through the third wave of the virus, which has been worse than the first two. United States lawmakers are urging the Biden administration to get serious about drafting a plan to allow travel to Canada in time for the 4th of July long weekend in America.

  • United Kingdom Prime Minister Boris Johnson was busy trying to clarify where Britons are now safe to travel after one of his own cabinet ministers said it was acceptable to visit countries like France and Spain to see friends. Those two countries are on the UK’s “amber list” which means Britons should not consider holiday destinations there. “If people do go to an amber list country - if they absolutely have to for some pressing firmly or urgent business reason – please bear in mind that you will have to self-isolate, you will have to take tests and do a passenger locator form and all the rest of it,” said Prime Minister Johnson. It was Environment Secretary George Eustice who made the comments about travelling to Spain and France. As of right now – only 12 countries or territories are on the UK’s green list for quarantine-free visits.

  • India’s Serum Institute stated on Tuesday it hopes to start delivering COVID-19 vaccine doses to the World Health Organization’s (WHO) led COVAX initiative and other countries by the end of the year but will continue to prioritize India. Adar Poonawalla, CEO of the Serum Institute also noted in the statement his company has “never exported vaccines at the cost of the people of India and remain committed to do everything we can in support of the vaccination drive.” The Serum Institute, known as the world’s largest vaccine manufacturer, has come under intense pressure in recent months to deliver on multiple ends and more so, its home country as India suffers through a devastating wave of COVID-19. The WHO’s Director-General Tedros Adhanom Ghebreyesus stated on Monday that once the COVID-19 outbreak recedes, the Serum Institute will need to “get back on track and catch up” on its delivery commitments to COVAX.

  • In Japan, a major Japanese doctors’ group is the latest to call on the Tokyo Olympic Games, scheduled to begin in two months, to be cancelled. The Tokyo Medical Practitioners Association warned the country’s healthcare system could not cope with the medical needs of thousands of athletes, coaches and press, on top of the existing surge of COVID-19 cases in their own citizens. The association is at least the second group of Japanese doctors to demand the Olympics and Paralympics be cancelled for a second straight year due to the coronavirus. However, the Japanese government and the International Olympic Committee have given every indication that the show will indeed go on.

  • Australian Prime Minister Scott Morrison has come out in defence against his government’s handling of its borders during the coronavirus pandemic after experts warned that plans to keep the borders closed for another year would create a “hermit nation”. “Everyone is keen to get back to a time we once knew” said Prime Minister Morrison. “The reality is we’re living this year in a pandemic that’s worse than last year.” On Tuesday, Australian Medical Association president Omar Khorshid warned: “Australia cannot keep its international borders closed indefinitely”. In March 2020 Australia took the unprecedented step of closing its borders to international visitors and banning its citizens from leaving. The moves prompted the first population decline since the First World War, stranded tens of thousands of Australians citizens overseas and separated hundreds of thousands of residents from family members.

Covid-19 – Due Diligence And Asset Management

Coatue, Whale Rock Among Hedge Funds Trimming Pandemic Plays

Brief : As the world begins to emerge from lockdown, some hedge funds are slashing technology investments that thrived in the work-from-home era. Philippe Laffont’s Coatue Management slashed many of its tech holdings that have benefited from the pandemic-induced lockdowns, including most of its stake in fitness-equipment maker Peloton Interactive Inc. The fund cut its exposure to cyber-security solutions company Crowdstrike Holdings Inc. and Zoom Video Communications Inc. in half. Overall, its exposure to technology stocks fell by about 8%, data compiled by Bloomberg show. Alex Sacerdote’s Whale Rock Capital Management exited its investment in Zoom, and decreased stakes in Peloton and Crowdstrike. The hedge fund trimmed its overall exposure to tech stocks by about 5%, Bloomberg data show. The filings offer a glimpse into the maneuvering by major hedge fund managers and other investors during the first quarter of 2021, a tumultuous period for the industry marked by a Reddit-fueled trading frenzy and the implosion of Bill Hwang’s Archegos Capital Management. At the same time, investors are looking toward a post-Covid 19 economic recovery where the world gradually reopens and people return to work.

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Investor Inflows Hits USD9 Billion as Hedge Funds see Trade Volumes Surge in Q1

Brief: Event driven strategies topped the hedge fund performance chart during the first three months of the year, as the industry drew some USD9 billion in new capital in Q1 and saw trading volumes surge, new analysis by hedge fund asset administrator Citco shows. Citco Fund Services’ ‘2021 Q1 Hedge Fund Report’ probed strategy performance, investor flows and trading volumes, among other things. The study found that close to three-quarters – 73.4 per cent – of hedge funds delivered a positive return during Q1 as the strong performances at the end of 2020 carried through into the new year. The quarterly report noted that event driven strategies led the pack during the three months to the end of March, with a weighted average return of 8.25 per cent for the quarter. Overall, the industry notched up a 2.75 per cent weighted average gain. Positive outliers across event driven, commodities and macro strategies drove average gains higher, Citco said. As oil markets spiked in the early months of the year, commodities strategies rose 7.24 per cent, as global macro funds climbed 5.31 per cent during the three-month period. Though equity-based funds were bottom of the pile, they still managed to generate a 1.65 per cent gain. Within equities, long bias performed better at 5.45 per cent, while equity long/short managers scraped a 0.42 per cent gain.

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WH Memo Sees Economic Strength Where Critics See Fragility

Brief: White House officials are seeking to quell anxiety about inflation and the pace of hiring — issuing a memo Tuesday that highlights robust economic gains as the United States gets vaccinated and recovers from the coronavirus pandemic. The memo, obtained by The Associated Press, said the administration is “focused on an economic strategy of containing the virus and growing the economy from the bottom-up and middle-out. Data suggest that this strategy is working.” It is from Brian Deese, director of the White House National Economic Council, and Cecilia Rouse, chair of the Council of Economic Advisers. The memo makes the case to senior administration officials and members of Congress that the government’s $1.9 trillion relief package has helped boost growth and that workers will return to jobs with “fair wages and safe work environments.” It also argues that President Joe Biden’s $4 trillion infrastructure and families plan will lay “the groundwork for strong, durable growth for decades to come.” The administration had until recently been basking in optimism about the economy, only to face a worrisome set of reports that showed a jump in consumer prices and a disappointing level of hiring in April. The memo is an attempt to promote a sunnier narrative and stress the need for additional spending to be paid for with higher taxes on corporations and the wealthy.

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Thailand Said to Plan $22 Billion Borrowing to Fund Covid Relief

Brief: Thailand plans to borrow an additional 700 billion baht ($22.3 billion) to fund measures to counter the worst Covid-19 outbreak to hit Southeast Asia’s second-largest economy, people familiar with the matter said. A meeting of the cabinet chaired by Prime Minister Prayuth Chan-Ocha on Tuesday approved the new borrowing plan from the finance ministry, the people said, declining to be identified before a public announcement. The government proposes to spend 400 billion baht of the new borrowing to help various sections of the society affected by the new outbreak, while 270 billion baht will be used to revive the economy, the people said. About 30 billion baht will be set aside to finance medical supplies and vaccines to contain the latest outbreak, they said. The fresh borrowing can be completed before Sept. 30 next year, and is on top of an ongoing 1-trillion baht debt plan authorized by the cabinet last year to fund pandemic relief measures, they said. Thailand’s public debt-to-gross domestic product ratio may rise to 58.6% by September with the additional borrowing, but would still be below the nation’s 60% debt ceiling, the people said. The government will need to issue an emergency law that needs to be endorsed by the king before the public debt management office can begin raising fresh debt, they said. Kulaya Tantitemit, a spokesperson for the Finance Ministry and head of its Fiscal Policy Office, declined to comment. Anucha Burapachaisri, a government spokesman also declined to comment.

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Credit Traders Have No Room for Error in Dot-Com Bubble Redux

Brief: A growing chorus of analysts is warning that high-quality company debt may have nowhere to go but down as investment-grade spreads approach levels last seen in the lead-up to the dot-com bubble. “The best days are behind” for corporate credit, Morgan Stanley strategists led by Srikanth Sankaran wrote in a May 16 midyear outlook. “The combination of extended valuations, less favorable technicals and a slower pace of balance sheet repair suggests that credit markets have progressed to a mid-cycle environment.” Spreads on BBB rated bonds, which account for more than half of the high-grade universe, narrowed to an average of 106 basis points over Treasuries on Monday, fueled by investor demand for the lowest-rated yet highest-yielding part of the asset class. Should spreads breach 100 basis points, it would be the first time since the dot-com era of the late 1990s. Morgan Stanley is calling for 17 basis points of widening for U.S. investment-grade bonds through the first half of 2022, and downgraded its credit outlook to neutral.

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EU’s Prelude to Landmark Recovery Bond Sales Ends With a Whimper

Brief: The European Union’s final bond sales for its regional jobs program failed to live up to the hype of previous editions, a concerning sign for its landmark borrowing spree that’s due to start in the second half of the year. Investors placed 88.7 billion euros ($108 billion) of orders for eight- and 25-year securities tied to the SURE social program, little more than a third of the record set for a dual-tranche issue last year. It comes as yields across the region climb as investors prepare for European Central Bank to scale back its bond purchases in the face of growing inflationary pressures. The bloc is ready to start sales for its 800 billion-euro recovery fund by July. It marks a stark turnaround for one of the hottest new triple-A rated bond markets in town. When the EU launched the securities last year, Europe was still firmly in the throes of lockdowns, the ECB was committed to pumping money into debt markets and investor demand for the securities was enormous. Now, with economies reopening and consumer prices expected to accelerate, they’re becoming a less attractive asset. “We had been used to some very strong demand for the EU bonds,” said Jens Peter Sorensen, chief analyst at Danske Bank AS. “Why buy today, if you can buy cheaper tomorrow? That’s becoming a self-fulfilling prophecy.”

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

Our briefing for Monday May 17, 2021:

  • United States President Joe Biden announced on Monday his administration will share millions more doses of COVID-19 vaccines. President Biden said America will share at least 20 million doses of COVID-19 vaccines by the end of May, which is in addition to the 60 million doses of AstraZeneca vaccine that was already committed to  be shared by July 4th. The additional 20 million doses will be a cross-section of vaccines from Moderna, Pfizer, Johnson & Johnson, and AstraZeneca. During a White House briefing, press secretary Jen Psaki pointed out the 80 million doses is five times more than any other country has donated so far. President Biden has stated before the United States will have enough COVID-19 supply for every American adult by the end of this month. 
  • Canada’s vaccine rollout was thrown a bit of a curve ball over the weekend when late Friday evening Major-General Dany Fortin, the public face of the country’s vaccine rollout, announced he would be stepping away. CTV News is reporting Maj.-Gen Fortin is facing a sexual misconduct claim against him that dates back more than 30 years ago when he was a student at the Royal Military College in Saint-Jean, Quebec. The pandemic has almost overshadowed an alarming story in recent months facing the Canadian Armed Forces (CAF). Operation Honour, a program aimed at ending sexual harassment in the force, recorded more than 700 cases of sexual assault and harassment within the CAF between April 2016 and March 2021. Fortin’s replacement was not revealed on Friday upon his resignation and the Defense Department declined to comment on the case over the weekend.
  • The United Kingdom’s mostly successful vaccination campaign has hit a bump in the road thanks to the Indian variant. UK Health Secretary Matt Hancock announced those 37 years of age and older can now receive a COVID-19 inoculation as of Tuesday and that 2,323 cases of the Indian variant have been confirmed in the country. Hancock noted 483 of those cases were in the Bolton, Blackburn and Darwen areas and that cases overall have doubled in the last week. The health minister went on to add early indications suggest the vaccines are able to protect against the Indian variant, but new variants “could jeopardize the advances that we’ve made” and people would need to stay vigilant.
  • In Italy, the government has agreed to shorten a nightly curfew from 11 PM to 10 PM with immediate effect and ease other coronavirus curbs in regions where it is safe to do so. Italy, which has the second highest COVID-19 death toll in Europe next to the United Kingdom, is gradually loosening restrictions on business and people’s freedom of movement as daily deaths and cases decline, while more people get vaccinated. In late April, the government reinstated a four-tier coloured system from white to red to calibrate curbs in 20 regions. As of Monday, 19 of the 20 Italian regions are currently yellow with none in the deemed high-risk red.
  • Dubai has updated their coronavirus restrictions and are beginning the trial resumption of entertainment and sporting events for fully vaccinated people. As of Monday, and lasting for a month, permits will be given for community sports, concerts, and social and institutional events, as long as all present have received their COVID-19 vaccination. Hotels can operate at full capacity and entertainment facilities can have as many as 1,500 people for indoor and 2,500 for outdoor events. Bars and wedding events have also seen their person cap rise. 
  • An air travel bubble between Hong Kong and Singapore has been delayed yet again as Singapore battles an increase in unlinked cases tied to a more aggressive COVID-19 strain. The travel bubble between the two Asian financial hubs was supposed to start May 26th, but according to the Hong Kong government, a further announcement on the travel corridor should be made on or before June 13th. Singapore had imposed lockdown-like restrictions last week for month set to last until June 13th after a number of new cases were linked to a cluster at Changi Airport, which prompted the closure of two terminals.

Covid-19 – Due Diligence And Asset Management

Hedge Fund Millennium to Try Three Office Days a Week This Fall

Brief :Millennium Management will trial a hybrid working arrangement as it seeks to find a best-of-both-worlds approach for staff in the wake of the pandemic. Employees at Izzy Englander’s hedge fund firm will be required to come into the office three days a week and can work the remainder from home, according to a person with knowledge of the matter. The approach will start on Sept. 7 and apply to most of the firm’s offices globally, said the person, who asked not to be identified because the information is private. Firms around the world are grappling with whether to bring all staff back to their offices full time after the global spread of the deadly coronavirus showed that many could effectively do their jobs from home. Millennium plans to monitor the viability of its plan and will settle on a longer-term solution at a later stage, the person said. Millennium, which manages more than $51 billion and employs more than 3,500 people globally, had sent all but a few key people home to work last year as the pandemic spread around the world.

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World Economic Forum Cancels 2021 Annual Meeting in Singapore

Brief: The World Economic Forum has cancelled its annual meeting - the blue riband event for the global elite to discuss the world's problems - due to be held in Singapore later this year, the organisers said on Monday. The COVID-19 pandemic meant it was not possible to hold such a large event as planned on Aug. 17-20, they said. "Regretfully, the tragic circumstances unfolding across geographies, an uncertain travel outlook, differing speeds of vaccination roll out and the uncertainty around new variants combine to make it impossible to realise a global meeting with business, government and civil society leaders from all over the world at the scale which was planned," the WEF said in a statement. The event, which attracts VIPs from the worlds of politics and business, has been held since 1971. It was originally shifted from the Swiss Alpine resort of Davos last December due to concerns about safeguarding the health of participants. Singapore has in recent days imposed some of the tightest restrictions since it exited a lockdown last year to combat a spike in local COVID-19 infections.

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Only One of 2020’s Top Five Hedge Funds in the Top Five so far in 2021

Brief: Using data from HFR and Eurekahedge, AlternativeSoft selected five funds with the highest 2020 returns to see if simple momentum has generated strong returns in 2021. The five funds generated returns between 149 per cent and 300 per cent in 2020, with the best performing, SYWLP, returning 300.45 per cent was SYWLP.  However, when AlternativeSoft analysed the performance of the same funds in the first quarter of 2021, it found that their momentum were not carried over. SYWLP, for example, has a negative return of 28.47 per cent so far this year, while overall, the top five funds in 2020 generated an average return of 203.81 per cent, the same five funds in Q1 of 2021 generated an average return of 13.26 per cent. When comparing the 2021 top-ranked funds, they all ranked very low in terms of returns in 2020. For example, the best performing fund in Q1-2021, Loyola Capital Fund Ltd was ranked 82nd in 2020.

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Bets Against Treasuries Build in Defiance of Uncooperative Data

Brief: A robust short base has formed in the Treasury market, expecting an economic recovery, and it’s willing to overlook data points that contradict its preferred narrative. “Investors seem to take the view that what matters is that the U.S. economy is recovering, rather than worry too much about the precise strength of the recovery at any particular moment in time,” Bank of America strategist Ralf Preusser said in a note. Positioning has become a “sea of uncertainty,” he said. Response to the weak U.S. employment report for April, released May 7, was a case in point. Bank of America’s FX and Rates Sentiment Survey for May -- which polls 70-80 institutional investors who combined manage more than $1 trillion -- found that duration underweights increased over the month. Similarly, in JPMorgan’s Treasury client survey, short positioning is most stretched since 2017.

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BlackRock Plans Staff Return in September, With Some Remote Work

Brief: BlackRock Inc. will ask U.S. employees to return to offices in September, when it will begin a trial period allowing some remote work each week. The world’s largest asset manager will allow up to two days a week of remote work on average for U.S. staff, a spokesman for New York-based BlackRock said Friday. BlackRock will ask employees to start “re-acclimating” to office work periodically in July and August if they feel comfortable doing so, the spokesman said. Staff will be divided into groups, with office access on a two-week rotational basis during those months. Employees can continue working from home full-time through June 30. The company will use its findings from the trial period that begins in September to decide how to shape its staffing plans for next year. Money managers are experimenting with expanding remote-work arrangements as vaccination rates climb. Vanguard Group is adopting a hybrid work model for the majority of its staff. Hedge funds Two Sigma Investments and Bridgewater Associates are also planning to allow employees to continue to work remotely at least part-time.

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

Our briefing for Friday May 14, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) have updated their policy on mask guidelines for fully vaccinated people. The CDC now says fully vaccinated people no longer need to wear a face mask, or socially distance in most settings, whether indoors or outdoors. The news was met with a sense of relief and confusion as the move by the CDC seems to indicate America is one step closer to returning to normal, but it now requires essential workers to become vaccine police. Adding onto the confusion, the CDC’s guidelines are only recommendations. States, municipalities and businesses can decide whether or not they want to follow it. 

  • In Canada, the Public Health Agency tried to give Canadians a glimpse of what year two of a summer within a pandemic will look like. Health officials said Friday if 75% of Canadians eligible for vaccines have had one dose and 20% a second dose, a summer could include camping, hiking, picnics and patios, but large crowds such as concerts and sporting events should still be avoided. As for right now, Canadians are encouraged to stay the course set out by their provincial jurisdictions and that reopening is not only about vaccinations rates – ensuring COVID-19 transmission is controlled “to a manageable level” is just as important.

  • The United Kingdom government could speed up vaccinations in districts that have seen surges in COVID-19 cases, thanks to the Indian variant. In a news conference on Friday, Prime Minister Boris Johnson said the UK will accelerate second doses of vaccines for the over-50 population and the clinically vulnerable. Prime Minister Johnson also said the Indian variant appeared to be more transmissible than other variants, but cautioned it wasn’t clear by how much. The prime minister doesn’t want to see the lockdown roadmap going off course as it would put him in direct conflict with his own Conservative Party who actually wanted to see a faster reopening thanks to a vaccination program that has proven to be one of the most advanced in the world.

  • Bloomberg is reporting “covid zero” havens such as Singapore and Hong Kong are having a harder time reopening then their western financial hub counterparts. Places like New York City and London have started to return to in-person dealmaking and business as usual – tolerating hundreds of daily COVID-19 cases as vaccination drives increase. Singapore and Hong Kong risk being left behind as they maintain tight border controls and try to curb single-digit flareups. For instance, the two South Asian financial hubs have had their agreed upon travel corridor stop several times due to COVID-19 cases in each region.

  • Japan’s government has added three more prefectures to a state of emergency due to increasing COVID-19 cases just 10 weeks out of the still planned Tokyo Olympics. Prime Minister Yoshihide Suga announced on Friday that Hokkaido, Okayama and Hiroshima will join Tokyo, Osaka and four other prefectures on Sunday under a state of emergency that will last until at least May 31st. Prime Minister Suga reiterated that the Olympics could still be held safely for both the athletes and Japanese nationals. A Japanese research institute estimate the state of emergency in the nine prefectures could slash about one trillion yen from the GDP of the world’s third largest economy. 

  • The World Health Organization (WHO) has urged rich countries to forego their plans to vaccinate children and instead donate COVID-19 shots to the COVAX initiative that shares them with poorer nations. “I understand why some countries want to vaccinate their children and adolescents, but right now I urge them to reconsider and to instead donate vaccines to #COVAX, WHO chief Tedros Adhanom Ghebreyesus told a virtual meeting in Geneva, Switzerland. The WHO is hoping more countries will follow the lead of France and Sweden in donating their shots after inoculating their priority populations to help address the disparity between rich and poor countries when it comes to vaccination drives. The COVAX initiative has delivered around 60 million doses so far and has struggled to meet supply targets, partly due to India’s latest COVID-19 surge.

Covid-19 – Due Diligence And Asset Management

Investors Pull $1.2 Billion From the Largest Junk Bond ETF

Brief : Investors in exchange-traded funds are abandoning junk bonds as riskier assets come under pressure from inflation fears. About $1.2 billion was pulled from BlackRock’s iShares iBoxx High Yield Corporate Bond (HYG) on Thursday in its worst day of outflows since February 2020, according to data compiled by Bloomberg. Traders have withdrawn about $5.6 billion from the ETF so far in 2021, putting it on track for its worst year since its inception in 2007. Meanwhile, the rival $9.6 billion SPDR Bloomberg Barclays High Yield Bond fund (JNK) is on pace for its second week of outflows, totaling more than $970 million. With interest rates at rock-bottom lows, investors had previously favored the high-yield market. But that calculation could now be changing, said Matt Maley, chief market strategist for Miller Tabak + Co. “Investors are taking some risk out of their portfolio,” he said. “With inflation fears growing, that means the yields on some safer assets will be rising as well. That will provide at least some competition for a high-yield market that hasn’t seen any competition for a long time.”

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UK Eager for a Big Reopening Thanks to Vaccine Success

Brief: When London’s Science Museum reopens next week, it will have some new artifacts: empty vaccine vials, testing kits and other items collected during the pandemic, to be featured in a new COVID-19 display. Britain isn’t quite ready to consign the coronavirus to a museum — the outbreak is far from over. But there is a definite feeling that the U.K. has turned a corner, and the mood in the country is upbeat.  “The end is in sight,” one newspaper front page claimed. “Free at last!” read another. Thanks to an efficient vaccine rollout program, Britain is finally saying goodbye to months of tough lockdown restrictions. Starting Monday, all restaurants and bars in England can reopen with some precautions in place, as can hotels, theaters and museums. And Britons will be able to hug friends and family again, with the easing of social distancing rules that have been in place since the pandemic began. It’s the biggest step yet to reopen the country following an easing of the crisis blamed for nearly 128,000 deaths, the highest reported COVID-19 toll in Europe. Deaths in Britain have come down to single digits in recent days. It’s a far cry from January, when deaths topped 1,800 in a single day amid a brutal second wave driven by a more infectious variant first found in southeastern England.

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‘Burning Out’: Remote Workers Report Paying a Price for Increased Productivity

Brief: Remote workers in Canada are logging more hours, experiencing more stress, and feeling less engaged with their work, according to a new survey. The online survey, conducted by ADP Canada and Angus Reid, asked 1,501 Canadians working remotely and in person to evaluate their experience working during the pandemic, including their work hours, productivity, engagement, stress levels, and quality of their work.  The survey found that 44 per cent of remote workers reported they were logging more hours of work than they were in pre-pandemic times. Of those, one in ten reported working an additional day, or more than eight extra hours per week. In contrast, only 15 per cent reported working fewer hours and 38 per cent said there was no change in the hours they worked. Janet Candido, a human resources professional of 20 years and founder and principal of Candido Consulting Group, said she thinks people are working longer hours because they’re not as busy in the evenings or on weekends due to pandemic-related restrictions. “I heard this from my own team a year ago: ‘Well, I don't have anything else to do so I might as well get this done,’” she told CTVNews.ca during a telephone interview on Thursday.

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Brevan Howard Triples Workspace with New London Headquarters

Brief: Brevan Howard Asset Management is moving to a new London headquarters that’s almost three times larger than the hedge-fund firm’s existing office, signaling an expansion plan after a record year of gains. The company has taken over a lease from French advertising giant Publicis Groupe SA in the city’s West End, according to people familiar with the matter. The building at 82 Baker Street, which is near the firm’s current headquarters, has more than 70,000 square feet (6,500 square meters) of office space, the people said, asking not to be identified because the deal is private. It’s not clear if Brevan Howard will occupy the entire space itself or sublease parts of the office. A spokesman for the firm declined to comment and a spokeswoman for Publicis didn’t respond to emails seeking comment. Brevan Howard, which managed $14.6 billion at the end of March, and other hedge funds have been on a hiring spree as market volatility creates more trading opportunities. The company co-founded by billionaire Alan Howard last year posted the best returns in its near two-decade history, with its main fund up more than 27% and its U.S. Rates Opportunities Fund soaring nearly 99%.

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Investors Target Stocks in Vaccine Hotspots

Brief: Global equity funds enjoyed a second consecutive month of record inflows as UK investors added nearly £3 billion to the asset class. According to the latest fund flow data from Calastone, investors favoured global, UK and North American funds.  Demand for European equity products waned, perhaps as the continent lags the UK and US in its Covid-19 vaccine drive, Calastone said. UK investors also added over £880 billion to bond funds. Total inflows across all asset classes hit £6.1 billion by the end of the month. Edward Glyn, head of global markets at Calastone, highlighted that the pandemic is “claiming more lives than ever around the world, but in the UK and North America it is in retreat.  “The situation in Europe is improving, and it remains under control in most parts of Asia. Stock markets have been on a gently rising trend, while bond yields which are bad for share prices when they rise, have been steady,” he said, adding that investors are looking to the post-pandemic boom.

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Ethereum’s Co-Founder Vitalik Buterin Donates Over $1 Billion to India Covid Relief Fund and Other Charities

Brief: Ethereum’s co-founder Vitalik Buterin, who became the world’s youngest known crypto billionaire less than two weeks ago, has donated over $1 billion in crypto to the India Covid Relief Fund and a range of other charities. He made the donation by offloading massive amounts of dog-themed meme tokens, which he was gifted by the creators of Shiba Inu coin (SHIB), Dogelon (ELON) and Akita Inu (AKITA). These cryptocurrencies have taken off following Dogecoin’s staggering rally of the last few months. Though built around similar memes, these copycats have much larger token supplies. In a single transaction, Buterin donated 50 trillion SHIB tokens worth $1.2 billion as of May 12, 16:37 pm E.T. to the India Covid Relief Fund set up by Indian tech entrepreneur Sandeep Nailwal. Nailwal is best known as the co-founder and COO of Polygon, a protocol which aggregates scalable solutions on Ethereum in a multi-chain system. Earlier in April, Buterin donated about $600,000 in ether and maker (MKR) tokens to the fund. Nailwal immediately took to Twitter to thank Buterin and assure SHIB investors the funds will be spent responsibly. “We will not do anything which hurts any community specially the retail community involved with SHIB,” wrote Nailwal.

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

Our briefing for Thursday May 13, 2021:

  • In the United States, the Biden administration is releasing $7.4 billion to boost America’s healthcare workforce amid the ongoing COVID-19 pandemic and to prepare for future epidemics and health challenges. The funds being tapped were part of the $1.9 trillion aid package pushed through by lawmakers back in March and will be used to hire a range of healthcare workers to help with vaccinations, testing and contact tracing. Of the $7.4 billion, $4.4 billion will go to states and local public health departments to address disease outbreaks and hire school nurses. The remaining $3 billion will be used to boost local public health staff ahead of future challenges, with an emphasis on recruiting diverse candidates.

  • The Bank of Canada’s governor said they won’t be in any rush to hike interest rates even if the economy can recover on its own and make up the pandemic losses. Canada’s central bank Governor Tiff Macklem made the remarks during a virtual speech before the Universities of Atlantic Canada. Macklem noted the central bank will continue to support the economy until a complete recovery takes place, which means employment surpassing pre-pandemic levels and businesses reinvesting again. “A complete recovery is a shared recovery. It means that we’ve not only recovered the jobs lost due to the pandemic, but we have also created jobs for graduating students and others who have entered the job market since the start of the pandemic,” said Macklem.
  • United Kingdom Prime Minister Boris Johnson admitted the government is “anxious” about the coronavirus variant first found in India. On Wednesday, the World Health Organization (WHO) noted the variant currently crippling India is also prevalent in the UK, sitting second on the list. Prime Minister Johnson is still trying to sound optimistic about the full reopening of the country by June 21st, but noted, “at the moment there’s a very wide range of scientific opinion about what could happen, but we want to make sure that we take all the prudential, all the cautious steps now that we could take.”
  • After the Philippines posted a worse than expected economic first quarter earlier in the week, the government has moved to ease restrictions in Manila and nearby areas. In a televised briefing on Thursday, presidential spokesman Harry Roque noted the Philippine capital, along with the surrounding areas, will shift to its second-lowest level of restrictions until the end of May. Economic managers have pushed for further easing of restrictions to boost growth and restore jobs. President Rodrigo Duterte has noted religious festivals which usually draw large crowds in the summer will not be allowed.
  • China’s state news reported on Thursday the government has announced a new disease prevention and control agency, its largest move since the coronavirus pandemic began. The new National Disease Prevention and Control Bureau will create policies regarding infectious disease control and provide guidance on the surveillance of epidemics, among other public health mandates. While China’s central government in Beijing has always denied it covered up the severity of the coronavirus in its early days, President Xi Jinping has called for efforts to reform the country’s public health system because it lacked the capability to deal with large-scale outbreaks.
  • Australia has struck a deal with United States-based Moderna to send 25 million COVID-19 doses to boost their lagging vaccination drive. Under the new deal, the Australian government expects to receive 10 million doses from now until the end of the year, with the remaining 15 million to be delivered in 2022. Australia’s vaccine rollout hit a roadblock earlier in the year when delays and caution hampered the AstraZeneca vaccine. Australia was relying heavily on the UK-based vaccine and have had to continuously shift their goalposts on when all Australians would be fully vaccinated. At first it was the end of October, then early 2022 and now the latest projection from the government says they plan to have vaccinated all Australians by the end of the year.

Covid-19 – Due Diligence And Asset Management

Quarter of Managers in Finance Have Considered Quitting as Covid Burnout Strikes

Brief : Almost two-thirds of managers in the finance sector have experienced burnout at work because of the Covid-19 pandemic, with a quarter having considered quitting their job as a result, according to new research from not-for-profit healthcare provider, Benenden Health. Assessing the impact of the coronavirus pandemic on the nation’s workforce one year on, research has found that as many as 63 per cent of managers in the finance sector have suffered from burnout at work since the UK was first placed into lockdown, with a quarter (26 per cent) of all managers either considering, or actually quitting their job as a result of the strain on their mental wellbeing. With the Office for National Statistics reporting that the number of individuals experiencing symptoms of depression has almost doubled since the start of the pandemic, Benenden Health has examined the impact on the nation’s workforce. This has revealed the effect of Covid-19 on the working lives of managers and their subsequent experiences of burnout, which is the occurrence of exhaustion, stress, cynicism and/or feelings of reduced professional ability due to demands at work. The main causes of burnout at work for those in the finance sector in the past year were shown to be anxiety about the future (36 per cent), a lack of sleep (35 per cent) and increased demands from management (32 per cent), whilst a third of burnout sufferers in finance (30 per cent) revealed that working longer hours had contributed.

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Brookfield Asset Management Funds From Operations Hit Record High

Brief: Brookfield Asset Management Inc. reported a profit in its latest quarter compared with a loss a year ago as its funds from operations hit a record high. The asset manager, which keeps its books in U.S. dollars, reported net income attributable to common shareholders of US$1.24 billion or 77 cents per diluted share for the quarter ended March 31. The profit compared with a loss attributable to common shareholders of US$293 million or 20 cents per share in the same quarter last year. Revenue totalled US$16.41billion, down from $16.59 billion in the first three months of 2020. Funds from operations were a record US$2.82 billion or US$1.80 per share, up from US$884 million or 55 cents per share a year ago. Brookfield says it realized $6.4 billion in disposition gains in the quarter, split $1.8 billion for Brookfield and $4.6 billion for its clients.

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Marks Laments ‘Not Having Great Things to Buy’ Amid Low Distress

Brief: Howard Marks, co-founder of Oaktree Capital Management, says making money in today’s environment is nearly impossible, particularly for “bargain hunters” that saw last year’s selloff come and go so quickly. “In the short term, I worry about not having great things to buy,” Marks said during a MacroMinds virtual event moderated by Bloomberg’s Alix Steel. The safer plays aren’t especially attractive, according to Marks. “You can keep the portfolio you’ve historically had and expect that the return will be lower than it used to be,” he said. “You can say the market is a little high,” reduce risk if you’re wary of a correction, “and then your return will be even lower,” Marks continued. Or you can get out of the market entirely, and “your return will be zero.” Investors who don’t like the safer scenarios can take on more risk, Marks said, or find a niche money manager who “drives people to illiquid or so-called alternative investments,” which then introduces “manager risk.” “The answer is that there is no, and can be no safe, dependable way to make a high return in a low-return world,” Marks said. “It’s too good to be true.” Global credit and equity markets have staged a dramatic rebound since last year, when the Federal Reserve took unprecedented steps to steady the economy amid the pandemic.

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Billionaire Investor Barry Sternlicht says he has Long-Term Concerns About the U.S. Economy

Brief: Global investor Barry Sternlicht told CNBC on Thursday he has some long-term concerns about the U.S. economy, saying there are risks beyond the immediate boom from the Covid recovery. In a wide-ranging interview on “Squawk Box,” the billionaire businessman worried about numerous shortages in the economy and criticized the Federal Reserve’s highly accommodative monetary policy and legislative proposals in Washington. “I do think the Fed, interest rates, are being suppressed by the government. .... We have to get off of this sugar-cane and Fluffernutter economy and get to the meat-and-the-potatoes economy,” Sternlicht said. “We have to get back to a sustainable economy and people coming back to work.” The chairman and CEO of Starwood Capital Group pointed to recent Labor Department data that showed a record number of job openings in March. “Something is wrong,” he said. Sternlicht, whose firm operates hotels as part of its broader portfolio, said hiring challenges for businesses are largely the result of enhanced unemployment benefits that were included in a federal coronavirus relief package. However, economists say the reason people may still be hesitant to return to work is due to many factors, including Covid concerns and a lack of reliable child care.

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Standard Bank Gears Up for Africa’s Post-Covid Economic Recovery

Brief: Africa’s biggest lender sees opportunity in both its core South African market and the rest of the continent amid a recovery from the Covid-19 pandemic. “South Africa is fiercely competitive,” Standard Bank Group Ltd. Chief Executive Officer Sim Tshabalala said in an interview on Thursday. “We have to continue making investments” there. The Johannesburg-based lender is also ready to take advantage of consolidation throughout Africa, where it has a presence in 20 countries, he said. Standard Bank has increasingly turned its focus outward in recent years, with Africa producing the fastest-growing parts of its business last year and contributing about a quarter of its total income. “We are going to go where the returns are highest and the risks are lowest,” Tshabalala said. Geographically, Ethiopia and the West African Economic and Monetary Union -- including Côte D’Ivoire, Mali and Senegal -- are attractive, he said. The lender expects growth in South Africa to rebound by 4.6% this year, Tshabalala said.

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Investors Say It’s Time for Earnings to Get Back to Normal

Brief: As the U.S. economy and stock market recover from the Covid-19 pandemic, investors are returning to their pre-pandemic expectations for how companies report financial results. While investors have maintained their pandemic-driven focus on companies making long-term investments, they have shifted their expectations for earnings and guidance back to “less permissive pre-pandemic norms,” according to Boston Consulting Group’s most recent Covid-19 investor pulse survey. Investors’ recovery-driven mindsets are also evident in their shifting approach to capital allocation, with survey respondents focusing less on capital preservation and more on capital distribution.  From April 29 to April 30, BCG surveyed “leading” investors, representing investment firms with over $5 trillion in combined assets under management, about their expectations for the U.S. economy and stock market and their perspectives on impending decisions from corporate executives and boards of directors.  When asked whether it is important for the management of financially healthy companies to provide or revise guidance within the next 90 days, 87 percent of investors answered “yes,” the highest proportion to say so since BCG began conducting the periodic surveys in March 2020.

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

Our briefing for Wednesday May 12, 2021:

  • In the United States, CBS is reporting government regulators are targeting evictions by some of America’s biggest landlords – two of which are owned by a private equity company. The Federal Trade Commission and Consumer Financial Protection Bureau earlier this month sent a letter reminding major landlords of the Centers for Disease Control and Prevention’s (CDC) limits on evictions. According to PESP, a non-profit advocacy group, as of April, 31,000 eviction cases have been filed in 2021 and the top two on the list – Progress Residential and Front Yard Residential are owned by PE firm Pretium Partners. Since September 2020, entities owned by Pretium have filed nearly 1,300 eviction actions in court, more than any corporate landlord tracked by PESP.

  • CTV News is reporting a Canadian drug maker has posted promising Phase 1 trial results for its own COVID-19 vaccine but is threatening to move its future trials and production out of the country if it doesn’t receive further support from the federal government. Calgary-based Providence Therapeutics noted on Wednesday that its first trial of 60 participants aged 18-64 shows “strong virus neutralization capability” with no serious side-effects reported. Brad Sorensen, CEO of Providence, said while he is happy and vindicated by the results so far, he stated dealing with the federal government has been trying. For instance, Sorensen points to asking the leading Liberal government to supply Providence with 500 doses of Pfizer to compare results, but to date, has received no answer. “At the end of the day, if Canada has no inclination to purchase vaccines that are made in Canada, which they’ve so far given no indication that they are prepared to do that, then why would we spend the resources to seek approval in Canada,” said Sorensen. 

  • The United Kingdom could be back to normal by the end of the year if the vaccine rollout continues to succeed, according to the government’s chief pandemic modeller. Speaking on BBC Radio Wednesday, Professor Graham Medley of the London School of Hygiene and Tropical Medicine said it all depends on the variants and the vaccines impact on them. The news comes as Health Minister Matt Hancock said on Tuesday that the government will be giving more freedom to the public in the days and months ahead to make their own judgements about risk as the pandemic eases. In the House of Commons on Wednesday, Prime Minister Johnson said work-from-home guidance is set to be lifted on June 21st after being warned London is “hurting” due to the lack of commuters and visitors from abroad.

  • Italian Prime Minister Mario Draghi stated that the European Union’s framework for controlling debt must be changed to help overcome the economic damage caused by the coronavirus pandemic. “The current fiscal rules were inadequate and are even more inadequate for an economy existing in a pandemic,” Prime Minister Draghi told Italian lawmakers in Rome on Wednesday. “Revision of the rules needs to ensure more ample margins for fiscal policy to work as an anti-cyclical stabilizing force.” Prime Minister Draghi previously served as the President of the European Central Bank from 2011 to 2019.

  • The Philippines economy shrank more than expected in the first quarter of 2021, marking the fifth straight quarter of declines amid pandemic-induced lockdowns. The Philippine GDP fell 4.2% in the March quarter from a year earlier. Economists had predicted a 3% drop for the March quarter. The Philippines is expected to manage Southeast Asia’s slowest recovery this year from the pandemic-driven recession. The current lockdown in Manila and other key economic areas threatens the government’s goal – currently up for review – of at least 6.5% growth by the end of this year.

  • An independent panel set up by the World Health Organization (WHO) has concluded the COVID-19 pandemic was preventable. The panel was not kind to the WHO, saying the health body, along with the combined response of global governments was a “toxic cocktail”. The report said the WHO should have declared a global emergency earlier than it did, adding that without urgent change the world was vulnerable to another major disease outbreak. The panel added Europe and the United States wasted the entire month of February 2020 and acted only when their hospitals began to fill up.

Covid-19 – Due Diligence And Asset Management

US Budget Deficit Hits Record $1.9 Trillion so far This Year

Brief : The U.S. budget deficit surged to a record of $1.9 trillion for the first seven months of this budget year, bloated by the billions of dollars being spent in coronavirus relief packages. In its monthly budget report, the Treasury Department said Wednesday that the shortfall so far this year is 30.3% higher than the $1.48 trillion deficit run up over the same period a year ago. The oceans of red ink in both years are largely due to the impact of the coronavirus pandemic, which led the government to approve trillions of dollars in relief to cover three rounds of individual payments, extra unemployment benefits and support for small businesses. The deficit for the budget year that ended Sept. 30 totaled a record $3.1 trillion and many private economists believe this year’s total will surpass that amount. Some are forecasting a deficit of $3.3 trillion. For April, the deficit totaled $225.6 billion, down from a deficit in April 2020 of $738 billion. That improvement reflected the fact that fewer relief payments were made this year and individuals making quarterly tax payments had to meet the normal April deadline. Last year, all tax payments were delayed at the onset of the pandemic.

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BOE Pushes Shakeup of $6.9 Trillion Money Market Funds Business

Brief: The Bank of England is pushing for a shakeup of the $6.9 trillion money market fund industry, saying the business amplified strains during the financial crisis and in the Covid-19 pandemic. The U.K. central bank’s Governor Andrew Bailey said the Financial Stability Board soon will consult on changes to the market, which covers short-term debt securities like commercial paper. At the height of turmoil in the early days of the pandemic, those funds were not resilient, he said.  The remarks including some detailed options for what regulators could do are the clearest sign yet that action is coming for money market funds, which are supposed to have cash-like liquidity but instead froze up when the global system was under strain. “We are very much in the world of having a second chance to deal with the issue of how to structure money market funds consistent with their role,” Bailey said in a text of a speech to the International Swaps & Derivatives Association. Bailey said there’s a need to improve the resilience and functioning of the funds so they didn’t contribute to stress in short-term funding markets. Sterling money market funds saw outflows of around 25 billion pounds ($35 billion), or 10% of their total assets, in the eight days between March 12 and 20 last year -- a period known as the dash for cash.

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Equity Funds See Record Inflows as Investors Target Vaccine Hotspots in High Hopes for Post-Pandemic Boom

Brief: British investors added record new capital to equity funds for the second month in a row, according to the latest Fund Flow Index from Calastone. Net inflows hit a record GBP2.98 billion in April and took the year-to-date total to GBP6.93 billion, easily the best start to a year since Calastone began recording figures in 2015. The last six months have seen four of the best months of inflows to equity funds on record. At 55.7, Calastone’s FFI:Equity was the most positive reading since April 2020. This does not mean buying has been indiscriminate. Investors were most enthusiastic about global funds, which absorbed GBP1.59 billion, North American funds, which saw record inflows of GBP576 million and UK equity funds [ie funds focused on UK equities] which enjoyed inflows of GBP303 million. In the last three months, a turnaround in sentiment towards the UK means UK equity funds have recouped all the outflows from the previous six. European equity and equity income funds are out of favour, although equity income funds are seeing a marked slowdown of outflows.

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Investors Still Clinging to Their US ‘Security Blankets’

Brief: Having seen inflows of close to £2.3bn ($3.25bn, €2.7bn) in 2020, funds invested in US equities witnessed net outflows of £1.6bn in the first quarter of 2021, according to the Investment Association. The bulk of those outflows took place in March, with the IA revealing investors redeemed a net £1.09bn from the IA North America sector. This made it the second least popular peer group behind Sterling Corporate Bond – which witnessed an outflow of £1.47bn for the month. While some of this may be a result of profit taking following a very strong run for the US market, Laith Khalaf, financial analyst at AJ Bell Investments, said another factor may also be at work. “Investors might also be concerned about the prospects for interest rate rises to dent the share prices of the big US tech firms that now make up such a large part of the S&P 500,” said Khalaf. “This could be a pretty significant turning point, as investors reflect on what’s performed well in the past, and where opportunities lie for the future,” he added. “The global sector continues to attract inflows, so investors aren’t totally downbeat on the US, seeing as these funds have a high weighting to the US, which now makes up around two thirds of the global developed stock market.”

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Private Equity Firm to buy UDG Healthcare in $3.7 bln Deal

Brief: Private equity firm Clayton, Dubilier & Rice (CD&R) has agreed to buy London-listed UDG Healthcare for 2.6 billion pounds ($3.7 billion), the pharmaceuticals services company said on Wednesday. CD&R will pay 10.23 pounds in cash per share in UDG, representing a premium of 21.5% to Tuesday’s close. By 0735 GMT the London-listed shares were up 22.2% at 10.30 pounds. UDG, which has its headquarters in Dublin, specialises in healthcare advisory, communications, commercial, clinical and packaging services. “We believe that this is an attractive offer for UDG shareholders, which secures the delivery of future value for shareholders in cash today,” UDG Chairman Shane Cooke said in a statement. UDG has two divisions - Ashfield and Sharp - and employs about 9,000 people in 29 countries. “UDG has long established itself as a leading provider of high-value services to pharma and biotech companies globally, supported by a highly skilled workforce,” said CD&R partner Eric Rouzier. The deal is expected to be declared effective during the third quarter of 2021, subject to shareholder and regulatory approvals.

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Sovereign Wealth Funds Turn to Home as Covid Bites

Brief: Cashed-up as the crisis began, many sovereign funds took the opportunity to invest heavily through the coronavirus pandemic. But while some looked to international markets for contrarian positions, more looked to see what they could do at home. The world’s sovereign wealth funds (SWF) almost doubled their direct investments during 2020, as funds found opportunity during the Covid-19 global pandemic. The latest annual review by the International Forum of Sovereign Wealth Funds (IFSWF), whose membership includes sovereign vehicles in nearly 40 countries, shows a mixture of opportunism and duty in fund behaviour during 2020. Publicly disclosed direct investments were $65.9 billion in 2020, up from $35.9 billion in 2019, with a particular focus on sectors such as renewable energy, food production, e-commerce and logistics. The year before, 2019, had represented something of a low for direct investment, the lowest level since 2015, and one consequence of this was that institutional investors – particularly sovereign funds – entered the pandemic crisis with high levels of cash.

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

Our briefing for Tuesday May 11, 2021:

  • In the United States, The Wall Street Journal is reporting the White House is partnering with Uber and Lyft to improve access to coronavirus vaccines. Up until July 4th, Uber and Lyft will provide free rides to and from vaccination sites after the White House shared information on the location of about 80,000 vaccination sites across the country. The partnership was made as part of President Biden’s goal of getting at least 70% of American adults with at least one coronavirus shot by July 4th. The Biden administration is entering a new phase of their vaccination campaign as demand has dropped in recent weeks. The United States is administering about 2.1 million inoculations per day, down from about 3.4 million last month, even though there’s enough supply to give more.
  • During his daily news briefing on Tuesday, Canadian Prime Minister Justin Trudeau tried to strike an optimistic tone that the country has enough vaccines for a “one-dose summer”. “A one-dose summer sets us up for a two-dose fall, when we’ll be able to talk about going back to school, back to work, and back to normality,” said Prime Minister Trudeau. However, to have that one-dose summer, Canada still has a lot of work to do as the prime minister noted restrictions that are in place in certain provinces need to stay in place until at least 75% of the population has had at least their first shot and community transmission is better controlled through testing, tracing and curbing spread.
  • In the United Kingdom, Prime Minister Boris Johnson said on Tuesday his government would set up an inquiry into the COVID-19 pandemic during this parliamentary session. The prime minister would not set a date for the inquiry, although parliamentary sessions in the UK normally last around one year. “I have made that clear before, I do believe it is essential that we have a full proper inquiry into the COVID pandemic,” said Prime Minister Johnson. The government’s critics say they were too slow in locking down after other countries showed how to control the virus. The UK has seen over 150,000 deaths since the start of the pandemic and suffered one of the worst death tolls in the world. 
  • In Germany, several states, including the capital city of Berlin, plan on loosening coronavirus restrictions in the coming days after more than six months of lockdown. The Berlin state government agreed on Tuesday to lift a night-time curfew and ease restrictions on shopping, starting May 19th and allow outdoor dining from May 21st. The corresponding moves depend on the seven-day COVID-19 rate remaining below 100 for three consecutive days. It was 94 in Berlin on Tuesday. German federal Health Minister Jens Spahn said federal states should go ahead with reopening, especially activities for outdoors, but warned the need to tighten if infections rates rise again.
  • France has joined other European Union nations such as Greece and Croatia in ramping up its tourism campaign. The country was the world’s top destination for travellers in 2019 and has launched a multi-million euro campaign aimed at people looking to travel again after receiving their coronavirus vaccinations. On Tuesday, France introduced a campaign titled, “What Really Matters” promoting the country’s food, lifestyle and culture in 10 European markets including Italy, Spain and Germany. In 2019, France’s tourism industry generated €57 billion, representing around 7.5% of the country’s GDP.
  • Hong Kong has decided against moving forward with its plan to require foreign domestic workers to be vaccinated to secure work visas. Hong Kong, one of Asia’s key financial hubs, reached out to the Indonesian and Philippines consulates and decided not to pursue the requirement, according to region’s Chief Executive Carrie Lam. According to media reports, there are more than 370,000 foreign domestic workers in Hong Kong, accounting for about 5% of the population. Lam added that foreign domestic workers will need to undergo a second round of testing by May 30th.

Covid-19 – Due Diligence And Asset Management

Mental Wellbeing “Overlooked” by Asset Management Firms, finds Report

Brief : Asset management firms have been accused of overlooking the wellbeing of their employees as a recent survey from Howden reveals that most firms have no strategy in place for addressing issues including mental health and work/life balance. Howden surveyed over 160 asset management firms on their employee benefits, wellbeing, and reward programmes.  The survey found that while most asset managers offered generous benefits to employees, including private medical insurance, life insurance, and income protection, many were lagging behind on mental wellbeing. Only 12 per cent of asset managers were found to have a standalone strategy in place for employee wellbeing. However, more than a third, 35 per cent, said they plan to address this and create a wellbeing strategy in the next twelve months.  This is much lower than the average across industries. According research by CIPD, a professional body for HR managers, 44 per cent of employers have a standalone wellbeing strategy. “Employee wellbeing has tended to be overlooked by many asset management firms in favour of high value insurance benefits, but as we move beyond the Covid-19 it must become a priority,” says Robbie Weston, executive director of Asset Management and Workplace Savings at Howden.

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Top Fed Official says Fed Far from Achieving its Goals

Brief: A top Federal Reserve official says the outlook for the U.S. economy is bright but the recent jobs report is a reminder that the path of the recovery is likely to be uneven and difficult to predict. Lael Brainard, a member of the Fed's board, said Tuesday in a virtual conference sponsored by the Society for Advancing Business Editing and Writing, that employment and inflation remain far from the Fed's goals. The Fed has said it will not start raising interest rates until it has achieved maximum employment and annual prices gains that have not only hit the Fed's 2% target, but exceeded that target for a period of time. “While more balanced than earlier this year, risks remain from vaccine hesitancy, deadlier variants and a resurgence of cases in some foreign countries,” Brainard said. The Fed has kept its key interest rate at 0 percent to 0.25% for more than a year and signaled that it will keep rates at this level at least through 2023. Brainard's comments Tuesday backed up the view that the Fed has no intention to change course in interest rates. Brainard referred to last week's job report that showed the economy created 266,000 jobs last month, sharply lower than March and far fewer than economists had been expecting. She said this was a signal that the Fed needs to proceed with caution before withdrawing its support.

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Private Debt Isn’t Out of the Woods From Pandemic, Varagon says

Brief: While fundraising and deal activity in the $975 billion private debt market is ramping back up, the industry is still “not out of the woods” of the pandemic, according to Walter Owens, chief executive officer of Varagon Capital Partners. “We have to be very careful of complacency, because complacency is what gets you into trouble,” Owens said in an interview. “We’re hopeful that the economy fully recovers, but we’re certainly not depending on a full economic recovery when we’re underwriting deals today.” The asset class has largely recovered from the pandemic-fueled selloff in global financial markets last year as economies reopen and wider swaths of the U.S. population become vaccinated. Yet concerns remain with unemployment still stubbornly high, and uncertainty hanging over some industries that were hit hard during Covid-19. The firm sees opportunities in more resistant sectors like business services, healthcare and software services, according to Owens. “Most of those businesses came through 2020 in really good shape,” he said. Demand for the debt, which can offer higher returns than elsewhere in credit, is also helping to drive a pick up in deal activity. And firms are currently looking to raise a record $301.4 billion for 586 vehicles, according to London-based research firm Preqin Ltd.

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Major Airline CEOs Call for Summit to Speed UK-U.S. Travel

Brief: The chief executives of major U.S. and UK passenger airlines on Tuesday called for a summit with the two governments to speed the reopening of transatlantic travel. "The airline industry needs adequate lead time to establish a plan for restarting air services, including scheduling aircraft and crews for these routes as well as for marketing and selling tickets," said the letter signed by the CEOs of American Airlines , Delta Air Lines, United Airlines, British Airways , Virgin Atlantic and JetBlue Airways in a letter to the transport chiefs of both countries. A spokesman for Transportation Secretary Pete Buttigieg and the British Embassy in Washington did not immediately comment. Since March 2020, the United States has barred nearly all non-U.S. citizens who have recently been in the UK. The letter said U.S. and UK citizens "would benefit from the significant testing capability and the successful trials of digital applications to verify health credentials." The U.S. government has said it will not require digital vaccine passports and it is unclear if the U.S. government will set standards or issue guidance to help Americans prove to foreign governments they have been vaccinated.

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Travel Startups are Getting Billions in VC Funding Again as Vaccine Rollout Accelerates

Brief: Funding to venture-backed travel and tourism startups fell to a five-year low in 2020, a year defined by the COVID-19 pandemic and the stay-at-home mandates that came with it. But that trend may be turning around, if early funding data and investor enthusiasm are any indication. Funding to venture-backed startups in the travel and tourism sector amounted to around $4.8 billion across 629 deals in 2020, Crunchbase data shows. Both the dollar amount and deal count hit a five-year low. And that followed a record in 2019, when funding to travel and tourism startups in the past five years hit a record $10.8 billion. So far this year, companies in the sector have raised about $3.4 billion across 173 deals, according to Crunchbase data.  “It’s a really exciting time to be investing in the space,” said Kristi Choi, an investor at Plug and Play Ventures. “And we talk a lot about this because I really feel like travel is at an inflection point for a couple different reasons.” Companies that have survived the pandemic have learned how to stay resilient and have used the time to tailor their value proposition, Choi said, pointing to how travel startup Sherpa added travel restriction monitoring and guidelines on top of its visa application offerings. And with the crisis, new travel habits have emerged and evolved.

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Blackstone Calls on Vaccinated Workers to Return on June 7

Brief: Blackstone Group Inc. is asking some U.S. staff to return to the office full-time on June 7 provided they are fully vaccinated. The world’s largest alternative asset manager announced the move internally on Monday. A Blackstone spokesman confirmed the decision. Financial firms have been preparing for an end to remote work since the earliest months of the Covid-19 pandemic. JPMorgan Chase & Co. became the first major U.S. bank to mandate a return to offices for its entire U.S. workforce. Last month staffers were told that they would be expected to return by early July on a rotational basis. Citigroup Inc. has said it will start inviting more workers into the office beginning in July. Goldman Sachs Group Inc. told staff they should be prepared to work from offices by mid-June. Insider earlier reported the Blackstone news on Monday.

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

Our briefing for Monday May 10, 2021:

  • In the United States, the latest data from Johns Hopkins University show the country is facing its lowest COVID-19 case count since September. The rate of average daily cases in the United States fell below 41,000, down 30% from two weeks ago; with not a single state reporting an increase in the last week, compared to the previous week. According to the Associated Press, some states have asked the federal government to scale back their vaccine shipments of allocated doses, a far cry from just a few months ago. As of May 9th, the Centers for Disease Control and Prevention (CDC) reported 45.8% of the population have at least received one dose of a COVID-19 vaccine, with 34.4% of the population being fully vaccinated against the coronavirus.

  • In Canada, Ontario’s health minister has been advised to “stay the course” with the province’s pandemic restrictions until COVID-19 cases experience a significant decline, which means stay-at-home orders could be extended into June. The advice from provincial health advisors is in lockstep with local medical officers of health who sent a letter to Premier Doug Ford and his government on Friday, asking for an extension in the emergency measures to curb the spread of COVID-19 variants. Elsewhere in the country, Quebec reported 662 new COVID-19 infections on Monday. Anyone 30 years of age or older is eligible for a COVID-19 vaccination with the age limit requirement set to keep dropping throughout the week, according to Health Minister Christian Dube.

  • In the United Kingdom, Prime Minister Boris Johnson said he and his government are pressing ahead with its “road map” for lifting lockdown requirements. What this means is people can meet at indoor pubs, restaurants and cinemas as of May 17th. “Today we are announcing the single biggest step on our road map and it will allow us to do many of the things we’ve yearned to do for a long time. So, let’s protect these gains by continuing to exercise caution and common sense,” said Prime Minister Johnson. While pubs and restaurants will reopen, social distancing rules will remain in place and those that can still work from home, are being asked to continue to do so. 

  • The World Health Organization (WHO) said on Monday the coronavirus variant first found in India is now classified as a variant of global concern. The B.1617 variant is the fourth variant to be designated as being of global concern by the WHO after preliminary studies have shown it spreads more easily. The variant has already spread to other countries and many nations have moved to cut or restrict movements from India in recent weeks. The country of close to 1.4 billion is still dealing with case counts and deaths due to the coronavirus close to record daily highs on Monday and increasing calls on Indian Prime Minister Narendra Modi to lockdown the world’s second most populous country. 

  • The United Arab Emirates (UAE) and Bahrain have established a “safe travel corridor” for those who have been fully vaccinated against COVID-19. The joint statement between the two nations means citizens will be free to travel as of the Muslim festival of Eid al-Fitr, by the end of the week, without having to quarantine on arrival but applying other precautionary measures adopted in the destination. Citizens and residents looking to take advantage of the exemption must show they have received a final dose of the COVID-19 vaccine.

  • Media in Australia are poking an already angry bear in China, citing a document written by Chinese scientists and public health officials in 2015 discussing the weaponization of the SARS coronavirus. Released five years before the start of the COVID-19 pandemic, it describes SARS coronaviruses as a “new era of genetic weapons” that can be “artificially manipulated into an emerging human disease virus, then weaponized and unleashed in a way never seen before.” Peter Jennings, the executive director of the Australian Strategic Policy Institute told news.com.au that the document is close to a “smoking gun” as we’ve got. Investigations by the WHO back in January and released in March concluded the virus was most likely of animal origin and crossed over to humans from bats. While China has yet to issue a statement on the matter, the state-run Global Times lashed out at the report, calling it “an embarrassing article that smears China over the origins of COVID-19.”

Covid-19 – Due Diligence And Asset Management

EU Recovery Fund Success Could Pave the Way for a Repeat

Brief : The European Union’s huge post-pandemic recovery fund could become a more permanent feature if it is successful in firing up growth and fostering a greener and more digital economy, the European Commission’s top economic officials said on Monday. The 27 EU nations made an unprecedented agreement last year to jointly borrow 750 billion euros for a fund to help fight the economic slump caused by COVID-19 and address the challenges of climate change. To overcome the opposition of the EU’s frugal northern states, which have long opposed joint borrowing for fear of financing less strict fiscal policy in the south, the scheme was clearly described as an extraordinary, one-off measure. But many economists seen it as a foot in the door for more regular joint debt issuance by the AAA-rated EU in future and top Commission officials echoed that view before the European Parliament’s economic and monetary affairs committee. “The more successful we are in the implementation of this facility the more scope there will be for discussions on having a permanent instrument, probably of a similar nature,” Commission Vice President Valdis Dombrovskis said.

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Hedge Funds are on a Roll with Strongest Jan-to-April Returns in 20 Years

Brief: Hedge funds are on a roll this year, with the industry recording its best January-to-April performance in more than 20 years, as managers profited from tech gains, commodities moves, strong earnings, and renewed optimism over the reopening US economy.Overall, hedge funds added 2.74 per cent in April, and have returned 8.68 per cent in the four months since the start of 2021, as measured by Hedge Fund Research’s Fund Weighted Composite Index, a global equal-weighted benchmark of some 1400 single-manager hedge funds. That was strongest year-to-date return through April since 1999, when it rose 8.56 per cent. April’s gain was also the index’s seventh consecutive monthly advance, with all but one hedge fund sub-strategy finishing the month in positive territory. Technology, quantitative directional equities, and commodities-focused macro funds were among the strategies that posted the biggest gains. HFR president Kenneth Heinz said: “Through the seven consecutive months of gains, hedge funds have navigated multiple market cycles (both positive and negative), including a new US political administration, unprecedented fiscal stimulus initiatives, additional virus mutations/variants, and a sharp increase in heavily-shorted, deep value equities driven by retail trading platforms.” The industry is now in its longest period of consecutive monthly gains since the HFR’s FWC index produced 15 consecutive months up to January 2018.

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PE Firms Acquire Hospitals with High Operating Margins, Boosting Them Further

Brief: Hospitals acquired by PE firms tend to have higher operating margins than those that are not acquired — and that gap widens over time, a new study shows. But it is too early to say whether these glowing financial figures equate to better support for clinical care. Hospitals that were acquired by private equity companies had operating margins that were 5.6 percentage points higher than nonacquired hospitals in 2003, and that gap widened to 8.6 percentage points by 2017, according to the study published in Health Affairs. However, it is unclear whether private equity firms’ varied promises, like improved efficiency, have resulted in better support for clinical care. The study — which aims to describe the hospitals acquired by private equity firms and their finances — compared facilities that had been acquired to those that were never acquired between 2003 and 2017, said Dr. Marcelo Cerullo, a study author and general surgery resident at Duke University Medical Center, in an email. In total, researchers examined 42 private equity deals, involving 282 hospitals across 36 states. Of the 282 hospitals studied, data for 233 was available from the Healthcare Cost Report Information System and American Hospital Association. In general, the researchers found that hospitals acquired by private equity firms tended to be better off and larger than average across several measures than those that were not, Cerullo said. Acquired hospitals were significantly larger than nonacquired hospitals in terms of number of beds and discharges in both 2003 and 2007.

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Covid 19 Coronavirus: Tom Pizzey Identified as Sydney’s ‘BBQ Man’

Brief: The Sydney Covid-19 patient dubbed "BBQ Man" after he visited an extensive list of BBQ stores while infectious has been named, finally providing an explanation for his curious shopping spree. Investment company Apollo Global Management managing director Tom Pizzey has been identified by the Australian Financial Review as the man linked to Sydney's latest Covid-19 scare. Pizzey contracted the virus earlier this month, with his wife later testing positive for Covid-19 as well. AFR understands Pizzey is still suffering coronavirus symptoms, with Apollo confirming it is assisting NSW Health in relation to a positive virus case. "The employee has not travelled outside Australia this year," an Apollo spokesperson told the publication. Pizzey, who is one of Apollo's only two full-time employees in Australia, is understood to be the mystery Covid-19 case who visited multiple venues on May 1 while unknowingly infectious, including several BBQ stores. Two of those trips were to different Barbeques Galore stores in Casula and Annandale. The chain is in its early stages of auction and, while Pizzey was searching for a new BBQ, AFR reports he was also checking out the stores for Apollo, with reports the company is considering acquiring the chain. In the same day, Pizzey also visited Joe's Barbeques & Heating in Silverwater, Tucker Barbecues in Silverwater and The Meat Store in Bondi Junction.

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Asset Managers Face ‘Fierce’ Competition as Passive Boom Outlives the Pandemic

Brief: The popularity of passive strategies hasn’t died down during the pandemic — meaning European asset managers, like their U.S. counterparts, will need to brace for more pressure on their operating margins this year. According to a new report from Fitch in London, the asset managers that the group rates, including Amundi, Azimut Holding, Man Group, and Schroders, among others, are in a position to weather the challenges, in part because they have strong brands, enough assets under management to be able to continue to invest in the business, and have used only a moderate amount of leverage. Still, Fitch said they and other traditional managers around the world face pressure on margins “in 2021 and beyond due to fee compression driven by fierce competition.” Fitch expects investors to continue to prefer low-cost index funds over active strategies. In aggregate, active managers have failed to prove their worth to investors by outperforming common benchmarks in 2020. For years, active managers have argued they would shine when volatility spiked, as their passive peers simply reflected the market’s fluctuations. But that didn’t happen last year, in part because the downturn was short-lived. The markets fell dramatically in March and early April, but then roared back when governments and central banks stepped in with trillions of dollars in stimulus. 

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

Our briefing for Friday May 7, 2021:

  • In the United States, President Joe Biden reflected on the lower than expected job growth totals released on Friday noting it reveals the economy is still struggling to recover from the coronavirus pandemic. The Labor Department’s latest numbers for April revealed that 266,000 jobs were added with the unemployment rate rising to 6.1%. Dow Jones estimates before the numbers were released had been for close to one million jobs created and an unemployment rate of 5.8% “This month’s job numbers we are on the right track,” said President Biden. “But we still have a long way to go. My laser focus is on growing the nation’s economy and creating jobs. My laser focus is on vaccinating, and my laser focus is on one more thing: making sure that hard working people in this country are no longer left out in the cold.”  President Biden rejected the idea that federal unemployment benefits were removing the incentives for people to return to the labour force.
  • Bloomberg is reporting one of Canada’s largest airline carriers is calling on the federal government to lay out a plan for reopening its borders as vaccinations progress. Air Canada’s CEO Michael Rosseau said it’s now “essential” for officials to follow the United States in easing rules that have stopped most air travel. “Starting with replacing blanket restrictions with science-based testing and limited quarantine measures where appropriate, Canada can reopen and safely ease travel restrictions as vaccination programs rollout,” Rosseau said. Elsewhere in the country, Nova Scotia set another single day record with 227 new COVID-19 cases on Friday and the province’s chief medical officer noting there were “more than 200 other cases” that needed to be entered into the system. With now more than 1,400 active cases in a province of close to one million people, government is extending school closures, tightening border restrictions, changing isolation requirements for rotational workers and putting limits on shoppers.
  • In the United Kingdom, scientists believe people should still work from home if they can even after the coronavirus lockdown is lifted in June. Prime Minister Boris Johnson said the country remains on track to lift all legal limits on social contact by June 21st after a dramatic drop in cases in recent months thanks to lockdown measures and a ramped up vaccination program. Scientists' concern is that encouraging people back to work in office settings would risk a resurgence of the virus when many other countries in the world, such as India, are still battling dangerous levels of infections.
  • China’s Sinopharm vaccine became the first inoculation developed by a non-Western country to receive emergency approval from the World Health Organization (WHO). The Sinopharm vaccine has already been given to millions of Chinese citizens and elsewhere around the world, including the United Arab Emirates. The WHO had only granted emergency approval to vaccines made by Pfizer, AstraZeneca, Johnson & Johnson and Moderna. The green light from the WHO is a guideline for other national regulators that a vaccine is safe and effective and also means China’s vaccine can be used in the global Covax program, which aims to provide about two billion vaccines to developing countries.
  • Multiple media outlets are reporting the calls are getting louder in Japan to cancel the upcoming Tokyo Olympics as the government prepared to extend the state of emergency in the host city. A Change.org petition titled “Cancel the Tokyo Olympics to protect our lives” had gained more than 200,000 supporters by late Friday afternoon – Japan time. Prime Minister Yoshihide Suga and his government are determined to press ahead with the Olympics after cancelling last summer due to the pandemic and believes it would be a sign of victory over the virus. Not helping the matter this week is learning Pfizer will donate vaccinations to all incoming athletes while Japan has only vaccinated less than 2% of its total population.
  • Australia’s international borders might be closed longer than expected, according to their trade minister, which would be a further blow to the airline and tourism industries. Speaking with Sky News on Friday, Trade Minister Dan Tehan said his best guess when Australia’s borders might reopen would be the second half of 2022. The Australian government had hoped to have its vaccination drive of its citizens completed by October, but that timeline was pushed into early 2022 due to medical complications tied to the AstraZeneca inoculation. Australia’s borders have been closed since early in 2020 due to the pandemic and as noted in Thursday’s Castle Hall COVID-19 Diligence Briefing, had to halt its quarantine-free travel with New Zealand via New South Wales on news of a new COVID-19 case that was stumping local health officials.

Covid-19 – Due Diligence And Asset Management

Wall Street Giants Get Swept Up by India’s Brutal Covid Wave

Brief : About 8,300 miles east of Wall Street, on a stretch of Bangalore’s Outer Ring Road, sits what was once the heart of the global financial industry’s back office. Before the pandemic, this cluster of glass-and-steel towers housed thousands of employees at firms like Goldman Sachs Group Inc. and UBS Group AG who played critical roles in everything from risk management to customer service and compliance. Now the buildings are eerily empty. And with case counts soaring across Bangalore and much of India, work-from-home arrangements that have sustained Wall Street’s back-office operations for months are coming under intense strain. A growing number of employees are either sick or scrambling to find critical medical supplies such as oxygen for relatives or friends. Standard Chartered Plc said last week that about 800 of its 20,000 staffers in India were infected. As many as 25% of employees in some teams at UBS are absent, said an executive at the firm who spoke on condition of anonymity for fear of losing his job. At Wells Fargo & Co.’s offices in Bangalore and Hyderabad, work on co-branded cards, balance transfers and reward programs is running behind schedule, an executive said.

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Hedge Funds Boost Shorts on European Bonds to Cushion Rate Risks

Brief: Fears of rising interest rates and warnings over bond valuations have made junk- and investment-grade rated bonds a popular short bet among hedge funds. Speculators are predicting fresh pain for the bond market, especially for longer-dated bonds with sovereign yields being tipped to rise due to an increase in inflation forecasts. This comes amid warnings from market experts regarding the “over-extended” valuations of CCC-rated bonds, the riskiest class of debt. Global high-yield bonds worth as much as $55 billion are on loan to traders seeking to profit if prices drop, according to data from IHS Markit Ltd., by a narrow margin the largest balance since the fall of 2008. This compares with about $35 billion at the start of the year. In the euro-denominated investment-grade market, roughly $30 billion equivalent of bonds have been borrowed, the largest loan balance since early 2014. “I would expect that list to get bigger as spreads tighten and/or people get worried about rates rising,” said Tim Winstone, a portfolio manager at Janus Henderson, which oversees 294 billion pounds ($409 billion). “At these levels of valuations, I’m not surprised more people, such as hedge funds, are setting shorts.”

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Tech Sector M&A Activity Hit Record High in Q1

Brief: A new report from technology-focused investment bank ICON Corporate Finance, has revealed record-breaking tech deal activity in the first quarter of 2021, up 28 per cent on Q1 2020, with 268 deals announced.  Evidencing resilience within the sector and a huge appetite for Vertical and Enterprise Software organisations, ICON believes M&A activity is yet to see its peak, and could easily surpass the UK total of 711 tech M&A deals completed last year. Digital transformation, fast-tracked by lockdowns across the world, has created a plethora of new digital solution providers that are grabbing the attention of overseas PE backed acquirers. Among these, UK Vertical Software providers are proving flavour of the month as PE houses look to buy, build and eventually sell. Corporate acquirers too are playing their part in an effort to gain an edge over rivals or to provide new revenue streams. The result has been valuations rising to near record levels. ICON believes that Digital Transformation across all industry sectors, including Vertical and Enterprise Software will continue to accelerate, boosted in no small part by appetite from overseas investors. Last year a record-breaking 48% of all UK deals involved cross-border backing, a figure which could yet be surpassed in 2021. 

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Economy Lost 207,000 Jobs in April, Unemployment Rate Rises, Statistics Canada says

Brief: Canada's labour market lost 207,000 jobs last month as a spike in COVID-19 variant cases led to renewed public health restrictions and raised concerns about longer-term economic consequences from the pandemic. The unemployment rate rose to 8.1 per cent from 7.5 per cent in March, Statistics Canada reported. It would have been 10.5 per cent had it included in calculations Canadians who wanted to work but didn’t search for a job. Ontario led the way on losses regionally with a drop of 153,000, and British Columbia witnessed its first decrease in employment since a historic one-month plunge in the labour market in April 2020. Nationally, losses were heavier in full-time than part-time work, with retail and young workers hit hardest as a resurgence of the virus and its variants forced a new round of restrictions and lockdowns. With lockdowns continuing into May, CIBC senior economist Royce Mendes said more losses this month are possible. Leah Nord, senior director of workforce strategies with the Canadian Chamber of Commerce, said the latest setback in the labour market will carry a long-term impact on the workers and businesses affected, particularly in high-touch sectors that are falling further behind.

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Abu Dhabi’s Mubadala Posts Record Annual Income and Investment

Brief: Abu Dhabi state investor Mubadala's total income rose nearly 36% to a record high last year, driven by growth in its public equities portfolio and funds while it accelerated investment during the COVID-19 pandemic. Mubadala Investment Co posted total comprehensive income attributable to the owner of 72 billion dirhams ($19.60 billion), up from 53 billion dirhams a year earlier, it said in a statement. Comprehensive income includes net income and unrealised gains such as hedges on financial instruments or foreign currency transactions. Assets under management rose 4.8% to 894 billion dirhams. It also invested 108 billion dirhams of capital in 2020, the most it has invested in a single year. Deals included 4.3 billion dirhams in Reliance Industries-owned Jio, 2.7 billion dirhams in private equity investor Silver Lake and 7.5 billion dirhams through partnerships with CVC, Citadel, iSquared Capital and Apax Partners. "We navigated our portfolio through the dramatic macroeconomic decline of early 2020 and decided to accelerate the pace of our capital deployment, ending the year with record profit and growth," said Mubadala CEO Khaldoon al-Mubarak.

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The Pandemic Caused a ‘Major Step Back’ For Women in Financial Services

Brief: For women in the financial services industry, the Covid-19 pandemic exacerbated the challenges they face in their jobs, resulting in a significant exodus from the field.  In a survey conducted by Accenture, a global technology and business consulting firm, 29 percent of women working in financial services said they left their job either permanently or temporarily during the pandemic, while 34 percent of women who hadn’t left their jobs said they were considering leaving their current firms. Almost half of the women who were considering leaving their firms held entry-level positions, meaning they have fewer than five years of industry experience. In an already male-dominated sector, improving gender diversity is a priority for many firms, but current initiatives may not have been effective enough to combat the pandemic’s toll on non-male employees. Across all career levels — senior, supervisory, and entry-level — over half of the women in the survey said they faced “increased pressure” as the main caregivers in their households, a dynamic they attributed to the pandemic. Among the most affected by the pandemic were executive and senior management respondents, 59 percent of whom believed the pandemic had adversely affected their career progression. As Gema Zamarro, a professor at the University of Arkansas, senior economist at the University of Southern California Dornsife Center for Economic and Social Research, and mother of two kids, summed it up: “You’re doing three jobs: mom, teacher, and your own work.” 

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

Our briefing for Thursday May 6, 2021:

  • In the United States, New York City Mayor Bill de Blasio announced the intention to offer the Johnson & Johnson COVID-19 vaccine to any tourist that visits in a bid to boost tourism upon reopening. Mayor de Blasio said the city needs state approval to vaccinate non-New Yorkers, but plan to begin the process as soon as if/when they are granted that approval. The plan would be to install mobile COVID-19 vaccination units in various tourist attractions across the city such as Times Square, Brooklyn Bridge Park and the Highline.

  • In Canada, health experts in Ontario believe the province won’t be able to break out of its stay-at-home order on May 20th as the case count is still too high. On Thursday, Ontario reported 3,424 new cases, although the number of patients in hospital and intensive care on ventilators dropped for the first time in weeks. Health experts say lessons need to be learned from previous lockdowns and dates shouldn’t be used for when specific orders should end, instead case count rates. For instance, one health expert said new COVID-19 cases need to drop significantly to below a rate of 20 per 100,000 per week. As of May 1st, Ontario’s rate was 166.6.

  • The Bank of England is looking extremely optimistic on the outlook of the United Kingdom economy – expecting the biggest surge in household spending since 1988. Central bank officials, led by Governor Andrew Bailey, said they expect consumers to use up 10% of the savings they incurred while in lockdown, double the pace of what was previously forecasted. The central bank also sees the UK’s economic output recouping their losses by year’s end, instead of sometime early in 2022. The success of the UK’s vaccination campaign has driven down case numbers and death rates to allow the government to stay on track with full reopening of the economy thus far, with the last stage set to take place in June.

  • In Germany, Chancellor Angela Merkel has pushed back against the United States and the Biden’s Administration’s proposal to waive patent protections for COVID-19 vaccines. A German government spokeswoman said Thursday via email that America’s plan would create “severe complications” for the productions of vaccines. “The limiting factor for the production of vaccines are manufacturing capacities and high quality standards, not patents, “said the German government spokeswoman. The United States, Germany and other countries will take up the debate via the World Trade Organization but given Germany’s stance it is looking unlikely the American proposal will be pushed through as all 164 WTO members must agree on the decision to waive patent protections.

  • The Associated Press is reporting the sales of Dubai’s upscale properties soared 230% in the first quarter of 2021, compared to the same period last year. A record-breaking 90 properties, worth at least 2.7 million USD each, changed hands in April, beating the 84 sales the month before. Only 54 such transactions occurred in 2020. “Tons of people are coming in and buying multimillion dollar properties on the spot, with no due diligence time whatsoever,” said Matthew Cooke, a partner at consultancy Knight Frank. Outside of a tourist influx surge in cases in January, the United Arab Emirates and Dubai have fared out relatively well with its young population and low mortality rates and has positioned itself as the world’s pandemic-friendly vacation spot.

  • Australia has reinstated COVID-19 restrictions in the Sydney area after a mysterious new case appeared. As mentioned in Castle Hall’s Wednesday COVID-19 briefing, a man in his 50s became the first reported local transmission case in New South Wales in more than a month. Further testing has determined the man was infected with the variant first discovered in India and genomic sequencing had linked the case to a returned traveller from the United States, but with no clear transmission path between the two people. The case has baffled local health officials. As a result of the new case, New Zealand has halted quarantine-free travel to and from New South Wales while authorities investigate further. The New Zealand-Australia travel bubble had opened less than a month ago.

Covid-19 – Due Diligence And Asset Management

Vendors Get Tough With U.S. Retailers After Big Losses

Brief : As U.S. retailers celebrate a boom lifting one of the pandemic’s hardest-hit sectors, scars left by a year of bankruptcies and delayed vendor payments could threaten to undermine their recovery -- just as the crucial back-to-school shopping season begins. After watching their receivables mount last year, vendors of apparel and other goods demanded change. In order to ship, many began requiring payment upon delivery of the goods or even in advance, according to people with knowledge of the demands, which were made of distressed and healthy clients alike. For merchants, that’s a big cash drain at a time of great uncertainty. The shift comes after retailers spent much of last year delaying payments to preserve cash. Such maneuvers have long been used by struggling chains, but amid the pandemic, even more stable merchants like Macy’s Inc. and Gap Inc. followed suit. An analysis of company financial data showed such buyers took at least two weeks longer to pay their suppliers than the same period the prior year. Vendors are “shell-shocked” after a string of Covid-era bankruptcies left them with large losses, and more concerned about guaranteeing they’ll be paid, said Perry Mandarino, head of restructuring and investment banking at B. Riley. “Late payments are not being tolerated,” Mandarino said.

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Covid, Cyber, Compliance and ESG Top Risk Concerns for Financial Services Sector, says New Allianz Report

Brief: Financial institutions and their directors have to navigate a rapidly changing world, marked by new and emerging risks driven by cyber exposures based on the sector’s reliance on technology, a growing burden of compliance, and the turbulence of Covid-19, according to a new report Financial Services Risk Trends: An Insurer’s Perspective from Allianz Global Corporate & Specialty (AGCS). At the same time, the behaviour and culture of financial institutions is under growing scrutiny from a wide range of stakeholders in areas such as sustainability, employment practices, diversity and inclusion and executive pay. “The financial services sector faces a period of heightened risks. Covid-19 has caused one of the largest ever shocks to the global economy, triggering unprecedented economic and fiscal stimulus and record levels of government debt,” says Paul Schiavone, Global Industry Solutions Director Financial Services at AGCS. “Despite an improved economic outlook, considerable uncertainty remains. The threat of economic and market volatility still lies ahead while the sector is also increasingly needing to focus on so-called ‘non-financial’ risks such as cyber resilience, management of third parties and supply chains, as well as the impact of climate change and other Environmental Social and Governance (ESG) trends.”

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‘Significant Pushback’ Expected as Biden Backs Suspending Patents on Covid Vaccines

Brief: Many are predicting a bright future for biotech firms involved in the production of Covid-19 vaccines as they are rolled out across the globe, but US President Joe Biden’s proposal that vaccine producers should temporarily waive patent protection has dampened this rosy outlook and is likely to result in significant pushback from firms in the sector. On Wednesday (5 May), Biden announced his support for waiving intellectual property rights for Covid-19 vaccines, bowing to increasingly pressure from within his own administration and other nations to help the rollout of the vaccine in less developed countries, such as India and South Africa. The news sent some pharmaceutical stocks plummeting. Moderna's stock was down 6.2% to $163 following the announcement while the Novavax share price fell 5% to $172, though Pfizer's stock price dropped only slightly. Healthcare shares in China were also affected by the news, with the CSI Health Care index falling nearly 4% to 15,727 points. Industry experts speculate that the decision was prompted in no small measure by Pfizer's Q1 earnings update, announced the same day, where it revealed it had recorded vaccine sales of $3.5bn in the first quarter of the year and expects full year sales of $26bn. As Jim Wood-Smith, CIO private clients & head of research at Hawksmoor Investment Management puts it, this situation raises "profound moral and financial problems".

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Sculptor Hedge Fund Rebounds With First Inflows Since 2014

Brief: Sculptor Capital Management’s flagship hedge fund is finally beginning to turn around. The firm’s multistrategy vehicle scored its first quarter of net inflows since 2014, marking the end of years of client withdrawals that totaled about $30 billion. The fund and its associated portfolios attracted a net $78 million of fresh cash, bringing total assets in those products to $10.9 billion as of March 31, the firm said in a statement Wednesday. The results, achieved in the last months of Chief Executive Officer Robert Shafir’s tenure, are a vindication of his promise and efforts to reverse the asset bleed. Last month, Chief Investment Officer Jimmy Levin succeeded him. Addressing the hedge fund inflows on Sculptor’s earnings call Thursday, Levin said that the new cash came from a broad range of investors. “It’s from all types of allocators all around the world: consultant-advised, non-consultant advised, institutional, non-institutional,” he said. “It’s been a bit of everything, which is why we described it as feeling healthy.”

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SEC Chair Gary Gensler Hones in on Trading Behemoth Citadel

Brief: Citadel Securities’ outsize role in the capital markers has gotten the attention of regulators. Gary Gensler, the new chairman of the Securities and Exchange Commission, honed in on Citadel in prepared remarks to be delivered to a Thursday hearing of the House Financial Services Committee, which is looking into the GameStop trading fracas in January. The GameStop debacle resulted in sharp price hikes in so-called meme stocks, leading to restrictions on trading by broker dealers and resulting in losses among hedge funds and retail investors alike. In the process, the trading frenzy also raised questions about market structure and those who benefit from it. Citadel Securities, a market maker, emerged as a key player in January’s market events because of its acknowledged role in buying order flow from Robinhood, a retail trading app, whose customers sent GameStop shares temporarily soaring from $20 to $480.   Payment for order flow is a controversial practice and has been banned in Canada and the U.K. In the U.S., Robinhood has already settled one SEC enforcement action on the practice.

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

Our briefing for Wednesday May 5, 2021:

  • The United States and President Biden’s administration have backed waiving intellectual property protections for COVID-19 vaccines as developing countries are struggling vaccinating their citizens. “This is a global health crisis, and the extraordinary circumstances of the COVID-19 pandemic call for extraordinary measures. The Administration believes strongly in intellectual property protections, but in service of ending this pandemic, supports the waiver of those protections for COVID-19 vaccines,” United States Trade Representative Katherine Tai wrote in a statement. The wavier, proposed by Africa and India, via the World Trade Organization (WTO), could remove obstacles for ramping up COVID-19 vaccine production in developing countries. WTO decisions are based on consensus, so all 164 members must agree to temporarily ease the rules protecting intellectual properties.
  • In Canada, the regulatory health body has given the green light to Pfizer’s COVID-19 vaccination for those over the age of 12 on Wednesday. After reviewing data submitted by Pfizer last month, Health Canada have determined the inoculation was safe to use on 12-to-15 year-olds after the previous recommendation was 16 years of age. Pfizer is the only vaccine in Canada to be authorized on people this young. As of right now, Health Canada has only recommended the AstraZeneca, Johnson & Johnson and Moderna vaccines for those over the age of 18. Shortly after the Health Canada announcement, Alberta Premier Jason Kenney was the first to make a move, saying the province will accelerate their vaccine rollout stating all Albertans aged 12 and above can be vaccinated against COVID-19 as of Monday. As noted earlier in the week in Castle Hall’s COVID-19 diligence briefing, Alberta has the highest number of COVID-19 cases per capita in the country, along with the United States.
  • In the United Kingdom, the entire Indian delegation at the G7 Summit being held in London have to self-isolate after two cases of COVID-19 were detected. India, although not part of the G7, were invited as guests. India was on the UK’s “red list” meaning travel from there is banned, but some jobs are exempt including representatives of a foreign country, which was the case here. India’s foreign minister Subrahmanyam Jaishankar had met with Home Secretary Priti Patel in person on Tuesday but has now pulled out of all face-to-face meetings. Elsewhere in the UK, Vaccines Minister Nadhim Zahawi announced the government has provided an extra £29.3 million in funding to help fast-track new vaccines that will help the country’s fight against new coronavirus variants.
  • The World Health Organization (WHO) has reported that India accounted for nearly half of the worldwide COVID-19 cases in the past week. In their weekly report, the WHO said India accounted for 46% of the global coronavirus case count and 25% of global deaths. Unfortunately, the death toll is only going to get worse for the country of over 1.3 billion people with some research models forecasting more than double the current levels. A model from the University of Washington suggests India could have over one million deaths due to COVID-19 by the end of July.
  • The Singapore-Hong Kong travel bubble is again up in the air. Bloomberg is reporting Singapore’s government is assessing any potential changes to the planned travel bubble, set to start on May 26th after a flareup of COVID-19 infections triggered fresh restrictions in the city-state. Singapore announced on Tuesday a three-week crackdown, which will see social gatherings limited to no more than five people and tightening of borders. The air travel corridor between two of South Asia’s economic hubs has been delayed several times since late 2020 due to infection outbreaks in both regions.
  • Australia’s largest state is scrambling and on alert after a man tested positive for COVID-19 on Wednesday. The state of New South Wales (NSW), home to the city of Sydney, said the man in his 50s had not recently returned from overseas, didn’t work in quarantine and had no contacts with the hospital system. On Wednesday evening, NSW Health revealed fragments of the coronavirus had been detected in an inner west sewer network, prompting a call for tens of thousands of Australians to monitor for symptoms. Australia is well known since their large outbreak in Melbourne last summer to implement strict circuit-breaker style lockdowns with only single digit cases in order to stop the spread of the virus.

Covid-19 – Due Diligence And Asset Management

Economic Uncertainties Top of Fund Managers’ Concerns, Finds Funds Europe Survey

Brief : Uncertainty about the speed and sustainability of the economic recovery are at the forefront of industry concerns, Funds Europe research shows. The finding comes at a time when firms are designing strategies for growth and innovation after the Covid-19 pandemic. The research, conducted in association with Caceis, ranges cross many themes in asset management.  We found that decision makers also feel challenged by the continuing pressure of adapting to regulations, for example rules to do with ESG.  Technology is also a pain point, with managers feeling a need to redesign technology ‘stacks’ and communication interfaces because they want to fulfil the digital needs of the funds industry for current and future generations. The survey had a total of 172 responses from investment fund professionals and was conducted online during February 2021. The report confirms that ESG and climate change is moving to the forefront of the regulatory and policy agenda in Europe. As a component of the European Commission’s Sustainable Finance Action Plan, the Sustainable Finance Disclosure Regulation (SFDR) requires fund managers, financial advisers, and some other categories of regulated firms with activities in the EU, to disclose information on ESG implications of their investment strategies to investors.

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FCA Data Breach Reports Down 30 Per Cent Despite UK Cyber Incidents Increasing by 56 Per Cent

Brief: Kroll, a provider of services and digital products related to governance, risk and transparency, has revealed the number of data breaches reported to the FCA fell by 30 per cent between 2019-2020. This is a direct contradiction to Kroll’s own data which, looking at all industries, showed a 56 per cent average rise in incidents over the same timeframe, with the financial services industry being slightly above that average.  Freedom of Information data obtained by Kroll from the FCA shows that the number of reportable cyber incidents where company or personal data was potentially compromised or breached dropped 30 per cent to 76 in 2020, compared to 108 during the same time period in 2019.  In reality, the number of data breaches is expected to be far higher, with Kroll’s proprietary data showing that during the same period the overall number of incidents impacting UK organisations rose 56 per cent, leading to an increase in consumer notifications of more than 41 per cent when compared to 2019.   This disparity between official FCA statistics and the reality of the current cyber threat landscape means the increase in the sophistication and volume of attacks is in danger of going unaddressed, and is likely to be linked with changes to data breach reporting as a result of GDPR.

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Small Businesses COVID-19 Relief Program Runs out of Money

Brief: The program, which has run out of cash and refunded by Congress twice before, was scheduled to expire May 31. It’s not yet known if lawmakers will approve another round of funding. The SBA said in a statement it will still fund applications that have been approved. New applications made through Community Financial Institutions, which are financial lenders that serve underserved communities, would also be funded. More than half the loans and nearly a third of the loan money were distributed this year. The average loan size was $46,000, less than half the $101,000 average loan in 2020. That is a sign that smaller companies unable to get loans last year were now getting funding. Companies have been drawn to the loans because they promised forgiveness if the money is used for payroll and other essentials. But, while the PPP helped save many companies devastated by the pandemic, the Biden administration has estimated that more than 400,000 U.S. businesses have permanently closed due to the virus.

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Fed’s Evans Says Risk of Upward Inflation Spiral is Remote

Brief: U.S. inflation is unlikely to get out of control despite the unprecedented government spending that’s been authorized in response to the coronavirus pandemic, Federal Reserve Bank of Chicago President Charles Evans said. “I think the risk of this scenario is remote,” Evans said Wednesday in remarks prepared for a virtual speech. The Chicago Fed chief, who has long been one of the central bank’s biggest worriers about inflation being too low, was responding to critics of the Biden administration’s fiscal programs, which include not only Republicans but also some economists associated with the Democratic party. Most of Evans’s colleagues at the Fed, including Chair Jerome Powell, have pushed back forcefully against such criticisms in recent months. Instead, they’ve highlighted the importance of the fiscal support in speeding the labor market back to full employment. “With these developments, my outlook for growth and unemployment is much more positive today than it was just a few months ago,” Evans said, referring to the measures.

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After a Lackluster Year, Bridgewater Gains Some Ground

Brief: Bridgewater Associates’ main strategies posted strong gains in April, putting them solidly in the black for the year. The strong monthly performance also capped a double-digit gain for the 12 months following the sharp losses Bridgewater suffered at the beginning of the pandemic. Bridgewater’s flagship Pure Alpha macro strategy, sometimes referred to as PA 18 Percent, was up 5.34 percent in April and 4 percent year-to-date, according to a person familiar with the results as well as a private database. PA 12 Percent, which takes on less risk than the main Pure Alpha strategy, was up 3.5 percent for the month and 2.8 percent for the year. Pure Alpha has now posted a 14.23 percent gain over the past 12 months. All Weather, the firm’s beta strategy, was up 4.38 percent in April and 1.35 percent year-to-date. It was also up 18.81 percent over the past 12 months. Bridgewater, the world’s largest hedge fund firm which is headed by Ray Dalio, generally points out that clients employ Pure Alpha as an overlay strategy, placing it on top of the benchmark of their choosing.  For example, in the 12 months through April 30, the S&P 500 was up 47.7 percent, while Pure Alpha was up an additional 14.23 percent.

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Worldwide Venture Investments Soared by 94 Per Cent in Q1 2021 to All-Time High of USD125bn

Brief: For the first time in history, global venture investments surpassed USD100 billion in Q1 2021. According to the research data analysed and published by Sijoitusrahastot, worldwide VC funding in Q1 2021 rose by 94 per cent YoY to USD125 billion. During the period, two unicorns on average were created daily, raising the quarterly total to 112. Based on a CNBC report citing Ernst & Young, VC funding in the US during the quarter hit USD64 billion. It was the highest quarterly figure on record, and it was equivalent to 43 per cent of total VC funding raised in 2020.  Late-stage funding dominated the global VC market accounting for 68 per cent of the total. The segment, together with technology growth, soared by 122 per cent to USD85.6 billion.  Some 79 per cent of the funds went into rounds worth at least USD100 million, up from 63 per cent in Q1 2021. Early-stage funding shot up by 63 per cent YoY to USD35.5 billion. Seed and angel investment held steady at USD4.1 billion while acquisitions rose by 44 per cent YoY to 631 deals worth USD57.1 billion.  In Europe, total funding rose by 130 per cent YoY from USD9.3 billion to a record USD21.4 billion. Late-stage and technology funding surged 202 per cent to USD14.3 billion. Early-stage funding rose by 62 per cent YoY to USD5.8 billion. There were a record 54 rounds worth at least USD100 million as well as two billion-dollar rounds by Klarna and Cazoo. 

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

Our briefing for Tuesday May 4, 2021:

  • The United States’ Food and Drug Administration (FDA) is preparing to authorize the use of the Pfizer COVID-19 vaccine for adolescents between the ages of 12 to 15. The news was first reported by the New York Times on Monday, citing officials familiar with the FDA’s plans. Pfizer noted in March that the vaccine proved to be safe, effective, and produced robust antibody responses to those aged 12-15 in a clinical trial. The Pfizer vaccine has already been cleared in America for people aged 16 and above. Staying on the vaccine front, the White House administration has stated they need to add more flexibility to their current system and informed states on Tuesday they can no longer carry over unordered doses to their weekly COVID-19 vaccine allocations, and that unused doses will instead be shifted to states with greater demand.

  • In Canada, Prime Minister Justin Trudeau and his chief public health officer were kept busy during their Tuesday news briefing trying to defend/explain the National Advisory Committee on Immunization (NACI) latest recommendations. On Monday afternoon, NACI said vaccines such as the AstraZeneca and Johnson & Johnson were not the “preferred” products due to their efficacy and safety concerns compared to Moderna and Pfizer vaccines. NACI also said people might want to wait for the Moderna and Pfizer vaccines, when faced with a choice. Prime Minister Trudeau tried to get the vaccine train back on the tracks by noting “make sure you get your shot, when it’s your turn. We are continuing to recommend to everyone get vaccinated as quickly as possible so we can get through this.” The prime minister also noted he had no regrets taking the AstraZeneca COVID-19 vaccine a number of weeks ago to protect his family and those that work around him. 

  • In the United Kingdom, a leading epidemiologist has stated recent data and rates of infection are “very encouraging” and though a third wave of infections is possible in late summer/early autumn, it is unlikely to overwhelm the healthcare system. Speaking on BBC radio, Professor Neil Ferguson, of Imperial College London, and who advised the government during the beginning of the pandemic, said the concerns he and his team had about a late summer or early autumn COVID-19 wave were “diminishing”. Dr. Ferguson also noted it was essential the UK rolls out booster doses once they have finished vaccinating the entire adult population (expected to be finished late in the summer) to protect against variants of concern. 

  • In Germany, the government agreed on Tuesday to ease restrictions on people who are either fully vaccinated or have recovered from COVID-19. Under the new rules, those who are fully vaccinated or have recovered from COVID-19 will no longer have to have a negative test to go shopping, get a haircut or visit tourist attractions. They will also be exempt from a night-time curfew and be able to meet in private without restrictions. The decree must now be approved in the lower and upper houses of parliament and could be in effect as early as this weekend. The proposed law is risky with people believing giving special freedoms to some will lead to social tensions when not everyone has received the opportunity to be vaccinated. As of Tuesday, only 8% of Germany’s population has received two doses of the vaccine with around 28% receiving their first. 

  • Hong Kong authorities have paused their plans to make COVID-19 vaccines mandatory for foreign domestic workers after human rights groups criticized the move as being discriminatory. After a domestic worker from the Philippines tested positive for a COVID-19 variant last week, Hong Kong authorities made the move that all 370,000+ foreign domestic workers in the city would have to be tested before May 9th and that all workers would need to get vaccinated before renewing their employee contracts. Hong Kong leader Carrie Lam said the following on Tuesday: “I have asked the secretary for labour to review the whole policy, and to consult advisers and consulates for the countries where domestic workers primarily come from as to whether compulsory vaccinations can be done.” The government still plans to move forward with the mandatory testing by May 9th.

  • The Association of South East Asian Nations (ASEAN), along with China, Japan and South Korea vowed to strengthen regional and financial cooperation while providing continued support for countries hit hard by the COVID-19 pandemic. In a joint statement after a virtual meeting on Monday of finance ministers and central bank governors, the ministers pledged to achieve inclusive recovery, preserve long-term fiscal sustainability and maintain financial stability. “We expect a rebound in 2021 as the recovery gathers momentum and vaccine rollouts allow a gradual opening up of our economies,” a statement read. ASEAN nations include Thailand, Malaysia, Singapore and the Philippines, among others.

Covid-19 – Due Diligence And Asset Management

Citadel Sees Most U.S. Staff Returning to the Office by June 1

Brief : Ken Griffin’s Citadel expects to have most of its U.S. employees back in its offices in New York, Chicago and Greenwich, Connecticut, by June 1, according to a person familiar with the matter. The $38 billion hedge fund, Citadel, and market-maker Citadel Securities anticipate that regular in-office operations in those locales will resume by that date, said the person, who asked not to be identified. Operations in Texas, meanwhile, will get back to normal in mid-May. Citadel’s expectation for workers’ return is earlier than some of its hedge fund peers, with many employees expressing an eagerness to get back to their desks. Bridgewater Associates and Two Sigma Investments plan to have employees back in offices in September while still allowing them to work remotely a few days a week. Major financial firms are stepping up efforts to bring workers back as Covid-19 vaccines become more broadly available and in-person schooling resumes. Goldman Sachs Group Inc. plans to tell staff they should be prepared to work from offices by mid-June, and JPMorgan Chase & Co. told employees to expect a return in early July.

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Vanguard Moves to Hybrid Work Setup for Most of its Employees

Brief: Vanguard Group is adopting a hybrid work model for the majority of its staff, making it the latest company to rethink the primacy of offices in the aftermath of the pandemic. The world’s second-biggest asset manager plans to allow many employees to work remotely on Mondays and Fridays. With a staff of 17,300, Vanguard’s move represents a middle ground that other financial firms are seeking. “The pandemic has affected so many aspects of our lives, and how we work is one of them,” the company said in an emailed statement. “Vanguard will pursue a working model that will blend increased flexibility with the known benefits of in-person collaboration.” As Covid-19 vaccines become more readily available and cities reopen, U.S. companies are grappling with whether to bring employees back to offices full-time or embrace remote arrangements for the long haul. Vanguard, based in Valley Forge, Pennsylvania, joins money managers Two Sigma Investments and Bridgewater Associates in planning to allow employees to continue to work remotely at least part-time.

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Hedge Funds Can Combat Inflation Surge as Economies Begin to Unlock says K2 Advisors

Brief: As global economies prepare to unlock, potentially driving up inflation and interest rates, hedge funds’ low sensitivity to rate moves can help bolster investors’ portfolio performance, says K2 Advisors, the hedge fund investing unit of Franklin Templeton. With economic growth tipped to trend higher, fuelling inflation, hedge fund strategies can deliver a diversifier to certain fixed income assets that may face a squeeze during inflationary or rising rate environments, said Brooks Ritchey, K2’s co-head of investment research and management. Hedge funds and other alternative investment strategies have traditionally been seen to thrive against equities and fixed income in low interest rate environments. But falling Covid cases and an accelerating vaccine roll-out across developed markets may now send consumer and industrial demand soaring, pushing global inflation trends and interest rates higher – carrying a knock-on effect for bonds and equities. As a result, hedge funds now look “particularly interesting” as a fixed income diversifier, Ritchey explained. “These strategies help to diversify one’s portfolio in a rising rate environment given the resultant increase in performance dispersion across regions, sectors and asset classes,” Ritchey wrote in a note on Tuesday.

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Biggest Economies Bet Vaccine Passports Can Save Tourism

Brief: The world’s most powerful economies agreed to back plans for so-called vaccine passports in a bid to pull the travel and tourism industry out of a pandemic-fueled slump. Tourism ministers from the Group of 20 threw their weight behind the new certificates, stressing that a resumption of normal activity for the sector is crucial to global economic recovery, according to Italian Tourism Minister Massimo Garavaglia. A virtual gathering on Tuesday, the first such meeting under the Italian presidency of the forum, backed efforts for safe mobility, coordinating with initiatives including the European Union’s Digital Green Certificate. That document will show the bearer has been fully vaccinated, has immunity via recovery, or recently tested negative. Garavaglia told a press conference in Rome that he had requested, and obtained from European Union Commissioner Thierry Breton, a commitment to accelerate introduction of the EU green certificate as much as possible. “Tourism will be the key to recovery once the pandemic is defeated,” Garavaglia said. Travel and tourism has been one of the industries hit hardest by restrictions on activity to contain the coronavirus.

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G7 Foreign Ministers Meet Face-to-Face After Pandemic Pause

Brief: Foreign ministers from the Group of Seven wealthy industrialized nations gathered Tuesday in London for their first face-to-face meeting in more than two years, to grapple with how to respond to the military coup in Myanmar and whether to challenge or coax a surging China. Host nation Britain was keen to show that the rich countries' club still has clout in a fast-changing world, and has warned that the increasingly aggressive stances of Russia, China and Iran pose a challenge to democratic societies and the international rule of law. U.K. Foreign Secretary Dominic Raab said the meeting “demonstrates diplomacy is back.” The two days of talks involving top diplomats from the U.K., the United States, Canada, France, Germany, Italy and Japan also were to discuss the humanitarian crisis in Syria, the Tigray crisis in Ethiopia and the precarious situation in Afghanistan, where U.S. troops and their NATO allies are winding down a two-decade deployment. The U.K. Foreign Office said the group would also discuss “Russia’s ongoing malign activity,” including Moscow's earlier troop buildup on the border with Ukraine and the imprisonment of opposition politician Alexei Navalny.

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Value of Private Equity Deals by HNWs Jumps Six-Fold, From GBP132m to GBP958m During the Pandemic

Brief: The value of UK buyout deals by high-net worth investors (HNWs) shot up by 626 per cent in 2020, rising from GBP132 million in 2019 to GBP958 million, says Boodle Hatfield, the leading private wealth law firm. The increasing number of buyout deals led or co-funded by HNWs goes against the overall decline in deal value across the wider private equity market over the same period. Whilst many trade buyers and to a lesser extent PE firms have stepped back from making acquisitions during the worst of the Covid crisis, HNW investors have used the crisis to buy distressed businesses at a substantial discount. Private equity deals by HNWs increased from 26 deals in 2019 to 27 deals in 2020. In contrast, last year there was a 26 per cent decline in combined deal value for UK private equity deals, according to research from a KPMG report. Overall UK private equity deal volume hit its lowest level since the 2008 economic crisis, falling from 1,200 deals in 2019 to 899 in 2020.  Boodle Hatfield explains that HNWs have been increasingly interested in leading PE transactions themselves as a way to get access to the asset class without having to pay the management and performance fees that investing through a private equity fund would involve.

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

Our briefing for Monday May 3, 2021:

  • In the United States, Florida Governor Ron DeSantis signed an executive order on Monday, suspending all outstanding local COVID-19 emergency orders and related public health restrictions. While noting Florida wasn’t done with its fight against coronavirus, the Republican governor said they were no longer in a state of emergency and signing the order was the evidence-based thing to do. The country’s third largest state in terms of population, has the third most COVID-19 cases in the United States with 2.2 million since the pandemic began and the fourth highest death toll at more than 35,000, according to the latest data from Johns Hopkins University.
  • In Canada, the province of Alberta now has the unfortunate distinction of reporting the highest number of COVID-19 cases per capita in the country, along with the United States. CTV News is reporting Alberta has seen an average of 423.8 cases per million people in the last seven days and set a record for their province over the weekend with 2,433 new infections. Dr. Noel Gibney, co-chair of the Edmonton Zone Medical Staff Association’s pandemic committee, says the government’s mixed messaging is to blame, “I believe we’re here because our government hasn’t taken the necessary steps in the messaging (and) what we’ve received is mixed. One day the premier is suggesting that lockdowns don’t work and the next day, suggests that we’re going to have bring in new targeted public health restrictions,” said Dr. Gibney.
  • United Kingdom Prime Minister Boris Johnson gave his clearest signal on Monday that international travel will resume as of May 17th. During a campaign visit, the prime minister said the following: “We do want to do some opening on May 17, but I don’t think that the people of this country want to see an influx of disease from anywhere else.” The government is set to announce later in the week a small set of countries that will make the “green list” for travel, which means travellers returning to the country won’t need to quarantine upon arrival, but still required to take a PCR test. The list, once announced, will be reviewed every three weeks.
  • India reported more than 300,000 new COVID-19 cases for the 12th straight day with medical experts saying the actual numbers across the country of 1.35 billion people may be five to 10 times higher than the official tally. According to a mathematical model from a team of scientists advising the government, India’s coronavirus cases are expected to peak between Monday and Wednesday, a few days earlier than a previous estimate as the virus spread faster than expected. Medical experts have pleaded with the government to announce a national lockdown, but Prime Minister Narendra Modi has been reluctant to do so, concerned about the economic impact.
  • Bloomberg is reporting the United Arab Emirates (UAE) non-oil economy shrank 6.2% in 2020, the first such contraction since 2011. The overall GDP in the Middle East’s second largest economy contracted 6.1%, slightly more than the initial projections of a 6% downturn. “The UAE economy performed better than expected in 2020 despite the current global challenges brought about by the COVID-19 pandemic,” said Abdulla Bin Touq Al Marri, the country’s economy minister. The Ministry of the Economy and other government entities are looking to double the UAE’s economy over the next decade to 3 trillion dirhams ($816.8 billion USD).
  • In Australia, Prime Minister Scott Morrison’s government is defending its decision to ban Australian citizens returning from India and threatening to punish those that do with fines of roughly $50,000 and five years of imprisonment. Prime Minister Morrison appeared on Australian radio on Monday and said the move was made to protect the health interests of Australians and implemented the ban on advice from his health officials. The Australian Human Rights Commission spoke out against the government decision saying the “extraordinary” ban and threat of criminal sanctions raised serious concerns. Others also said the move was motivated by racism; a claim Foreign Affairs Minister Marise Payne quickly rebuked. The travel ban is set to last until at least May 15th.

Covid-19 – Due Diligence And Asset Management

The Pandemic Hit Public Pensions Hard – But Now They’re Better Funded Than They’ve Been in Years

Brief : The Covid-19 pandemic didn’t hit all U.S. public pensions funds equally. Funds that were in the best financial health at the start of the pandemic took the hardest hit to their funded statuses over the course of the past year — but they’ve also benefitted most from the speedy recovery over the past 12 months, according to Goldman Sachs Asset Management’s public pension fund report for the first quarter of 2021.  The report, which is based on a performance sample of 99 public plans representing approximately $3 trillion of assets under management, found that a majority of the pensions experienced funded status declines of 10.1 to 12.5 percent in March 2020. Retirement plans which were well funded to begin with — at over 90 percent funded — experienced the largest decline in funded statuses from December 2019 to March 2020. Meanwhile, pensions that started off the pandemic with funding ratios below 70 percent experienced a single-digit median decline in funded status. GSAM suggested that the trend in funded status declines was “likely influenced by varying allocations to fixed income.” Plans with the highest rates of decline in funded positions also allocated the lowest percentages of assets to fixed income.

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World’s Biggest Wealth Fund Won’t Demand Full Office Return

Brief: Norway’s sovereign wealth fund, the world’s biggest, will let its employees continue working from home a couple of days a week once the pandemic is over, Chief Executive Officer Nicolai Tangen said. Staff at the Oslo-based investor, which oversees $1.3 trillion in assets, will be allowed to spend “up to two days” a week working from home, Tangen told lawmakers in Norway’s parliament during a hearing on Monday. But there will also be “two set office days for everyone,” he said, so that “we can have the meetings we need to have in the office.” Tangen, a former London-based hedge-fund manager, is the latest prominent member of the financial industry to acknowledge that life won’t return to pre-pandemic norms even after the Covid crisis subsides. Barclays Plc CEO Jes Staley recently said he won’t force employees to return to the office, while Deutsche Bank AG is working on plans to let staff work from home up to three days a week. At Norway’s wealth fund, Tangen said he was considering requiring staff to be in the office on Tuesdays and Thursdays. He also said no one would ever be forced to work from home, but said he thinks granting employees the option on a voluntary basis “can be positive.”

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Corporate America Rides Wave of Inflation to Record Profits

Brief: Markets have been obsessed -- and sometimes roiled -- for months over whether higher inflation is coming. The latest batch of quarterly reports suggests it’s already here and helping corporate America. Faced with rising prices for everything from lumber to oil to labor and computer chips, chief executive officers have cut costs and boosted prices for their products. The strategy appears to be working, with first-quarter income from S&P 500 companies jumping five times as fast as sales, data compiled by Bloomberg Intelligence show. As a result, their net margin -- which measures how much profit companies are squeezing from their revenue -- has risen to a record high, according to Bank of America Corp. Executives mentioned “inflation” more than any time since 2011 during earnings conference calls last month, according to Bank of America. Warren Buffett joined the chorus two days ago, saying price increases are more intense “than people would have anticipated six months ago.” The billionaire added that as his Berkshire Hathaway Inc. boosted prices, customers have accepted them.

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Restaurant Survival Hopes Pick Up as $28.6B in Grants Begin

Brief: Thousands of restaurants and bars decimated by the COVID-19 outbreak have a better chance at survival as the government begins handing out $28.6 billion in grants ¬— money to help these small businesses stay afloat while they wait for customers to return. Laurie Thomas is applying for grants for her two San Francisco restaurants that have closed and reopened several times as coronavirus cases surged and declined; she’s still at just 50% of capacity. Rose’s Cafe and Terzo are operating at a loss but grant money will help them stay open. “This allows you to go back to February 2020 and apply these funds to help pay down debt, catch up on past due rent, etc.,” she says.  The Small Business Administration is accepting applications for grants from the Restaurant Revitalization Fund as of Monday. For the first three weeks only applications from restaurants that are majority-owned by women, veterans and “socially and economically disadvantaged” applicants will be processed and paid out, although any restaurant can apply. After that, grants will be funded in the order that they’ve been approved by the SBA.

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Airlines Push for U.S-U.K. Travel Deal by G-7 Meeting in June

Brief: A coalition of airline and travel groups urged the U.S. and the U.K. governments to lift travel restrictions between the two nations, citing the growth in vaccinations and other tools that limit the spread of Covid-19. Officials should announce reopening before the Group of Seven economic talks scheduled for June, the groups said Monday in joint letters to President Joe Biden and Prime Minister Boris Johnson. “We are confident that the right tools now exist to enable a safe and meaningful restart to transatlantic travel,” said the letter from 49 industry groups and unions on both sides of the Atlantic. “Safely reopening borders between the U.S. and U.K. is essential for both countries’ economic recovery from Covid-19.” Exports between the two countries and tourism represent have a significant impact on each nation’s economy, highlighting the importance of resuming more normal travel, the group said. Industry officials in the U.K. have been saying that travel could begin to reopen as soon as this month, but the White House has been mum on when that might happen or what steps are needed to trigger such a move.

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Despite Pandemic Fears, A Record-Breaking ‘Frenzy’ of M&A Activity is Underway

Brief: When a pandemic was declared last spring, Paul Aversano feared the worst.  Aversano leads the global transaction advisory group at Alvarez & Marsal, which works with dealmakers across the corporate world and private equity. As stock markets plunged, investors turned their attention away from new acquisitions and toward shoring up their existing portfolio companies. It seemed like the industry-wide pipeline of deals was in danger of drying up.  “I remember last year telling my CEOs, best estimate, I think our business will be down 50%, and I’d be thrilled if that was the case,” Aversano said.  Rarely has he been happier to be proven so wrong. Deal activity did tick down during the second quarter of last year. But sooner than anyone expected, the market began to recover. In the end, Aversano’s business actually increased in 2020. And in 2021, acquisition activity of every kind is soaring to unprecedented heights.

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