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Covid-19 Diligence Briefing

Our briefing for Wednesday June 30, 2021:

  • In the United States, health officials are growing more concerned about the Delta variant as it now accounts for more than 25% of the coronavirus cases in the country. While the overall numbers are significantly better compared to previous waves of the virus, there are still close to 300 people dying per day in the United States due to the coronavirus, which US Surgeon General Dr. Vivek Murthy says is still “just far too many”. Federal health officials are struggling to get vaccination rates up in certain states, which is a breeding ground for the Delta variant to take hold. For instance, in Mississippi, where just 29.7% of the population are fully vaccinated, unvaccinated people have accounted for 90% of the COVID-19 cases and deaths in the past month.

  • Bloomberg is reporting Canada’s economy shrank less than expected during a spring surge of coronavirus cases that saw many provinces head into strict lockdowns. According to estimates from Statistics Canada released on Wednesday, the country’s GDP contracted by 0.3% in April and by a similar amount in May. The resilience shown by the economy is expected to fuel a strong rebound heading into the summer months. Canada’s most populous province – Ontario – moved into its second stage of reopening on Wednesday, which allows for more outdoor activities and more indoor services, such as haircuts to resume. The reopening comes on the same day Ontario reported its lowest single-day case number the province has seen since September 10th with just 184 new cases.

  • In the United Kingdom, over 26,000 new COVID-19 cases were recorded on Wednesday – the highest number since January. While the higher case load isn’t good news, the silver lining is that the vaccines are having an effect in driving down deaths. For instance, when the numbers were as high as they were on Wednesday – January 29th – 1,245 COVID-19 deaths were recorded; compared to just 14 now. Prime Minister Boris Johnson’s official spokesperson said the increase had been anticipated and that the country remained in “good position” to continue with lifting of lockdown restrictions in a matter of weeks.

  • France’s leading scientific adviser said on Wednesday that the country is likely to have a fourth wave of the COVID-19 virus, due to a resurgence of cases caused by the Delta variant. The wave – expected to hit sometime in September or October – though may be similar to what the UK is experiencing with the rollout of COVID-19 vaccines helping mitigate the effect. “I think we will have a fourth wave, but it will be much more moderate than the previous three waves because the level of vaccinations is different compared to before,” said Professor Jean-Francois Delfraissy to French radio. Earlier in the week, French Health Minister Olivier Veran said the Delta variant, first discovered in India, now accounts for around 20% of the coronavirus cases in the country.

  • Singapore is changing the way it reports on progress against COVID-19. Looking to shift away from its “Covid-Zero” strategy of trying to crush the virus entirely through stiff border controls, aggressive contact tracing and social distancing, the Ministry of Health will instead focus on key trends and the number of severe cases. The “Covid-Zero” strategy has kept the caseload in the city-state well below that of its Southeast Asian neighbours, but serving as a financial hub, risks being left behind as other financial capitals start to reopen. Government officials are drawing up a roadmap for the city’s economic future that works on the assumption COVID-19 won’t go away for several years.

  • Australia continues to battle the latest coronavirus cluster with seven Australian cities now in lockdown to try and contain the spread of the more highly contagious Delta variant. The only area spared currently seems to be Melbourne, which went through its own outbreak earlier this month. Otherwise, Sydney, Brisbane and Gold Coast to the east, Townsville and Darwin towards the north, Alice Springs in the central and Perth to the west are in some form of a lockdown. The seven cities account for nearly half of the population – 12 million – that are under stay-at-home orders. Across the country on Wednesday, state leaders said they were facing a “pressure cooker situation” as new cases emerged.

Covid-19 – Due Diligence And Asset Management

Kaplan says Fed Will Avoid 2013 Taper Tantrum This Time Around

Brief : The Federal Reserve’s tapering of its asset purchases, which he hopes will start “soon,” will run smoother this time around because investors already know that a move is being discussed, said Federal Reserve Bank of Dallas President Robert Kaplan. “I want it to get out into the market, and I think this debate we’re having at the FOMC, some of it publicly, is good,” Kaplan said Wednesday in an interview with Michael McKee on Bloomberg Television, referring to the Federal Open Market Committee. “People are on notice that these adjustments are coming, the only question is when.” Kaplan said the Fed learned a number of lessons in 2013, when it first announced a slowing its purchases of Treasuries and mortgage-backed securities following the global financial crisis. The news caused a violent spasm in financial markets as investors sold riskier assets for the safety of bonds in an episode dubbed the “taper tantrum.” The central bank has been purchasing $80 billion of Treasuries and $40 billion of MBS monthly since last year to support the U.S. economy during the pandemic. Chair Jerome Powell said earlier this month that the taper debate was getting into gear and would continue at coming FOMC meetings.

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Event Driven Hedge Funds Latch Onto M&A Boom, as Potential for Returns Has “Never Been Better”

Brief: Event driven hedge funds are making hay amid soaring levels of corporate activity, with new stats showing these managers raked in their best first-quarter returns in almost 30 years, as a number of newly-launched strategies look to get a piece of the M&A action. Event driven managers – which seek to capitalise on stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events using activist, merger arbitrage and special situations strategies – posted a first quarter composite return of 7.3 per cent, according to new research by bfinance, their strongest Q1 showing since 1993. M&A activity has rapidly picked up momentum since the third quarter of 2020, and since the start of 2021 volumes have risen to more than USD2.4 trillion globally, as economies look to recover from Covid-19 and deals put on hold during the pandemic are kickstarted. Against that backdrop, event driven strategies advanced 11.7 per cent in the first five months of 2021, according to data published by Hedge Fund Research, outflanking HFR’s industry-wide Fund Weighted Composite Index, which was up 9.92 per cent over the same period.

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Warren Buffett says Pandemic’s Impact Still Hard to Predict

Brief: Billionaire Warren Buffett says the one constant throughout the coronavirus pandemic has been that it has been difficult to predict how it would affect the economy, but clearly it has devastated many small businesses and individuals while most big companies have fared OK. “The economic impact has been this extremely uneven thing where I don’t know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly have done fine, unless they happen to be in cruise lines or, you know, or hotels or something,” Buffett said in an interview that aired on CNBC Tuesday night. Buffett and Berkshire Hathaway Vice Chairman Charlie Munger touched on a variety of topics during the interview. Munger said China had the right approach to the pandemic by essentially shutting down the country for six weeks. “That turned out to be exactly the right thing to do,” Munger said. “And they didn’t allow any contact. You picked up your groceries in a box in the apartment and that’s all the contact you had with anybody for six weeks. And, when it was all over, they kind of went back to work. It happened they did it exactly right.”

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Substantial Corporate Changes for one in two Trusts Since Onset of Pandemic

Brief : Almost one in two investment trusts from the Association of Investment Companies (AIC) has undergone corporate activity in the past five years, new data has revealed.  While a degree of corporate action is regular in the investment company space, since the onset of the pandemic more substantial changes have become the norm as boards are under increasing pressure to prove shareholder value. The figures showed 47% of investment companies have undergone a manager change, merger, fee change, policy change or liquidation since the beginning of 2016, with some undergoing multiple changes. In the last 18 months alone, 11 companies have changed their manager, with two more currently undergoing strategic review, compared to 18 in the previous four years. Additionally, 11 companies have been liquidated, 12 have seen policy change and there have been three mergers.  "Since the onset of the pandemic, investment company boards have been particularly proactive in addressing performance and other issues such as liquidity," said Annabel Brodie-Smith, communications director at the AIC.

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The Global Economy Could Lose $4 Trillion Due to Covid-19’s Impact on Tourism

Brief: The pandemic-related collapse in international tourism could cost the global economy as much as $4 trillion for the years 2020 and 2021, according to a new United Nations report. The estimated losses have been caused by Covid-19's direct impact on tourism as well as its ripple effects on other sectors closely linked to it. The steep drop in international arrivals led to a $2.4 trillion loss in 2020 and the UN's report warns that a similar loss could occur this year with the recovery largely dependent on the uptake of global Covid-19 vaccines. The report states that while tourism losses are falling in most developed countries, the situation is deteriorating across much of the developing world due to vaccine inequality. While the industry is expected to rebound faster in countries with high vaccination rates such as the France, Germany, Switzerland, the United Kingdom and the United States, experts don’t expect a return to pre-Covid-19 international tourist arrival levels until 2023 or later.  The report bases its loss estimates for 2021 on three scenarios involving different drops in tourism arrivals as well as varying vaccination rates. The most severe scenario involves a 75% reduction in tourism arrivals which would lead to a $2.4 trillion loss this year.

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Lazard to Allow Dealmakers to Work From Home Twice a Week

Brief: Lazard Ltd. said any employee working in its U.S. offices must be fully vaccinated against the coronavirus by July 6, and North American financial-advisory bankers will have the option of working from home two days a week. The investment bank encouraged more employees to return to offices, calling the experience “vital” for younger workers, according to a memo to staff obtained by Bloomberg and confirmed by Lazard. Individuals can work remotely, subject to client needs, on Monday and Friday if they choose.

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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 June 29, 2021:

  • According to a report from the Financial Times (FT), talks between the United States and United Kingdom regarding a travel corridor between the two countries are increasingly unlikely to reach a conclusion by the end of July. Citing officials familiar with the talks, the FT reported the added rise of the Delta variant in Britain, the complexities of the United States political system and uncertainty over the AstraZeneca vaccine in America, where it is not yet approved, are all reasons for the talks to extend into August and even September. Earlier this month, United States President Joe Biden and United Kingdom Prime Minister Boris Johnson met during the G7 Summit where the discussion of opening the transatlantic corridor was discussed.
  • In Canada, a new report from the Royal Society of Canada is noting the number of Canadians that died because of the COVID-19 pandemic could be likely double of what is shown in official numbers. The disturbing report, which looked at excess deaths, suggests that largely racialized communities and essential workers were the demographics that took the brunt of the unreported COVID-19 deaths – often dying at home. Using the numbers from the study, instead of 26,000 deaths due to the pandemic as reported, it could be as many as 52,000. Canadians were led to believe most of the deaths occurred primarily in long-term care homes, which may have distracted from other communities also in need.
  • In the United Kingdom, Prime Minister Boris Johnson has echoed the sentiment of his new health minister, telling Cabinet that he is “increasingly confident” that Britain can fully reopen on July 19th and that citizens will learn to “live with” the COVID-19 virus. Prime Minister Johnson told his colleagues that the latest data was looking good and that although cases were continuing to rise because of the Delta variant, the number of hospitalizations and deaths were not rising at the same pace. According to the latest numbers, 84% of adults have at least one dose of a COVID-19 vaccine. New Health Secretary Sajid Javid issued an upbeat assessment of prospects for opening the economy on July 19th in his first statement in the Commons.
  • The European Union (EU) is having a hard time coming to a consensus on travel restrictions, especially when it comes to the UK and Delta variant. Portugal and Spain are the latest countries to either impose a quarantine or ask UK residents to show proof of full vaccination or a negative PCR test. Germany and Chancellor Angela Merkel, often seen as the leader of the 27 member EU bloc of nations, has suggested the entire EU should coordinate closely and be more cautious about allowing entry to travelers from external countries. Germany already has a ban on most travel from the UK, which it describes as a “variant area of concern.”
  • In the United Arab Emirates (UAE), the capital city of Abu Dhabi will restrict entry to public spaces and schools to people who have been vaccinated. As of August 20th, people who wish to access universities, schools, nurseries, gyms and shopping centres in Abu Dhabi must have been inoculated with a COVID-19 shot. The decision won’t apply to those exempt from taking a vaccine and to children aged 15 and under. Abu Dhabi officials made the move after noting on social media that 93% of target groups have been vaccinated.
  • Japan is asking Olympic athletes from India and five other countries hit hard by the Delta variant to agree to daily virus tests for seven days before leaving for the Games. Currently, all overseas athletes are being asked to have coronavirus tests twice during a four-day period before they arrive in Tokyo. Two members of Uganda’s team tested positive last week upon arriving in Japan, heightening concerns about the spread of infections during the Olympic Games. Japanese Olympic Committee president Yasuhiro Yamashita has already conceded there was “no way” to ensure zero coronavirus cases among teams arriving for the Tokyo Games, set to begin July 23rd.

Covid-19 – Due Diligence And Asset Management

Top Executives Freed From Quarantine in England

Brief : Senior executives who have traveled to England can temporarily leave quarantine if their work is likely to bring major benefits to the U.K. economy, the government announced on Tuesday. The exemption from isolation rules for newly arrived travelers applies to multinational executives who are visiting British branches of their firms. Critics of the decision questioned why it wasn’t also extended to smaller businesses. Top executives of foreign companies can also be released from the quarantine requirement if they are looking to make an investment in a British business or set up a new company in the U.K, the government said. “Many other countries have introduced similar exemptions and it’s important the U.K. public don’t lose out on prospective major investment,” Prime Minister Boris Johnson’s spokesman Max Blain said on Tuesday. “This is about making limited exemptions when people can prove they are looking to make significant major investments.” The Telegraph newspaper reported last week that JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon skipped visiting England on a recent trip to Europe due to quarantine restrictions.

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Bridgepoint Seeks $2.8 Billion Value in Rare Buyout Firm IPO

Brief: Bridgepoint Group, the buyout firm spun out of Royal Bank of Scotland Group in 2000, will go public in one of the biggest listings of a U.K. private equity firm in decades. The firm plans to raise about 300 million pounds ($416 million) and list at least a quarter of its shares, according to a statement Tuesday. The offering, which is expected to value the company at about 2 billion pounds, will also include the sale of about 200 million pounds from existing holders, said a person familiar with the matter. The buyout firm, which focuses on middle-market companies across Europe and owns stakes in Burger King franchises in the U.K. and a motorbike racing business, is seizing on an ebullient stock market that Bridgepoint’s own chairman said earlier this year was showing signs of being near a top. Unlike the U.S., where firms like Blackstone Group Inc. and KKR & Co. went public more than a decade ago, British buyout groups have tended to remain small private partnerships still dominated by their founders or immediate successors. Closely held firms have been grappling with how to provide exits for founders, while also ensuring rising stars can monetize their stakes.

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Moderna Jumps to All-Time High as Delta Variant Fear Deepens

Brief: Moderna Inc. climbed to a record high amid growing concern about a more contagious variant of Covid-19 in nations including India, which cleared the import of its vaccine. The shares rose as much as 6.9% to $238.40, breaking through the prior intraday record set earlier this month. Trading volume was about 1.2 times the 10-day average as of 12:16 p.m. in New York. Moderna said its vaccine produced protective antibodies against the delta variant, which emerged in India and has been spreading throughout the world. India’s drug regulator approved the import of the shots for restricted emergency use on Tuesday. The world’s second most-populous country trails richer nations with a little more than 4% of the population fully vaccinated, compared with almost half in the U.S. Some analysts had expressed concern about Moderna’s recent surge, which has pushed the Cambridge, Massachusetts-based company’s market value past $95 billion. Moderna continues to be driven by momentum, and today’s study results are “clearly showing good coverage of variants with their vaccine,” Michael Yee at Jefferies said in an email.

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European Equity Commissions Surge on Pandemic Volatility and Renaissance of Active Strategies, says Bloomberg

Brief : Market volatility caused by the pandemic is set to increase European equity commissions by 19 per cent from 2019, after five years of decline, according to the latest European Institutional Equity Trading Report published Bloomberg Intelligence (BI). The report is based on data from 87 European institutional equity head, and senior traders. Equity commissions are anticipated to increase by 8.8 per cent in 2021 to GBP2.3 billion after climbing 9.2 per cent in 2020. According to the study, a majority (53 per cent) of traders believe that their overall commission payments will rise this year, and more than two-thirds forecast improvements in trading volumes. The Bloomberg Intelligence report notes that, if predictions come true, 2021 will be the second year in a row to see brokerage commissions improve following a decline of a third in 2015-19. Currently, the average blended commission rate is at 3.46 basis points. This period saw a shift from active management strategies to more quantitative and passive strategies put pressure on turnover and fees and a switch to less expensive trading channels. Survey respondents view algorithms as the most important broker service, followed by high and low touch services.

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Private Equity Invests in Record 566 CEE Companies in 2020

Brief: Private equity firms invested in a record 566 companies in Central and Eastern Europe in 2020, as the industry supported dynamic SMEs and start-ups that will fuel the recovery from the impact of Covid-19 and underpin long-term economic and social development across the region. Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, today released its 2020 Central and Eastern Europe Private Equity Statistics. The report shows that the number of companies receiving private equity investment increased by 15 per cent on the previous year’s record and beat the five-year average by 46 per cent. Venture capital was the driving force for company investments in 2020 as firms backed 474 start-ups and scale-ups with total investment of EUR358 million – just 4 per cent below the all-time high achieved in 2019. Overall private equity investment slipped to EUR1.7 billion in 2020, mainly due to the absence of large buyout transactions involving equity commitments exceeding EUR300 million during the period. Poland was the leading destination with a quarter of the region’s total investment value (ER431 million)  and home to almost a fifth of the companies receiving funding.

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Real Estate Tech is Bouncing Back From its Pandemic Slump

Brief: The pandemic had a tumultuous effect on the real estate industry. On the one hand, offices stood empty, hotel occupancy rates plummeted and construction was halted for many months. At the same time, demand for residential housing intensified as people were looking for more space to work and study. As a result, 2020 global VC deal flow into commercial real estate technologies fell nearly 80% compared with 2019. Meanwhile, venture investment into residential real estate tech dropped by less than 10% in that time, according to PitchBook data. As pandemic-related shutdowns are phasing out, both segments are seeing renewed interest from venture capitalists. Roughly six months through the year, VC deal activity in residential real estate tech has already reached an annual record of $6.2 billion, according to PitchBook data through June 18. And with $2.6 billion in funding, the commercial segment is on track to make 2021 the second-most valuable year for venture activity. Unlike in previous years, when the buzziest companies in the sector served commercial clients, much of the venture dollars are going to startups focused on disrupting the scorching-hot residential market.

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

Our briefing for Monday June 28, 2021:

  • In the United States, as plan “A” for President Joe Biden’s administration and its vaccination goal for July 4th were thrown off-stride, they are now moving onto plan “B”. The Associated Press is reporting the Biden administration is sending its A-list officials across the country, devising advertisements for niche markets and enlisting community organizers to persuade unvaccinated people to get the COVID-19 shot. The focus is on what health officials call the “moveable middle” – a group of about 55 million Americans – most under the age of 30. “We’re not just going to do the mass vaccination sites,” said Health and Human Services Secretary Xavier Becerra. “It’s door to door. It’s mobile clinics. We’re doing vaccinations at church, the PTA meeting, the barber shop, the grocery store.” It’s unclear how well the administration’s plan “B” is working with vaccination rates now dropping below one million a day and no sign yet of a turnaround.

  • In Canada, Ontario is claiming to set a new North American record for most vaccinations at a single site in one day. Over the weekend, health officials set-up shop at Toronto’s Scotiabank Arena – home normally to professional sports teams like the Toronto Maple Leafs and Toronto Raptors – to administer doses of Pfizer and Moderna. According to the facility’s owner – Maple Leafs Sports and Entertainment Ltd (MLSE)– 26,771 COVID-19 shots were administered on Sunday. MLSE said the previous record for a single day in North America was thought to be more than 17,000 shots at The Texas Motor Speedway back in April. Canada’s vaccination rate got off to a slow start compared to its southern neighbours with only 3% of residents fully vaccinated by the middle of May. However, vaccinations have picked up steadily and government officials hope to have 75% of Canada’s population fully vaccinated by late July or August.

  • In the United Kingdom – Health Secretary Matt Hancock stepped down from his position over the weekend in a way British tabloids would even have a hard time making up. Hancock quit on Saturday after it was revealed he was caught breaking COVID-19 rules by kissing and embracing an aide in his office. The move enraged colleagues and the public who have been living under lockdown and is the latest scandal to rock the Boris Johnson government – which has seen many – since the pandemic began in March 2020. On Friday, The Sun newspaper published photos of Hancock embracing a woman who he had appointed to a taxpayer-funded role to scrutinize his department. “Those of us who make the rules have got to stick them and that’s why I’ve got to resign,” said Hancock via a video message on Twitter.

  • In a race against the Delta variant, Germany is expecting drugmaker Moderna to deliver its COVID-19 vaccines faster than expected over the coming months. Speaking over the weekend, German health minister Jens Spahn said the supply of vaccines will soon outstrip demand, which will allow it to offer shots to passers-by in city centres and places of worship. Moderna will increase its deliveries to 1.33 million doses a week from July; up from the 733,000 previously expected, raising the figure to 2.57 million in August and 2.95 million a week in September. Germany has 53% of its population with a first dose of a COVID-19 vaccine and 35% are fully vaccinated.

  • The United Arab Emirates (UAE) have confirmed most of the new coronavirus infections in the Arab state are from the more infectious variants. UAE, with a population of about nine million, had one of the world’s fastest vaccination campaigns, but cases have risen to more than 2,000 new infections a day and over the weekend, suffered its highest single-day death toll since March. The National Emergency Crisis and Disaster Management Authority (NCEMA) said the increase in deaths was due to the Beta variant, first discovered in South Africa and the Delta variant, first discovered in India.

  • Australia’s health authorities are claiming the country is in its most dangerous stage since the pandemic earliest days because of several COVID-19 clusters now circulating. Sydney to the east and Darwin in the north were in lockdowns on Monday. Perth in the west has made masks compulsory for three days and warned a lockdown could follow after a resident tested positive after visiting Sydney a week ago. Meanwhile Brisbane and Canberra have or will soon make wearing masks compulsory. Australia has had to depend on fast and harsh lockdowns to contain clusters of cases as the nation’s coronavirus vaccine rollout has been slow with only 5% of the population fully vaccinated. Sydney’s two-week lockdown began on Monday.

Covid-19 – Due Diligence And Asset Management

KKR Dealmakers Pause for Breath After $60 Billion Pandemic Binge

Brief : A relentless global deal binge totaling nearly $60 billion has KKR & Co.’s leadership taking stock -- and a breather. When the pandemic hit, shortly after Philipp Freise and Mattia Caprioli took over new roles in Europe, the buyout house started deploying as much capital as possible while most rivals held back. More than a third of the total was spent in Europe, and KKR started working on a new fund dedicated to the region just a year after closing the last one. The breakneck pace of deals took its toll. KKR is now echoing the gentler tone adopted by investment banks like Goldman Sachs Group Inc. after employees balked at the work-till-you-drop culture. The biggest challenge to high performance in the buyout industry is “constant exhaustion,” Freise, 47, said in an interview. “As new-generation leaders, our job is to really temper,” said the German dealmaker, who’s co-head of KKR’s European private equity business with Caprioli. “It is almost like conducting an orchestra where the whole thing has gone into ‘Ride of the Valkyries’ -- we have to slow down a little bit to protect the human element from crashing.” The unusually open tone by leaders in the cutthroat buyout industry comes as workplace cultures come under increasing scrutiny and employers seek ways to retain a younger generation of workers.

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EU’s Economic Guardians Are Split on Post-Pandemic Strategy

Brief: The European Union’s top economic policy makers are exposing a gulf in their views on how to run the economy after the pandemic. European Central Bank Executive Board member Fabio Panetta said on Monday that monetary officials should retain the “unconventional flexibility” they granted themselves during the crisis, keeping borrowing costs low until government spending helps push up inflation. Hours later, his policy-making colleagues Jens Weidmann and Robert Holzmann said the ECB’s emergency powers are temporary and must end once the emergency is over. Panetta also said the ECB should consider retaining the flexibility ingrained in its 1.85 trillion-euro ($2.2 trillion) pandemic emergency bond-buying program when it expires. An older quantitative-easing program is tied to limits on how much of a country’s bonds can be bought.

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Global Economic and Earnings Growth is Approaching its Peak. Now What?

Brief: The global economy has recovered from the pandemic sooner than most expected, with diversified investors benefiting from financial markets. But with growth now expected to be at its peak, U.S. asset managers, in particular, must now grapple with new concerns surrounding interest rates, inflation, and valuations. According to Nuveen’s mid-year outlook released Monday, “a booming economy brings with it new opportunities — and risks.” While asset growth improved from 2020, yields are still “frustratingly” low, which means returns may be fewer and far between in the second half of 2021. Moving into the second half of the year, the asset manager recommended clients consider differentiating between short- and long-term inflation risks and diversifying income and asset classes. “Both the level of output and its first derivative (growth) remain quite strong. It’s the second derivative — the change in the rate of growth — that has started to fall, presenting a challenge for investors and policymakers alike (not to mention those charged with making economic forecasts),” the report stated.

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Asset Managers Mull Upgraded US Inflation Expectations

Brief : Asset managers are weighing the impact of upgraded inflation expectations on financial markets, as the Federal Reserve moves up its timeline for interest rate hikes and bond tapering. An array of buoyant economic data from the US resulted in the Federal Reserve upgrading its inflation expectations and moving up its timeline for raising interest rates, with the first hikes now expected in 2023.  The Federal Reserve now predicts that inflation will climb to 3.4 per cent this year. This is a marked shift in tone from the FOMC’s meeting in March, which projected 2.4 per cent yearly inflation, and no rise in interest rates until 2024.  Earlier this month, Russell Investments found that 70 per cent of fixed income managers expect inflation in the next year will exceed 2 per cent. Meanwhile, average allocations to bonds are currently at a three-year low, according to Bank of America’s fund manager survey in June. US 10-year Treasury yields rose to 1.55 per cent on Friday, twelve basis points higher than the end of last week. BlackRock Investment Institute sees the Federal Reserve’s new guidance as “more balanced”, with two interest rate hikes projected for 2023. “We view this upgrade as the Fed catching up with the restart dynamics.” 

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Should Real Estate Equities Investors Be Worried About Inflation?

Brief: Inflation, having been off the menu for so long, now seems to be the hottest of topics. How worried should investors be given recent inflation fuelled market wobbles and how can they protect themselves if it does become a problem in reality? One answer could be found in real assets, which generally benefit by economic growth that causes inflation.  Certain types of real assets, like property and infrastructure, can also rise in price when their input costs rise, as the replacement cost of building similar buildings or structures rises. However, for most investors infrastructure or commodity investments can be too niche or volatile, and the liquidity mismatch of direct property funds throws up additional risk. As such many investors look to REITs (real estate investment trusts) or funds of REITs for long term capital appreciation, a robust income stream and inflation protection, as rental incomes general include inflation uplifts. Most investors would invest in REITs that focus on commercial property, but more specialist REITs and residential REITs are available.

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Property Investors Eye South America Haven in Return-to-Work Bet

Brief: A group of Uruguay’s top real estate investors is planning to raise $165 million to wager that demand for office space is about to take off as foreigners flock to the nation known as the Switzerland of South America. Investors including architect Ernesto Kimelman and construction executive Eduardo Campiglia are seeking to sell hybrid securities through a real estate trust, Fideicomiso Financiero Platinum. The cash raised through the sale will go toward building two office towers and a 98-unit apartment building expected to house locals and newcomers to the nation of 3.5 million people. “We’re in the middle of a region that unfortunately has lots of issues. There are problems in Chile, in Argentina, in Peru. Things aren’t good in Brazil,” Kimelman said in an interview. “That probably means many companies or independent workers view Uruguay as a place” to do business. Wedged between Argentina and Brazil, Uruguay has leveraged its economic and political stability to persuade companies like chemicals producer BASF SE and oil-trading giant Trafigura Group to open local offices. The government is also offering generous tax breaks to attract skilled immigrants, and revive investment and the broader economy.

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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 June 23, 2021:

  • In the United States, the latest data from the Centers for Disease Control and Prevention (CDC) is showing the faster spreading Delta variant is gaining a foothold in the country. Speaking at the Milken Institute Future of Health Summit on Wednesday, CDC Director Rochelle Walensky said the variant first discovered in India now accounts for a fifth of recent coronavirus cases in America. Several weeks ago, the Delta variant accounted for just 3% of new cases and not surprisingly appears to be growing faster in states and counties with lower vaccination rates than in areas that have higher levels. Despite the latest data, Walensky did note coronavirus cases are at their lowest levels since March 2020.

  • In Canada, the Atlantic bubble was supposed to take shape again on Wednesday, but Nova Scotia appears to have tried to pop it before it even begins. Less than 24 hours when the citizens of Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador believed they were going to be able to travel freely throughout the four provinces free of quarantine, Nova Scotia Premier Iain Rankin announced those coming from New Brunswick would have to continue to self-isolate upon arrival. The reason given by Premier Rankin was that New Brunswick opened its borders to Canadian travellers outside the Atlantic region without the requirement of self-isolating; provided they have at least one dose of a COVID-19 vaccine. Needless to say, this isn’t going over well with most citizens in Nova Scotia and New Brunswick as protestors are currently occupying the land border between the two provinces and say they aren’t leaving until police force them to, or Premier Rankin changes his mind on self-isolation, whichever comes first.
  • The United Kingdom is seeing a worrying trend: the faster spreading Delta variant is apparently mutating. Public Health England (PHE) have notified Downing Street officials that at least 41 cases have now been identified in the last week in England of what is now being called the Delta plus variant. The new variant is also being reported in India. The discovery now has British scientists racing to discover whether current COVID-19 vaccines can combat the variant of the disease. What has health experts concerned are three trends in the Delta plus variant: increased transmissibility; stronger binding in receptors of lung cells and potential reduction in monoclonal antibody response.
  • Bloomberg is reporting Italy is laying down the economic gauntlet to Germany noting euro-area fiscal rules can’t return to how they were before the pandemic. Speaking in Parliament on Wednesday, Italian Premier Mario Draghi said he has been saying for three years that things need to be changed and the discussion is just the beginning. During the pandemic, the budget rules, with limits on debt and deficits, were suspended to allow emergency spending. In Germany, Armin Laschet, the front runner to replace Chancellor Angela Merkel later this year said recently that stability policies will have to reinstated when the effects of the pandemic on the global economy are over. The EU is currently split with Germany and other northern nations preaching balanced budgets with Italy and other nations in the south, countering that spending will fuel faster growth which can in turn, reduce debt burdens.
  • In Latin America, a development bank is trying to help countries secure COVID-19 vaccines and deploy around $500 million USD to fight the pandemic. Based out of Washington D.C., the Inter-American Development Bank (IDB) is in talks with Argentina and Panama, along with vaccine makers to provide credit for purchases of about $50 million to $100 million for each country. If so, Argentina and Panama would be the first two countries to use an initiative rolled out by IDB in March to help resolve legal liability obligations in contract negotiations with vaccine makers. The bank has already supported Argentina, Belize, Ecuador and Trinidad and Tobago with advances to buy vaccines from the World Health Organization led-COVAX initiative for shots for low- and middle-income countries. 
  • New Zealand is on high alert after a COVID-19 passenger from Australia entered the country and was positive for the virus. The infectious traveler arrived over the weekend and has caused the country’s capital city – Wellington – to ask their people who were at more than a dozen locations to self-isolate for two weeks and get tested. So far, there were no immediate cases confirmed because of the travel, but New Zealand is taking no chances and have taken a zero-tolerance approach to the virus and continues to pursue an elimination strategy. New Zealand – the small island nation of five million – have enjoyed nearly four months without any community transmission of the coronavirus.

Covid-19 – Due Diligence And Asset Management

Big US Banks to Employees: Return to the Office Vaccinated

Brief : Wall Street's big investment banks are sending a message to their employees this summer: Get back into the office and bring your vaccination card. New York-based Morgan Stanley said this week that all employees will be required to attest to their vaccination status. Those who are not vaccinated will be required to work remotely, which could potentially put their jobs at risk, since the bank's top executives have said they want everyone back in the office by September. “If you can go into a restaurant in New York City, you can come into the office,” said Morgan Stanley CEO James Gorman at an industry conference earlier this month. Morgan Stanley is one of several big banks requiring employees to return to the office and also provide documentation of having received a coronavirus vaccine or making a formal declaration confirming vaccination. Goldman Sachs required most of its employees to return to the office on June 14, with some exceptions extending that deadline to Sept. 30. It requires every employee to state their vaccine status, but does not require proof. JPMorgan is asking employees to submit their vaccination records as well, in the form of an internal portal. The return-to-office push has its roots in banking-industry culture.

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Brookfield, Tishman Bet Billions on Workers Returning to Office

Brief: The pandemic has created a once-in-a-generation buying opportunity for investors willing to bet on the long-term prospects of workers returning to the hearts of global cities. That’s the view of real estate titans including Tishman Speyer Properties President Rob Speyer and Brookfield Asset Management Inc. Chief Executive Officer Bruce Flatt, who have invested billions snapping up discounted offices and other commercial buildings since the start of the pandemic. “There are extraordinary opportunistic things to buy in major cities around the world,” Speyer said during a panel at the Qatar Economic Forum Wednesday. “We have been active during Covid in Paris, in Washington D.C., in San Francisco, in London and people are just selling off real estate at 25%, 30%, 40% discounts.” Even as others fret about the future demand for workspace, Tishman has spent about $12 billion since March last year on deals it expects “to be some of the best investments we have ever made,” Speyer said. “If you have a long-term view of things reverting anywhere near where they were pre-Covid, these are generational buying opportunities.”

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Brevan Howard Shuts Main Fund to New Cash as Fortunes Improve

Brief: Brevan Howard Asset Management has stopped accepting new cash into its two biggest multi-manager funds after the firm’s record year of performance swelled the money pools. Assets in the Brevan Howard Master Fund, its main strategy, have more than doubled since the start of last year to more than $7 billion, and the money manager wants to control the size to maintain returns, according to people with knowledge of the matter. The firm has also closed the Brevan Howard Alpha Strategies Master Fund to new investment for similar reasons, said the people, who asked not to be identified as the information is private. The move marks a change of fortunes for the macro trading firm, which up until three years ago was fighting to stem an exodus of client money after several years of mediocre returns. Total assets had collapsed to about $6 billion from more than $40 billion in 2013. They have since risen to about $16 billion, one of the people said. A spokesman for the Jersey, Channel Islands-based investment firm declined to comment.

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Compliance Faced Rocky Start to 2021 as COVID Rolled On

Brief : COVID-19 remained a top concern for chief compliance officers in the first half of 2021 as they continued to confront the challenges of monitoring a remote work environment. In March, industry experts cautioned that compliance officers were stretched desperately thin amid the pandemic, a sentiment that was backed by industry research showing that compliance and legal teams were having trouble keeping pace with investigations and audits. The challenges felt no less daunting as President Joe Biden issued a series of orders and memos that outlined a stiffer regulatory agenda, beginning in January with his calls for "regulations that promote the public interest." Conservatives warned this could lead to "hyper-regulation."  Experts suggested compliance departments undertake a wholesale review of compliance policies and procedures to consider the new president's priorities, a recommendation that was renewed more recently as sweeping new anti-money-laundering rules edged closer to reality and Biden issued a memo signaling an even tougher U.S. stance on anti-corruption. Experts say there has been a perfect storm of challenges for compliance teams to juggle. And there's been no shortage of compliance news so far this year as companies seek to navigate a radically different risk and regulatory environment.

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Net Inflows of USD23.3bn in April put Hedge Fund Assets up Nearly 40 Per Cent Year-on-Year

Brief: Net Inflows of USD23.3 billion in April signaled a continued vote of investor confidence in the hedge fund industry. This result represented an increase in industry AUM of .6 per cent on the month and built momentum on the previous month’s USD19.1 billion increase in assets, according to the Barclay Fund Flow Indicator published by BarclayHedge. Industry trading profits exceeded USD55.5 billion in April and carried the industry’s aggregate AUM figure past the USD4.18 trillion mark. “In the midst of a brightening economic outlook across the globe, it might be easy to miss the fact that hedge funds have delivered four strong quarters in a row and through a pandemic, no less,” says Ben Crawford, Head of Research at Backstop BarclayHedge. “Yet when you put that fact into conversation with the stories about glowing economic forecasts, new equity market records and the arrival of an additional USD1.9 trillion in US stimulus — then you have a representative set of factors playing out.” The increase in net inflows was broad-based, with most fund sectors attracting new assets in April. The strongest activity was among Fixed Income hedge funds which reaped an estimated USD8.2 billion, followed closely by Multi-Strategy funds which added another USD7.1 billion.

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A Discerning View on EMD Opportunities

Brief: The benefits of diversification have been highlighted in the past 18 months and in this context, institutional investor appetite for emerging markets has increased. As they hunt for returns in a low interest environment and seek to take advantage of dislocations resulting from the Covid-19 turbulence, investors and asset managers have underscored the role an allocation to developing markets can play within portfolios. Although investment in emerging markets typically represents greater levels of risk, the opportunity identified is currently considered worthwhile, according to managers and institutional investors. “Conditions for emerging market debt outperformance in 2021 appear to be in place. First, a global backdrop of steady, extended monetary accommodation, prospects of a large-scale deployment of Covid-19 vaccines, and, to a lesser extent, expectations of fiscal stimulus in the US, should boost the growth-sensitive segments of the asset class,” wrote the Morgan Stanley global fixed income team in an outlook briefing. “Therefore, high yield credit, emerging market FX and local currency high-yielders should outperform investment grade, which has less of a valuation cushion, and is vulnerable to potentially steepening yield curves in our opinion.”

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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 June 22, 2021:

  • In the United States, President Joe Biden’s administration is set to announce on Tuesday they will not be able to meet their latest COVID-19 vaccination goal for the country. President Biden had set the goal of having 70% of American adults with at least one shot of a COVID-19 vaccine by the July 4th holiday. According to their latest data, about 70% of all adults 30 or over have gotten their first dose, but White House COVID-19 coordinator Jeffery Zients will concede they have more work to do with 18–26-year-olds. The pace of vaccinations has fallen off steadily since April, dropping by about two-thirds, with approximately 1.1 million doses administered per day. At that rate, it would take another five months to have 75% of the American population vaccinated.

  • In Canada, a new poll seems to show Canadians are still on the side of the federal government and their cautious approach in reopening from the coronavirus pandemic. An online poll from Leger and the Association for Canadian Studies shows 69% of respondents say restrictions should remain in place as people continue to get vaccinated against the coronavirus. The poll also revealed the pandemic has not been good for Canadian’s health – both mentally and physically. The survey found 63% of respondents said their mental health has been bad since the start of the COVID-19 crisis, 36% have seen their level of exercise decreasing and 16% have consumed more alcohol. “Canadians, anyway seem to be opting for a more gradual, careful, prudent approach to getting out there and enjoying some of the things that they used to enjoy prior to the pandemic period,” said Leger executive vice-president Christian Bourque.

  • United Kingdom Prime Minister Boris Johnson seems to be losing his patience on when “Freedom Day” can officially begin. The prime minister will announce on Monday whether all COVID-19 restrictions can be lifted in England on July 5th – two weeks earlier than the intended July 19th deadline. Between now and Monday, a government spokesperson said Prime Minister Johnson will pore over data including cases, hospitalizations and deaths to see if he can bring the date forward. The latest numbers don’t seem to suggest moving up the date should be in the cards with the number of patients in the hospital due to COVID-19 rising to its highest total since April and up 21% from the previous week.

  • Saudi Arabia has extended a loan deferral program for small businesses still coping with the coronavirus pandemic. The country has extended the plan by three months – taking it to the end of September. The deferred payment program has already impacted 167 billion riyals ($45 billion USD) of payments since it began in March 2020, according to the Saudi central bank. They added micro, small and medium-sized businesses benefiting from the program will be assessed to determine to what extent they’re still affected by the pandemic.

  • In the Philippines, President Rodrigo Duterte is threatening jail to those who refuse to take a COVID-19 vaccine. “If you’re a person who’s not vaccinated and potential carrier, to protect the people, I have to sequester you in jail,” Duterte said on Monday. The president went on to add village leaders should keep a list of those who refuse to be vaccinated. Almost immediately, government officials were trying to downplay the president’s remarks. Justice Secretary Menardo Guevarra said there is no law compelling citizens to get vaccinated and President Duterte spokesman Harry Roque added the leader’s remarks were meant to “emphasize what the state can do.”

  • Australia is having a hard time dealing with coronavirus flareups as the city of Sydney is now battling a fresh COVID-19 cluster after Melbourne’s recent outbreak. Monday night, 10 people were diagnosed with COVID-19 in Sydney, bringing the cluster that first emerged in the city’s Bondi Beach area last week to 21 cases. In response, the state government has reimposed mandatory mask-wearing in public transport and retail outlets across greater Sydney but hasn’t yet ordered a lockdown. Australia has administered close to 6.7 million COVID-19 inoculations to date for a population of 25 million, with only a small fraction of those receiving both jabs.

Covid-19 – Due Diligence And Asset Management

Fed’s Powell says High Inflation Temporary, will ‘Abate’

Brief : Federal Reserve Chair Jerome Powell said Tuesday that he expects recent price spikes will soon subside and reduce inflation to a sustainable level.  Consumer prices jumped 5% in May compared with a year earlier, the largest increase in 13 years. But Powell said the increase mostly reflected temporary supply bottlenecks, and the fact that prices fell sharply last spring at the onset of the pandemic, which make inflation figures now, compared with a year ago, look much larger.  “As these transitory supply effects abate, inflation is expected to drop back toward our longer-run goal,” he said in testimony prepared for a congressional oversight panel.  Powell’s comments come at a time that financial markets are struggling to interpret the Federal Reserve’s recent moves. Last week Fed officials signaled that they may increase the central bank’s benchmark interest rate twice in 2023, an earlier time frame than they set out in March, when no rate hike was expected until after that year. Powell also said the Fed had formally begun discussing when and how the central bank might reduce the current $120 billion a month of Treasury’s and mortgage-backed bonds that the Fed is purchasing each month. Those purchases are intended to keep longer-term interest rates lower to encourage more borrowing and spending.

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Canadian Employees Want Workplace Flexibility to Continue Post-Pandemic, says Survey

Brief: An Ernst & Young survey has found that Canadian employees have embraced workplace flexibility and want it to continue post-pandemic. The 2021 Work Reimagined Employee Survey found that 93 per cent of respondents said they would likely remain with their organization for the next year or more if they have control over where and when they work. But 54 per cent would be willing to quit if flexibility on schedule and work location is not maintained. Even if top-notch, on-site office amenities are offered, two-thirds would prefer to control where and then they work with respondents being 1.4 times more likely to opt for having control over working hours. Some 61 per cent want their company to require vaccines before returning to physical workspaces. Nearly half say company culture has improved since the beginning of the pandemic in early 2020. "Whether you know — and accept — it or not, your employees have been forever transformed, and walking back this sea of change isn't an option," says Darryl Wright, partner, People Advisory Services at EY Canada.

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GHO Capital Gathers Over £2bn for Europe’s Largest Ever Healthcare Fund

Brief: GHO Capital Partners has amassed the largest ever healthcare-focused private equity fund for a Europe-headquartered firm in a sign LPs are backing GPs in one of the most sought-after secular growth industries. The London-based healthcare specialist raised more than €2 billion in LP commitments for GHO Capital III, according to two sources with knowledge of the fundraise. The firm began raising capital for the vehicle six months ago with a €1.25 billion target. The launch was a little over one year after GHO raised €975 million for its oversubscribed sophomore vehicle. It is unclear what the hard-cap is for Fund III and the firm is understood to have not yet held the final close on the fund. Los Angeles County Employees’ Retirement Association committed €100 million to the vehicle, according to PEI data. Fund III is the biggest Europe-headquartered healthcare fund in history, knocking out ArchiMed’s MED Platform I, which collected €1 billion in August last year. Similar to prior funds, Fund III will back mid-market companies in Europe within healthcare subsectors pharmabio, medtech, outsourced services and patient services. It is unclear how much of Fund III has been deployed thus far.

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Market Volatility is Back as Covid and Fed Uncertainty hit Sentiment

Brief : Volatility is back for global stock markets, triggered by uncertainty over central banks’ plans for monetary policy and rising Covid-19 cases around the world. The VIX volatility index, a real-time measure of volatility expectations over the next 30 days, inched lower on Monday. Last week, the VIX spiked more than 16% to its highest point since May, as markets digested a surprisingly hawkish turn from the U.S. Federal Reserve. The Dow Jones Industrial Average also logged its worst week since October, and futures contracts tied to the index initially fell more than 200 points in early premarket trade on Monday before reversing course to open higher. Monday’s choppy trade also played out in Asia, where Japan’s Nikkei 225 closed 3.3% down, and Europe, where the continental Stoxx 600 index dropped 0.8% in early trade, only to recoup its losses and advance into positive territory. Matteo Andreetto, head of State Street Global Advisors’ SPDR ETF business in the EMEA region, told CNBC on Monday that with Covid cases rising, the potential for monetary tightening and high equity valuations on a historical basis, a market correction could be possible.

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CSA 2020/2021 Enforcement Report Highlights Commitment of Canadian Securities Regulators During Unprecedented Times

Brief: The Canadian Securities Administrators (CSA) today released its fiscal year 2020/2021 Enforcement Report, which provides details on enforcement efforts and outlines how securities regulators are protecting investors and the integrity of Canada’s capital markets… “This year’s Enforcement Report highlights how CSA members adapted quickly to evolving circumstances by introducing new ways of protecting investors, while staying ahead of emerging issues and trends,” said Louis Morisset, Chair of the CSA and President and CEO of the Autorité des marchés financiers. The report outlines how CSA members continued to strengthen their technical knowledge on critical and emerging topics, such as open-source intelligence and mobile forensics, and implement best practices and tools across the country to recognize and target fraudulent activity. The CSA also formally launched the Market Analysis Platform (MAP) in October 2020. MAP is a data repository and analytics system designed to help all CSA members identify and analyze market misconduct. The system has increased efficiency and speed in accessing and analyzing trading activity, which is critical as capital markets continue to evolve.

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Hedge Funds Held on to Pandemic Losers and Now it’s Paying Off

Brief: As the world went into lockdown last year, hedge funds stuck by the companies that suffered the most. It paid off. Some of the industry’s biggest names loaded up on companies that were pummeled as Covid-19 prompted government lockdowns and social-distancing guidelines, according to hedge fund consultant PivotalPath. They’re the hotels, casinos, cruise lines, restaurant chains and theme park companies that people are longing to frequent again as the pandemic recedes in the U.S. “Despite popular belief that hedge funds all made money shifting into tech and remote-environment stocks, most hedge funds actually made money because they stayed in the beaten-down names, or they ramped up those investments,” said PivotalPath Chief Executive Officer Jon Caplis. “They saw that a lot of the economy was going to come back.” While some funds bought up stocks that boomed as workers stayed at home -- like Zoom Video Communications Inc. and Peloton Interactive Inc. -- those wagers were on the margin, Caplis said. And, they were placed early in the pandemic -- even in February, before stocks plunged as major cities ground to a halt in March, he said. Those bets helped offset losses from the selloff. But once technology stocks jumped in April, hedge funds pivoted into the hammered “Social Distance Loser” stocks -- as Caplis calls them -- or increased their existing positions in them, he said.

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

Our briefing for Monday June 21, 2021:

  • In the United States, President Joe Biden’s administration announced on Monday their plan to release the remaining 55 million COVID-19 vaccines globally by the end of the month. Earlier in June, the White House had named the recipients of the first 25 million of the 80 million doses they planned to export as they took their first steps towards vaccine diplomacy. The remaining 55 million doses will be Johnson & Johnson, Moderna and Pfizer, most of which will be J&J and Moderna. Approximately 41 million of the 55 million doses will be shared through the COVAX initiative while the remaining 14 million will be shared with regional priorities and other recipients. 

  • The Canadian government will loosen COVID-19 travel restrictions for fully vaccinated people as of July 5th. In a statement on Monday, Prime Minister Justin Trudeau’s government said Canadian citizens and residents who’ve received two shots will be exempt from a 14-day quarantine on arrival to the country. Travelers will still need to show they’ve tested negative for COVID-19 before they arrive in Canada and take a second test at the border. Those travelling by air, who are currently expected to complete the first three days of their quarantine in a government approved hotel, will be exempt from that requirement. Speaking to CBC over the weekend, Public Safety Minister Bill Blair said a fuller reopening that allows tourist travel to resume won’t happen until 75% of Canadians are fully vaccinated.

  • United Kingdom Prime Minister Boris Johnson said England is on course to be able to lift coronavirus restrictions as planned on July 19th, despite the spread of the Delta variant. Speaking to a television crew on Monday, Prime Minister Johnson said, “looking at where we are” and the effectiveness of vaccines against all the known variants, “I think it’s looking good for July 19 to be that terminus point.” The prime minister also tried to do some forecasting ahead noting even if domestic limits on social gatherings are soon eased, foreign travel is likely to continue to be disrupted, with delays and complications for travelers. Prime Minister Johnson stated the winter may be “rough” for many reasons with more pressure on the hospitals – noting he wouldn’t rule out the need for additional steps to protect the National Health Service if some new variant emerges.

  • Indian media are citing a healthcare director that the country may be hit by a third wave of COVID-19 sooner, rather than later. The Times of India reported on Sunday infections could start rising again in 12 to 16 weeks, citing Randeep Guleria, director at the state-run All India Institute of Medical Sciences. Guleria said the Delta variant, largely believed to be responsible for the country’s second wave just a few months ago, continues to pose a risk to a large section of the population that has not yet been vaccinated. India’s confirmed coronavirus cases have passed 29 million with the death toll around 380,000, however experts believe both numbers are vastly undercounted in a country of close to 1.4 billion people.

  • Hong Kong, home to one of the world’s toughest COVID-19 restrictions and border curbs, will be getting a break. Hong Kong Chief Executive Carrie Lam announced on Monday the region will shorten mandatory hotel quarantine to seven days for fully vaccinated people travelling from all, but a handful of high-risk places. The shortening of hotel quarantine will begin on June 30th and other plans such as lifting capacity limits at some restaurants and swimming pools will be lifted as of Thursday. The initial shortening of hotel quarantine will apply to Hong Kong residents first, with non-residents eligible likely a month later if all continues to go well. Lam noted Monday was a symbolic day as it coincided with the region not experiencing any local coronavirus cases for two straight weeks. 

  • Bloomberg is reporting Brazil hit a grim milestone over the weekend, recording at least 500,000 deaths due to the coronavirus. Despite this saddening total, Brazilians are said to be very picky on which vaccine they wish to receive with Pfizer being the brand of choice. For instance, media is reporting in Sao Paulo, people are demanding the American company’s shots at public clinics and often walk out if none are available. In order to save time, some health care centers have put up signs saying “no Pfizer shots” to save time. The reluctance of Brazilians is only adding to the death toll, which is believed to be about 2,000 a day and threatens a global resurgence of the pandemic if the nation of 213 million becomes a breeding ground for new strains.

Covid-19 – Due Diligence And Asset Management

How Covid-19 is Transforming the Hedge Fund Outsourcing Model

Brief : The Covid-19 pandemic is opening up a deeper discussion around more business functions becoming permanently outsourced, particularly among start-up and emerging hedge funds battling against budgetary constraints. Speakers at the fourth annual HedgeweekLIVE North America Emerging Manager summit this week discussed how approaches towards outsourcing – traditionally the next step on the emerging manager journey after launch – have dramatically changed as a result of the coronavirus crisis and remote working.  Jack Seibald, managing director and global co-head of prime brokerage and outsourced trading at Cowen, believes the pandemic has accelerated what had already been a meaningful upward trajectory in terms of outsourced trading. Initially driven out of necessity as a result of homeworking, many temporary solutions have turned out to be interesting opportunities for both managers and service providers, Seibald told the panel.    “It opened up the opportunity for a more comprehensive discussion about whether outsourced trading as a permanent solution would be the right thing for them,” he explained. “We saw an acceleration of that process and it’s particularly noticeable among emerging managers.” 

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Half of London Companies Plan for Home-Working Five Days a Week

Brief: Almost half of London companies whose staff can work from home expect them to do so up to five days a week after the pandemic finishes, and smaller businesses are more likely than larger ones to move ahead with remote working. That’s according to a poll of 520 business leaders by the London Chamber of Commerce and Industry, which also found that slightly more companies said employees’ main reason for concern about returning to the office was the risk of contracting Covid-19 when commuting -- rather than at the office. While most economists concur that remote working is likely to continue in some form, the figures suggest a profound impact on the workplace that could translate into reduced footfall in major cities and lower sales for businesses that rely on people going to offices.  “Many businesses have already made decisions regarding their premises and ways of working once restrictions are lifted,” said Richard Burge, chief executive officer of LCCI. “It’s about what business has judged best for the bottom line or productivity of their company.” About 6 million professional jobs in the U.K. that could be done from anywhere risk being outsourced to other countries, according to a separate report by the Tony Blair Institute for Global Change, the research group founded by the former U.K. prime minister.

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Shareholder Activism Campaigns Rebound Out of Pandemic

Brief: Shareholder activists, fresh from stepping up their campaigns by a third in the first half of the year, are expected to be emboldened by an economic rebound for the rest of 2021. The total number of activist campaigns launched through June 21 at companies with a market value of more than $1 billion reached 116, up from 87 over the same period in 2020 and 115 in 2019, according to data compiled by Bloomberg. The first six months of the year marked a rebound in activism generally as the economy started to recover from the pandemic. Advisers expect that momentum to continue into the second half of the year and into 2022 and beyond. This year’s proxy season will largely be remembered for the unexpected victory of first-time activist Engine No. 1 over Exxon Mobil Corp. and the lift it gave to activist investors focused on environmental, social and governance issues. The little-known fund managed to win three seats on the board of the oil and gas giant despite owning only a 0.02% stake. It’s something other companies will need to take heed of heading into next proxy season, said David Rosewater, Morgan Stanley’s global head of shareholder activism and corporate defense. ESG issues are now at the forefront of a lot of campaigns, and front of mind for a lot of investors, he said.

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Dalio, Summers Still See Risk U.S. Overheats After Fed Shift

Brief : Former Treasury Secretary Lawrence Summers and billionaire investor Ray Dalio said the U.S. is headed for a period of overheating and inflation that could threaten the economic recovery, even as the Federal Reserve signaled it would step in before that happened. “It’s easy to say that the Fed should tighten, and I think that they should,” said Dalio, the founder of Bridgewater Associates, the world’s biggest hedge fund. “But I think you’ll see a very sensitive market, and a very sensitive economy because the duration of assets has gone very, very long. Just the slightest touching on those brakes has the effect of hurting markets because of where they’re priced, and also passing through to the economy.” Dalio spoke in a conversation with Summers at the Qatar Economic Forum Monday. Fed officials surprised markets last week by accelerating their timeline for potential interest-rate increases. They also raised their inflation expectations for the next three years and have started to discuss when and how to pare back from their $120 billion in monthly asset purchases. The Dow Jones Industrial Average fell 3.5% last week, the biggest drop since October.

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M&G Unveils Impact Fund Focusing on Health and Wellbeing

Brief: M&G Investments has launched an impact equity strategy which will seek to deliver attractive returns by investing in companies whose products or services are designed to promote better health and wellbeing. The M&G Better Health Solutions fund will be a concentrated portfolio of 30-35 holdings (32 at launch), managed by Jasveet Brar. The stocks will be diversified around better healthcare and better wellbeing, with the latter theme covering improvements in lifestyle, hygiene and safety. M&G will publish annual reports on each company's impact on the two themes and their revenue alignment with health-related UN Sustainable Development Goals (SDGs). The fund follows the same investment approach and process as M&G's £480m Positive Impact strategy, managed by John William Olsen, who will be a deputy on the new fund, as well as the recently launched M&G Climate Solutions strategy. Investible companies are ranked in three categories: pioneers, whose products or services have a transformational effect on society or the environment; enablers, which provide the tools for others to deliver positive social or environmental impact; and leaders, which spearhead and mainstream impact and sustainability in their industries.

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ESG Has So Far Been a Rich World Phenomenon. But Emerging Markets Are Catching Up

Brief: Emerging markets aren't what come to mind first when allocators think about investing in companies based on environmental, social, and governance goals. But the pandemic has accelerated the adoption of some of these objectives, especially the “S” in ESG. Teresa Barger, co-founder of Cartica Management, said the way companies treat their employees has become a critical factor in the valuation of their shares. Barger, who spent 21 years at the International Finance Corp. before going out on her own, should know. Cartica has a long history of applying activist techniques to companies exclusively in emerging markets. In fact, the firm, founded during the global financial crisis, makes money by persuading companies to fix their corporate governance issues, and identify and improve environmental and social risks.  Barger said companies that weren’t providing safety measures for factory workers, for example, saw their shares tumble during the pandemic. On the flip side, companies such as retailer Magazine Luiza in Brazil, which isn’t currently in Cartica’s portfolio, saw their prices skyrocket after announcing they wouldn’t lay off workers and that some executives in the firm, including the CEO, would not be taking a salary. Magazine Luiza, which runs both brick-and-mortar and e-commerce, also provided accommodations for its employees and their families.

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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 June 18, 2021:

  • In the United States, Americans now have a few more destinations to travel to, if they so choose. The European Union (EU) updated their travel list on Friday and the United States were added to the “white list”, allowing leisure travel within a few days. Some European countries were already allowing vaccinated Americans to visit but being added to the “white list” means restrictions on fully inoculated United States residents can be lifted across the 27-member EU bloc. The move is expected to be a major boost to American airline carriers like United Airlines and Delta, which fly the most profitable routes. The EU is now looking for America to reciprocate; allowing fully vaccinated EU citizens to travel to the United States.
  • Canadian Prime Minister Justin Trudeau and his government aren’t caving in yet to outside pressure to reopen the land border with the United States, extending the non-essential travel ban for another month on Friday. The announcement means the world’s longest undefended border will remain closed to only essential travel until at least July 21st. Canadian Public Safety Minister Bill Blair said the government would start to outline a plan for fully vaccinated Canadians on Monday. The Canadian Chamber of Commerce was not impressed with news on Friday calling the move another nail in the coffin for the summer tourism season for Canadians. 
  • In the United Kingdom, Prime Minister Boris Johnson’s move to delay a full reopening on June 21st, seems to be a wise one following the latest data released on Friday from Public Health England (PHE). For the week of June 16th, PHE has reported 33,630 new cases of the Delta variant first identified in India, taking the number of confirmed cases to 75,593, which is a 79% increase from the previous total. “Cases are rising rapidly across the country and the Delta variant is now dominant,” said Jenny Harries, Chief Executive of the UK Health Security Agency. “It is encouraging to see that hospitalizations and deaths are not rising at the same rate, but we will continue to monitor it closely.”
  • Seeing what is happening in the UK, German health authorities are predicting the Delta variant will become the dominant coronavirus strain in their country by autumn at the latest. Lothar Wieler, head of the Robert Koch Institute for infectious diseases, said the Delta variant only makes up for 6% of German cases right now, but it is not a question of if Delta will become dominant, but a question of when. Wieler is urging the German public to continue wearing masks indoors and get vaccinated. Restaurants, bars, beer gardens, hotels and concert halls have all been reopening in recent weeks in Germany to coincide with the hot weather and upcoming summer holidays.
  • The World Health Organization (WHO) official for Africa has called for an urgent acceleration in the supply of coronavirus vaccines to curb a new wave of COVID-19 infections and the evolution of new, potentially dangerous variants. “Africa is in the midst of a full blown third wave… “We’ve seen in India and elsewhere how quickly COVID-19 can rebound and overwhelm health systems,” said Matshidiso Moeti, the WHO’s regional director for Africa. Officials are pleased by the G7 pledge made last weekend to provide one billion vaccine doses to the developing world, but they say a much greater supply is needed immediately with cases rising by more than 30% across the continent in the last week. Among the hardest hit countries are South Africa, Tunisia, Zambia, Uganda, and Namibia.
  • The Indian Medical Association (IMA) was planning to hold a nationwide protest on Friday that was expected to draw over 350,000 doctors. The IMA are protesting the treatment of health officials in the country and are demanding a central law to protect doctors against violence. Last month, a doctor was attacked by relatives of a coronavirus patient who died in northeastern Assam state. The IMA is using the COVID-19 pandemic to draw attention to their cause as close to 750 doctors died during 2020 trying to look after patients and another approximate 700 died during the deadly second wave just a few months ago. 

Covid-19 – Due Diligence And Asset Management

Renaissance Suffers $11 Billion Exodus with Meager Quant Returns

Brief : Investors are still headed for the exits at Renaissance Technologies, pulling $11 billion from the quant giant in seven months. Disgruntled by subpar returns, clients have now redeemed -- or asked to redeem -- more than a quarter of the capital that Renaissance manages in hedge funds with outside money, according to investor documents seen by Bloomberg. The firm now is mostly managing its own internal capital, a person with knowledge of the matter said. The exodus marks a setback for legendary investor Jim Simons, the military codebreaker and mathematician who started Renaissance and turned it into one of the industry’s most successful hedge fund firms. It’s also put the spotlight on a discrepancy not lost on clients: They’ve been losing money on struggling funds while Renaissance insiders have been reaping fat returns, with Simon himself making billions of dollars last year alone. From December to February, clients pulled, or asked to pull, about $5 billion from the funds, Bloomberg reported. That was followed by about $6 billion more through June, the documents show. While redemptions peaked in April, they slowed in May and June.

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‘Global GDP to Recover to Pre-Pandemic Levels in H1 2022’

Brief: Global GDP is likely to recover to pre-pandemic levels in the first half of 2022, an expert has said. Speaking at Federated Hermes’ outlook roundtable yesterday (June 17), Eoin Murray, head of investment at the investment manager, said recovery of global GDP will be "at some point within the first half of 2022". He added there are certain signs indicating whether economies will see long-term scarring. “There also appears to be an expectation that longer term economic scarring will most likely be down to, first of all, an incomplete recovery in the labor market. And secondly, bankruptcies,” he said. Murray expects the bankruptcies to be in zombie companies (a company that needs bailouts in order to operate) which have been created by quantitative easing. “We all know that the rate of bankruptcies has fallen during the pandemic, on the back of huge monetary support, contrary to my predictions of solvency problems at the beginning of the pandemic.

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Middle-Market Dealmaking is Back

Brief: Middle-market private equity firms have bounced back from Covid-19 pandemic-related lows, with dealmaking, exit activity, and fundraising showing signs of continued strength. In PitchBook’s U.S. PE middle-market report published Wednesday, author and PitchBook analyst Rebecca Springer cited “robust” dealmaking in the first quarter of 2021 as one element of the sector’s success. According to the report, deal count and value in the first quarter of 2021 “easily exceeded” numbers in the first quarter of 2020. In 2021, U.S. PE firms closed 776 deals and spent a total of $119.5 billion, an amount the report deems the “second highest quarterly deal value figure” since the fourth quarter of 2020. PitchBook credits the successful dealmaking to increased vaccinations, the Federal Reserve, and an “ample supply” of cheap debt.  “In Q4 2020, we saw a backlog from the pandemic, so deals that would’ve been done earlier but were delayed,” Springer told Institutional Investor. “In Q1, we saw a continuation of that.” As for the near future of deal activity in the middle markets, Springer expects the upward momentum to continue for the rest of the year. In the report, Springer lists the $1.9 trillion American Rescue Plan and subsequent increased consumer and business spending as reasons for increased activity.

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2020-2021 Enforcement Report Published – Positive Results Amid the Pandemic

Brief :The Autorité des marchés financiers (AMF) today published its Enforcement Report for the 2020-2021 fiscal year. The report presents the highlights of the AMF’s enforcement activities and results for the past year. “Despite the unprecedented public health crisis caused by the pandemic, the AMF showed agility and resilience by continuing its operations remotely and reacting quickly to protect consumers and ensure market efficiency,” said Louis Morisset, AMF President and CEO. “Our inspection, investigation and prosecution teams were very proactive and able to maintain their operations, resulting in a large number of prosecutions and in important rulings that sent a deterrent message,” said Jean-François Fortin, Executive Director, Enforcement. In addition to providing a comprehensive picture of the past year’s enforcement activities, the report describes major technological advances to detect potential violations and more efficiently manage investigation matters and prosecutions, as well as the AMF’s continuing offensive on the crypto asset front. The report also touches on the teams’ efforts to integrate mortgage brokerage into its inspection activities while supervising the clienteles regulated by the AMF, including in order to assess the impacts of the pandemic on their activities. The Autorité des marchés financiers is the regulatory and oversight body for Québec’s financial sector.

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Private Equity is Raising Dividend-Linked Debt Like It’s 2007

Brief: Europe’s private equity patrons are piling debt onto the books of their companies to support dividend payouts, a move which could threaten these firms’ prospects when the fiscal and monetary stimulus of the pandemic era starts to wind down. Just under 13 billion euros ($16 billion) of leveraged loan deals linked to dividend recapitalizations took place by early June -- the highest level in 14 years -- according to S&P Global Market Intelligence’s Leveraged Commentary & Data unit. That’s only 4 billion euros shy of the total for the same period in 2007, on the eve of the great financial crisis. The stimulus deployed since March last year has kept many companies afloat amid ruinous lockdowns. Some private equity owners have seized the chance to issue more debt from their companies, potentially jeopardizing how quickly they can bounce back as economies start to open up and policymakers mull tapering. “A dividend recap isn’t a positive credit scenario for any company,” said BlackRock Inc.’s Head of European Leveraged Finance James Turner. “But whether or not we decide to support them is dependent on each individual case.” German buildings material maker Xella International GmbH, for instance, was downgraded after it sought to borrow 1.95 billion euros in March this year, with nearly a third of that amount slated to go to private equity sponsor Lone Star Funds.

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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 June 17, 2021:

  • In the United States, the government is planning to devote $3.2 billion to advance the development of antiviral pills for COVID-19 and other dangerous viruses that could turn into pandemics. The announcement was made by Dr. Anthony Fauci, the nation’s top infectious disease expert, during a White House briefing on Thursday. The pills for COVID-19, which would be used to minimize symptoms after infection, are in development and could begin arriving by the end of 2021, pending the completion of clinical trials. Under President Donald Trump, America poured more than $19 billion into rapidly developing multiple vaccines. However, less than half that amount went toward developing new treatments, which experts emphasize the need to manage the disease in millions of Americans who may never get inoculated.

  • Canada was set to receive an additional one million doses of the Moderna COVID-19 vaccine from the United States on Thursday. The delivery is part of a broad donation strategy by America and previously announced by the Biden administration. CBC is reporting while Canada’s vaccine rollout has sped up in recent weeks, it lags well behind the United States. For instance, 44% of the American population are considered fully vaccinated, compared to Canada’s 14%. American politicians are keen to see more Canadians become fully vaccinated, so that Prime Minister Justin Trudeau and his government will be motivated to move more quickly and reopen the land borders to non-essential travel.

  • The United Kingdom government is considering plans to open international travel for passengers who’ve been fully inoculated against COVID-19. Under the discussed policy, the resumption of travel to more than 150 countries and territories could potentially mean that those fully vaccinated would not need to quarantine from the medium risk countries on the so-called amber list. Bloomberg is reporting upon airlines shares surging on the possible adjustment, Prime Minister Boris Johnson tried to cool their jets, so to speak, noting “absolutely no decisions” have been made. Under current rules, those who arrive in England from destinations on the amber list must quarantine at home or in the place where they are staying for 10 days and take at least two COVID-19 tests during that period.

  • France has announced the easing of several COVID-19 restrictions in a surprise announcement that came on Wednesday. Prime Minister Jean Castex noted it will no longer be mandatory to wear masks outdoors and have halted an 8-month night coronavirus curfew, as of this weekend. The curfew will be lifted 10 days earlier than expected. “It’s actually improving more rapidly that we had hoped for,” Castex said. “My dear fellow citizens, I say it, I feel it: we are expecting an important moment, a happy moment of return to a form of normal life again.” Wearing a mask will remain mandatory in crowded outdoor spaces like street markets and stadiums, as well as indoor public spaces. 

  • In Japan, Prime Minister Yoshihide Suga announced on Thursday his government will be easing the state of emergency in Tokyo, along with six other areas starting next week. Daily cases have subsided substantially in recent weeks, allowing the government to make the move and as of Monday – new, less stringent measures will be introduced and be in place until July 11th – 12 days before the Olympics Games are set to begin in Tokyo. Prime Minister Suga also tried to reassure public health experts, noting if another surge occurs and strains hospitals, “we will quickly take action, including strengthening of the measures…”

  • China is engaging in another war of words with the Western world when it comes to the origins of COVID-19. A senior Chinese epidemiologist said the United States should be priority in the next phase of investigations into the origin of COVID-19. The statement comes after the U.S. National Institutes for Health (NIH) issued a study that showed at least seven people in five different states were infected with SARS-CoV-2, the virus that causes COVID-19, weeks before the country first started reporting its official cases. Commenting on the study released on Wednesday, Chinese foreign ministry spokesman Zhao Lijian said it was now “obvious” the COVID-19 outbreak had “multiple origins” and that other countries should cooperate with the World Health Organization.

Covid-19 – Due Diligence And Asset Management

BlackRock to Allow Vaccinated Staff to Return to Office in July

Brief : BlackRock Inc. is adjusting its plans for U.S. employees to return to the office, allowing only fully-vaccinated staff to come back to work starting next month. The world’s biggest asset manager said that U.S.-based employees who’ve been inoculated against Covid-19 can resume in-person work in July and August if they’d like to, according to a memo from the New York-based company. Non-vaccinated staffers are not allowed in the office, the memo said. All employees will be required to report their vaccination status by June 30. The company said it will provide an update for non-vaccinated employees later this summer. The company already announced plans to bring employees back to the office in September while allowing some remote work.  Firms across Wall Street are experimenting with how to bring back workers, with some companies -- like Goldman Sachs Group Inc. -- taking a more ambitious stance about workers coming back, and others -- like BlackRock -- pursuing a hybrid approach. BlackRock changed its policy after receiving feedback from employees who said they would feel better about returning to work if their colleagues in the office were vaccinated.

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Bank of America Says All Vaccinated Staff to Return to Office in September

Brief: Bank of America Corp. expects all of its vaccinated employees to return to the office after Labor Day in early September, and will then focus on developing plans for returning unvaccinated workers to its sites. More than 70,000 of the firm’s employees have voluntarily disclosed their vaccine status to the bank, Chief Executive Officer Brian Moynihan said in a Bloomberg Television interview Thursday. The firm, which has more than 210,000 employees globally, has already invited those who have received their shots to begin returning. “Right now we’re moving people back who are vaccinated,” Moynihan said. “We’re concentrating on getting them back to work because that allows people to move about under the CDC guidelines without masks and thing like that.” Bank of America and its rivals have begun unveiling plans in recent weeks to return thousands of workers to towers in New York and elsewhere in coming months as vaccines abound across the U.S. Goldman Sachs Group Inc. asked its New York staff to begin returning this week, marking the most ambitious plan among major Wall Street firms.

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Higher Barriers to Entry With Rising Competition and Regulation

Brief: Despite any headwinds caused by the pandemic, the private equity industry has remained strong, with investor demand and planned allocations continuing to grow. However, with high levels of dry powder and increasing regulator scrutiny, startup private equity funds have much to contend with. “There is currently more money available in private equity. The among of dry powder has exploded and is the highest it’s been in 10 years,” remarks Alain Kinsch, co-chairman of the Association of the Luxembourg Fund Industry (ALFI) Private Equity Committee and Vice-President of the Luxembourg Private Equity and Venture Capital Association. According to Hugh MacArthur, Partner, Bain & Co: “Total investment value last year was supported by ever-larger deals, not more deals. This fact is important because it means many GPs did not get the deals done that they had intended to in 2020.  “With soaring levels of dry powder, robust credit markets and recovering economies, 2021 deal markets promise to be incredibly busy.”

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Finding Value in Post-Pandemic UK Equities

Brief: If there is a prolonged shift in sentiment towards UK equities, the likelihood is that just as the negative view dragged the valuation of all companies down, so a rally in UK equities has the potential to place many stocks, good and mediocre alike, at elevated valuations. This creates a challenge for UK fund managers, as they seek to create portfolios without owning over-priced assets. Alexandra Jackson, who runs the Rathbone UK Opportunities fund, says one area to avoid at present is hospitality, despite the present good news surrounding the sector, as much uncertainty remains about the scale of future demand, particularly in London. Her view is that the valuations of many of those stocks already reflect positive news for the sector, but do not necessarily reflect the ongoing uncertainty. With this in mind, her way of gaining exposure to the reopening of the hospitality sector is via Johnson Service Group, a supplier of linen to the hospitality sector. She says the company will benefit from the cyclical recovery, but also may grow structurally in future if the public becomes more focused on hygiene issues as a result of the pandemic.

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The Outlook for Asset Managers is No Longer Negative, Moody’s Says

Brief: As global asset management industry recovers from the Covid-19 pandemic, Moody’s has shifted its outlook for investment managers from negative to stable. In its June 2021 global asset management report, the credit rating company revised its outlook on the asset management industry, attributing the change to the strong market rebound after March 2020, the recovery of organic growth rates, and the resulting recovery in investor risk appetite. The report, which was published Wednesday, also noted that, as a result of strong market performance, asset managers’s revenue and profit margins have recovered from the pandemic crash.  “The industry has been resilient through the pandemic,” Rory Callagy, associate managing director at Moody’s Investors Services and lead author of the study, said in an interview. “Private markets provided a lot of that support, but there are also positive trends in the operating fundamentals.” In March 2020, extreme market volatility caused assets under management to fall. Moody’s analysts had expected this decline to send reverberations through the market for the rest of the year, but by the second quarter of 2020, the equity markets had “rebounded sharply,” the report said.

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

Our briefing for Wednesday June 16, 2021:

  • In the United States, Treasury Secretary Janet Yellen told the Senate Finance Committee on Wednesday that America is “well on the way” to a strong recovery from the COVID-19 pandemic. Yellen referred to the $1.9 trillion pandemic-relief bill enacted in March as helping in the process. However, America still faces challenges in wage inequality, declined labor force participation, racial gaps and climate change. Yellen urged lawmakers to back President Joe Biden’s proposals for a multi-year $4 trillion spending plan on child care, infrastructure and green investments.
  • Canada’s transport minister says the government’s plans for a phased reopening of the border to international travel following COVID-19 restrictions will be shared “in the coming days.” Minister Omar Alghabra told reporters on Wednesday that talks are happening between the government, the airports and airlines to make sure they can be ready for when those travel rules begin to relax. Prime Minister Justin Trudeau has said in the past any easing of rules will focus on “fully vaccinated” Canadians. Prime Minister Trudeau has also tested negative for COVID-19 following his return from the G7 summit in the United Kingdom. Trudeau was following the rules set-out by his government staying in an Ottawa based hotel on Tuesday and can leave hotel quarantine – continuing the remaining time, isolating at home.
  • United Kingdom Health Minister Matt Hancock has said home care workers will be required to be fully vaccinated against COVID-19 or risk losing their jobs. The new legislation will require home care workers to have two full doses of a vaccine by October. The measures won’t apply to those medically exempt and there will be a 16-week grace period. The news comes as five boroughs in London have more than 50% of their home care staff for the elderly with one shot or fewer. Recent data has shown England has 69% of its adult population with both jabs of an inoculation, which makes the vaccine at least 81% effective against the fast-spreading Delta variant. Those who have only received one dose of a vaccine, are only guaranteed around 31% effectiveness against the variant first discovered in India.
  • The European Union (EU) is recommending to its 27-member bloc to start lifting restrictions on tourists travelling from the United States. The move is generally seen as symbolic as the recommendation from the EU is non-binding, and national governments have the authority to require test results or vaccination records and to set other entry conditions as they see fit. The EU also has no unified COVID-19 tourism or border policy for the 27-member bloc but have been working for months on a joint digital travel certificate for those vaccinated, freshly tested or recently recovered from the virus. The certificate is generally meant for EU nations, but Americans and other countries from around the world can obtain the certificate too.
  • India government authorities are allowing the Taj Mahal and several other monuments to reopen as new coronavirus cases continue to decline. As of Wednesday, 650 tourists with online bookings will be allowed to day visit the Taj Mahal, one of the seven wonders of the world. Temperatures will be checked at the gates, face masks must be worn and physical distancing must be observed. The Health Ministry reported 62,224 new infections on Wednesday, down from the peak of more than 400,000 new infections a day just two months ago.
  • Australia’s city of Melbourne will start to see more restrictions lifted as of 11:59 PM Thursday night. Acting Victoria state premier James Merlino said the 25 KM distance limit to travel for Melbourne residents will be dropped, public gatherings will be allowed up to 20 people and businesses, including gyms and indoor entertainment venues can reopen. Masks will no longer be required outdoors, but will still be the case indoors, on public transport and in workplaces. As Australia heads into their winter months, Premier Merlino asked residents to get tested as soon as possible and don’t assume a sore throat or a cough are symptoms of the common cold.

Covid-19 – Due Diligence And Asset Management

Fed Holds Rates at Near Zero, Projects Two Possible Rate Hikes by End of 2023

Brief : The Federal Reserve on Wednesday held interest rates at near-zero but optimism over the progression of the U.S. economic recovery spurred more Fed officials to pencil in rate hikes by the end of 2023. The Fed also reiterated for now its commitment to its asset purchase program, which is absorbing about $120 billion a month in assets. “Progress on vaccinations will likely continue to reduce the effects of the public health crisis on the economy, but risks to the economic outlook remain,” the Federal Open Market Committee said in a statement. A fresh round of its quarterly economic projections reflected the central bank’s optimism over the economic outlook, with 13 of the FOMC’s 18 members projecting at least one rate hike by the end of 2023. The median member of the FOMC in the so-called “dot plot,” which maps out each member’s expectations for rates over coming years, now expects two rate hikes by the end of 2023. For comparison, the Fed’s dot plots in March of this year showed the median member expecting no rate hikes through that time horizon. The upward revision suggests that the Fed sees a faster-than-expected recovery. The economic projections raised expectations for real GDP growth in 2021 to 7.0%, a notch up from March projections for 6.5%.

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Blackstone Offers $3.05 Billion for Majority of Soho China

Brief: Blackstone Group Inc. offered to take over office developer Soho China Ltd. for as much as HK$23.7 billion ($3.05 billion), its biggest bet yet on the real estate market in Asia’s largest economy. The New York-based private equity firm is offering HK$5 in cash for each Soho share, it said in a Hong Kong stock exchange filing Wednesday, confirming an earlier Bloomberg News report that it was nearing a deal. The bid represents a 31.6% premium to Soho’s last closing price before trading was suspended. Soho Chairman Pan Shiyi and Chief Executive Officer Zhang Xin, who own a majority stake in Soho China, have agreed to sell most of their shares to Blackstone, according to the statement. They plan to keep a 9% stake after the deal closes. Blackstone intends to keep Soho listed on the Hong Kong stock exchange, the statement shows. Blackstone has been investing in office, retail and logistics assets in China since 2008 and owns approximately 6 million square meters of properties in the country, according to the statement. The firm is doubling down on Asia, seeking to raise at least $5 billion for a fund focused on the region, people familiar with the matter have said.

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State Street Survey Identifies Actions Alternative Asset Managers Plan to Take to Meet Growing Investor Demands

Brief: State Street Corporation has published new research which reveals that with increasing pressures and demands on returns and reporting, alternative asset managers have work to do to meet the growing needs of institutional investors. The survey found that just 57 per cent of the alternative asset managers interviewed said their investment operations are built to scale to deal with increasing volume and complexity. 70 per cent believe they will need to increase the amount they invest in data storage, management and analysis; and only 24 per cent have already done so. Despite market instability, shifting business models and pressure on asset valuations, the vast majority (82 per cent) of alternative managers surveyed believe their organisation has been effective at responding to increasing investor demand for transparency and additional types of data. However, when highlighting areas for improvement, 57 per cent positively rated their companies data management, but less than half (48 per cent) said they have a good level of efficiency and effectiveness in their business’ technology systems, which underpins their use and management of data.

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Pfizer CEO sees a Return to ‘Normal’ Globally by the end of 2022

Brief: Pfizer CEO Albert Bourla told CNBC on Wednesday he expects life could return to normal for developed countries by the end of this year and the rest of the world by the end of 2022. By the end of next year, there should be enough Covid-19 vaccine doses for most world leaders to successfully inoculate their populations against the virus, Bourla said during an interview with Andrew Ross Sorkin at the CNBC Evolve Global Summit. “I think the whole world will have enough volumes [of vaccine doses] by the end of 2022 to vaccinate, to protect everyone,” he said. “And I think that by the end of this year, the developed world will already be in this situation.” Pfizer and German partner BioNTech reached the milestone of manufacturing 1 billion doses of their Covid vaccine last week, Bourla told CNBC. The two companies expect to produce up to 3 billion doses this year. The vaccine, one of three authorized for use in the U.S., has played a major role in driving down the number of new infections and hospitalizations across the country. As many states begin to lift their Covid restrictions and return to normal, leaders from other countries are urging the U.S. to donate leftover shots.

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Is Higher Inflation Here to Stay? Fund Managers Don’t Think So.

Brief: Nearly three-quarters of fund managers believe inflation will be short-lived, according to Bank of America’s latest investor survey. The survey, which was published Tuesday, found that 72 percent respondents view the current state of rising inflation as “transitory.” Still, fund managers don’t believe inflation has peaked yet, with net 64 percent of survey respondents predicting higher inflation in the next 12 months.  The survey, which included 224 participants with a total of $667 billion in assets under management, aggregated responses from June 4 to June 10. According to BofA, economic expectations among survey participants have peaked. Three-quarters of investors said they expect a stronger economy, a percentage that indicates investors’ “cruising altitude” when it comes to the market, according to David Jones, investment strategist at BofA Securities. “They are watching rates and inflation carefully, but people, at the moment, think inflation is transitory,” Jones told Institutional Investor. “We are seeing signs of a peak in optimism.”  Jones said the survey responses indicate that the market is evolving from the early part of the cycle into a mid-cycle position. As for expectations for future downturns, 68 percent of respondents think the next recession will occur in 2024 — no earlier.

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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 June 15, 2021:

  • In the United States, California is lifting most of its COVID-19 restrictions as part of a grand reopening on Tuesday. The state is America’s most populous with close to 40 million residents and was the first to implement stay-at-home orders due to the pandemic more than 15 months ago. California will end capacity limits, physical distancing and at least for those vaccinated – mask requirements. Vaccinated people can go without a mask in most situations, except for public transportation, hospitals, jails, schools and child care centers. Public health measures will only remain for mega-events, which are categorized as 5,000 or more people indoors, or 10,000 outdoors with vaccine verification required or at least recommended, according to the revised health order.

  • In Canada, it looks like the Atlantic bubble is getting closer to being re-inflated for a second summer. After its success last summer after the onset of the pandemic, the province of Nova Scotia announced Tuesday residents from New Brunswick, Prince Edward Island and Newfoundland and Labrador can travel to the province without self-isolating for 14 days. Nova Scotia Premier Iain Rankin said the move will be in effect as of June 23rd. The premier added he is in talks with the three other Atlantic premiers as discussions are ongoing on coordinating timing on when to reopen to the rest of Canada. Currently Nova Scotia is on track to do so by July 14th if COVID-19 cases continue to track in the right direction. The Atlantic region of Canada is home to close to 2.5 million residents and relies heavily on the tourism industry in terms of their economic needs.

  • The United Kingdom’s hospitality sector is to no surprise, not taking the news well of COVID-19 lockdown rules being extended for another month. UKHospitality, which represents restaurants, hotels and bars said its members will lose another £3 billion in sales, along with the €87 billion already lost since the outset of the pandemic. The extension also threatens the 300,000 jobs across the industry. The British Chambers of Commerce also weighed in on Prime Minister Boris Johnson’s decision to delay the full reopening, calling the move a “hammer blow” to small companies already at the brink of bankruptcy. Economists though don’t see the move in quite the same light, noting while it would mean slower growth than previously estimated in the third quarter, the UK economy could then recoup some of the lost ground in the following three months.

  • Israel told its citizens they could stop wearing masks as of Tuesday, ending one if its last main restrictions against COVID-19. According to the government’s latest data, 55% of Israel’s 9.3 million population are fully vaccinated and in the last month have either logged zero, or one daily COVID-19 deaths per day. The Israeli health ministry said masks would still be required of unvaccinated patients or staff in medical facilities, along with people en route to quarantine and of passengers on commercial flights. Israelis have not had to wear masks outdoors since April.

  • The Philippines government have extended partial coronavirus curbs in Manila and nearby provinces until the end of June. President Rodrigo Duterte announced the move on Monday, along with placing more areas under tighter quarantine measures because of rising infections and high hospital occupancy. President Duterte didn’t sugar coat the situation the country is facing right now urging the public to get inoculated and comply with health regulations: “If you do not get vaccinated, you will really die.” The government now has imposed tighter measures in nine cities and 12 provinces, including those in central and southern Philippines, that limit the operating capacity of businesses and shut down non-essential establishments. 

  • In Japan, the government is considering placing Tokyo under a quasi-state of emergency during the Olympics. The plan is due to a number of health experts having expressed concern over a potential spike in COVID-19 cases. The Olympics are set to begin on July 23rd and were given the seal of approval by other G7 nations over the weekend. Tokyo, along with nine other prefectures in Japan have been under a state of emergency since at least late April, but it will likely end for the country’s capital city on June 20th as the latest wave of infections have somewhat subsided. The quasi-emergency will likely take the form of smaller fines for noncompliance under which restaurants and bars will still be asked to shorten hours but might be allowed to serve alcohol.

Covid-19 – Due Diligence And Asset Management

Morgan Stanley CEO to Staff: Be Back at New York Headquarters by September

Brief : Morgan Stanley's chief executive officer said on Monday that if most employees are not back to work at the bank's Manhattan headquarters in September, he will be "very disappointed." "If you want to get paid in New York, you need to be in New York," CEO James Gorman, speaking from the bank's offices at 1585 Broadway, told analysts and investors during a virtual conference. Like the rest of Wall Street, most of Morgan Stanley's nearly 70,000 employees worked remotely during the pandemic. But in recent weeks, rival banks JPMorgan Chase & Co and Goldman Sachs Group Inc have begun to bring employees back to U.S. offices on a rotational basis. Gorman said his bank's policy will vary by location, noting the firm's 2,000 employees in India will not return to offices this year. As of Monday, India has reported more than 29 million cases of COVID-19. During the wide-ranging conversation, Gorman said the bank's revenues in the second quarter "look good" and that it will "likely" make another acquisition in its wealth management business.

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Billionaire’s Hedge Fund Offers Hefty Pay to Combat Talent Squeeze

Brief: After the best year for hedge funds in a decade, promising traders can seek a place at the many major firms on a hiring spree or strike out on their own to seize on investor appetite. But a push by Schonfeld Strategic Advisors is a prominent example of a lucrative third option. The firm is dangling a hefty cut of profits as part of a foray into macro trading, taking a page out of the books of industry giants Citadel and Millennium Management. The pitch has already won over hedge fund veterans Colin Lancaster and Mitesh Parikh, who are in turn offering recruits the combination of a big firm’s backing and a stable capital base with the ability to set one’s own financial destiny with an average 20% of trading gains. The duo are among dozens of traders who are settling for the safety net of being part of a bigger firm rather than taking the risk of running their own shops. It strengthens an entrenched trend in the hedge fund industry: assets as well as trading talent concentrating in fewer and fewer players, reducing the ability clients have to negotiate fees.

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EU Raises €20 Billion in 10-Year Bond to Fund Virus Recovery

Brief: The European Commission said on Tuesday it has raised €20 billion ($24.2 billion) through a 10-year bond as part of its plans to finance the 27-nation bloc's recovery from the coronavirus crisis. EU Commission president Ursula von der Leyen said the inaugural transaction of the NextGeneration EU program is the largest ever institutional bond issuance in Europe. The money will help finance the national recovery plans devised by member states to get their economies back on track. Von der Leyen said the bond was priced at “very attractive terms" and that the European Union will pay less than 0.1% interest on it. “Europe is attractive," she said. “By the end of this year, we expect to have issued around 100 billion in bonds and bills." The commissioner in charge of Budget and Administration, Johannes Hahn, said the recovery plan’s first borrowing operation attracted interest from investors across Europe and the rest of the world, including central banks and pension funds. To finance the stimulus, the EU's executive arm said it will raise from capital markets up to an estimated €800 billion by the end of 2026. In total, member states have agreed on a €1.8 trillion budget and pandemic recovery package.

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Why Bumpy Data Shows There is No Roadmap for this Economic Recovery

Brief: As the world emerges tentatively from the pandemic, economic data has been unpredictable at best. The April US jobs report showed 266,000 new hires, against economists’ estimates of 1 million. Inflation data also continues to diverge significantly from expectations. This has prompted Treasury Secretary Janet Yellen to say: “As the economy gets back on line, it is going to be a bumpy process.” There are plenty of reasons for this bumpiness. The first is that there is no rule book for the economic impact of a pandemic. No-one really knows what happens when an economy is forcibly shut down and then reopened. Is it more akin to a natural disaster? Or to the global financial crisis? The Blackrock Investment Institute recently acknowledged the difficulties of interpreting data during this period: “Investors are grappling with how to interpret unusual growth dynamics and new central bank frameworks. On the first, US activity looks set to restart strongly this year, powered by pent-up demand across income cohorts and sky-high excess savings. Growth forecasts have been catching up, but the magnitude of the restart may still be underappreciated.

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Wealth Fund ADIA Reviews Real Estate Strategy as Pandemic Bites

Brief: The Abu Dhabi Investment Authority, one of the world’s biggest property investors, is considering changes to its real estate strategy after some of its major holdings suffered during the coronavirus pandemic, people with knowledge of the matter said. The sovereign wealth fund is reviewing the performance of its property assets following weakness in a number of the shopping malls and office buildings in its portfolio, according to the people, who asked not to be identified because the information is private. ADIA may consider cutting its exposure to some troubled investments, the people said. ADIA has shifted in recent years to making more direct property investments and relying less on external managers. The state-owned investor has amassed just under $700 billion in assets, according to estimates from data provider Global SWF, and ADIA has said real estate traditionally accounts for about 5% to 10% of that overall portfolio. While ADIA will continue to be a major player in property, it could shift its focus for future deals and increase exposure to areas like warehouses, life sciences properties, technology hubs and affordable housing, one of the people said.

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

Our briefing for Monday June 14, 2021:

  • United Kingdom Prime Minister Boris Johnson and his government have pushed back its plans to lift England’s coronavirus restrictions at least another four weeks. Prime Minister Johnson was forced to make the move on Monday after modeling showed hospital admissions could reach similar levels to the pandemic’s first wave back in March 2020, to just over 3,000 a day if the government stuck to its schedule of ending social distancing rules as of June 21st. “As things stand, and on the evidence I can see right now, I’m confident that we will not need more than four weeks,” Johnson said. “By being cautious now, we have the chance in the next four weeks to save many thousands of lives by vaccinating millions of people.” The government will review the data again on June 28th, with the possibility of easing restrictions by July 5th if it looks better than expected, but this is considered unlikely.
  • In the United States, biotech company Novavax announced on Monday that its coronavirus vaccine candidate has shown an overall efficacy of 90.4% in Phase 3 trials conducted across the country and Mexico. The study has been ongoing since December 2020 and enrolled close to 30,000 adults across 113 sites in the United States and six sites in Mexico. Novavax’s next step is to apply in the United States for emergency use authorization of its vaccine in the third quarter of this year and is on track to manufacture about 100 million doses per month once given the green light.
  • In Canada, the land border between the country’s two most populous provinces is set to reopen to all forms of travel starting Wednesday. The border between Ontario and Quebec was initially closed in late April to non-essential trips as Ontario was enduring a spike in COVID-19 cases. The decision comes as the coronavirus cases continue to improve in both provinces. As of Monday morning, all Quebec regions that were previously classified in the orange zone on the province’s COVID-19 alert system were downgraded to yellow. The Ontario land border will also re-open to Manitoba on Wednesday. 
  • France’s central bank said the economy is expected to return to pre-pandemic output at the start of 2022. The Bank of France stated the lifting of restrictions and the acceleration of vaccinations will fuel a stronger than previously expected rebound in the second half of 2021. The quickening of the economic recovery has triggered talks from members of the European Central Bank (ECB) on how and when to end its emergency support measures. Bank of France Central Governor Francois Villeroy de Galhau stated any talk of tapering support measures is speculative and the recent acceleration in inflation that could lead the ECB to tighten policy is only temporary.
  • In Germany, Health Minister Jens Spahn suggested over the weekend to end the mask mandate for outdoor activities as COVID-19 infections continue to decline. Speaking in an interview, Spahn said ending the mask mandate should proceed in stages and will remain recommended “when in doubt” for instance when travelling or meeting indoors. Germany registered just 549 COVID-19 cases on Monday – the lowest daily total since September 21st.
  • Saudi Arabia will bar foreign pilgrims from visiting the Hajj for a second straight year due to COVID-19. The nation has restricted the annual pilgrimage to citizens and residents, set a maximum of 60,000 and those wishing to partake must be free of chronic diseases, be vaccinated and between the ages of 18 and 65. Last year, the kingdom reduced the number of pilgrims to just about 1,000 Saudi citizens and residents and was the first time Muslims from abroad were barred from the religious rite of passage in modern times. Before the pandemic, some 2.5 million pilgrims used to visit the holiest sites of Islam in Mecca and Medina for the week-long Hajj, which earned Saudi Arabia about $12 billion a year, according to official data.

Covid-19 – Due Diligence And Asset Management

Wall Street’s Return-to-Office Divide Laid Bare by Goldman, Citi

Brief : It’s a short stroll from Goldman Sachs Group Inc.’s global headquarters to Citigroup Inc.’s, but when it comes to reopening after the pandemic, the two Manhattan towers might as well be thousands of miles apart. Starting this morning, Goldman Sachs is requiring almost all employees at its perch over the Hudson River to report to their desks, marking one of Wall Street’s most ambitious returns to the workplace since COVID-19 besieged the city more than a year ago. Meanwhile, Citigroup won’t recall more of its staff to its mostly empty Tribeca tower in downtown Manhattan until July. Even then, the firm has told most workers that they can adopt a so-called hybrid schedule between home and the office longer term. Such divergences are popping up across Manhattan’s mighty financial industry, creating pockets of optimism within the city’s economy, but widespread anxiety inside workplaces. Bosses worry their teams will be less competitive if members are slow to come back. Parents fret about losing remote-work flexibility, but also that young, single colleagues and competitors may rush back sooner and soak up face time with executives or clients. “Women are absolutely nervous about it,” said Rob Dicks, Accenture Plc’s talent and organization lead for capital markets. “I’m seeing the HR and business leaders at banks recognizing, understanding and starting to plan around fairness in evaluations.”

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Club Deals Are Back. Here’s Why Asset Owners Are Skeptical

Brief: Club deals are back, whether institutional investors want them or not. Since the beginning of June, Blackstone has announced that it completed three massive transactions alongside fellow private equity firms. Asset owners are watching closely to see if they're a sign that club deals are becoming market mainstays. And it’s for good reason: when multiple private equity firms join forces and pool their resources to buy a big company, limited partners in their funds don't always benefit… Club deals were popular in the lead up to the Great Financial Crisis of 2008, as PitchBook noted in a recent analyst note. In fact, in retrospect, they ended up being a signal for the peak of the market, unsustainable valuations, and a symptom of how much money the industry was sitting on. In some cases, they also ended in bankruptcy. For instance, after KKR, TPG, and Goldman Sachs acquired Energy Future Holdings for $45 billion, the company filed for bankruptcy in 2014. And it’s not the only one: Toys R Us and Caesars Entertainment were also victims of club deals, according to PitchBook. While the return of these deals may not signal a 2008-like market downturn, they do show that there is a mountain of dry powder waiting to be invested, but not enough companies to go around.

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Dimon Warns of Bigger Trading Revenue Drop After Covid Boom

Brief: Wall Street’s pandemic-era trading boom could be drawing to a close, with JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon signaling a 38% decline in trading revenue from a year ago -- a bigger drop than previously expected. Trading revenue at the largest U.S. bank will drop to just north of $6 billion in the second quarter, Dimon said Monday at a Morgan Stanley virtual conference. That tally could end up lower than the already reduced average analyst estimate of $6.5 billion, according to data compiled by Bloomberg. The drop comes after a year of pandemic-induced market volatility proved lucrative for the biggest Wall Street operations. JPMorgan shares dropped as much as 2% after Dimon’s comments, continuing a slide after the stock hit an all-time high earlier this month, with other bank stocks declining as well. This quarter will be “more normal” for fixed-income and equities trading, meaning “something a little bit north of $6 billion, which is still pretty good, by the way,” he said. Investment-banking revenue, meanwhile, will be driven up by an active mergers-and-acquisitions market, resulting in what “could be one of the best quarters you’ve ever seen” for that business.

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Aviva Investors to Dismiss Ten Equity Fund Managers

Brief: Aviva Investors, the investment arm of insurer Aviva, is reported to be laying off ten equity managers in an attempt to cut costs, with high-profile managers including Mikhail Zverev set to leave the firm. Aviva Investors has confirmed that "a number of roles have been put at risk" in its equities team, and said that consultations with the "impacted individuals" were underway, adding that "we are unable to provide further details while we go through the consultation process". According to The Mail on Sunday, the decision to reduce its equity management team will leave 25 fund managers at Aviva Investors and comes as activist investor Cevian Capital has built up a 5% stake in the insurer. Aviva Investors has confirmed that chief investment officer for equities David Cumming has already left the business. In a statement, Aviva Investors said: "We have taken the decision to focus our equities business on sustainable outcomes and core strategies where there is clear client demand, namely UK and global equities, while retaining sufficient coverage to support our multi-asset strategies." It added: "As a result of this decision, we have mutually agreed with David Cumming that he will leave Aviva Investors to pursue other opportunities. We would like to thank David for his positive contribution to the business since joining in 2018 and wish him all the best for the future."

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Fed-up Young Workers Fear They Need Offices to Save Their Careers

Brief: Managers hoping to lure employees into offices may find their youngest and newest staff are their strongest allies. Young white-collar staff feel caught between a rock and a hard place — they value quality of life over old-fashioned 9-5 commuting, but are even more worried about seeing their careers stall unless they head back into an office. That’s encouraging many to be among the first to return to their desks. While experienced employees often have established professional networks and dedicated home offices, younger staff say the pandemic has left them under-informed and cut off from their teams. There are now growing concerns that they are missing out on career opportunities older colleagues took for granted. Well over half of staff aged 21-30 stressed the importance of being able to meet and work with colleagues in person again, according to a 6,000-person survey carried out for Sharp Corp., results of which were shared with Bloomberg. Nearly 60 per cent said working in a modern, collegiate office environment has become more important to them over the past year. Despite a majority under 30 saying remote work made them more productive, over half of the survey’s respondents across Europe — ranging in age from 18 to 45 — say they feel anxious about a lack of training and career opportunities when thinking long-term about the future of 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 Friday June 11, 2021:

  • In the United States, the New York Times reported on Friday that federal regulators are forcing Johnson & Johnson to scrap about 60 million COVID-19 doses at a troubled Baltimore, Maryland plant due to contamination. Back in April, the same Baltimore plant was shuttered after an inspection revealed several violations, including possible contamination of J&J’s vaccines with a key ingredient from AstraZeneca’s COVID-19 vaccine. According to the Times, about 170 million doses at the time were in question after the April inspection. The 10 million doses that could be salvaged this time around aren’t going to come with a ringing endorsement either. They will be distributed across the United States and other countries with a warning federal regulators couldn’t guarantee that the manufacturing plant’s operator, Emergent BioSolutions, followed good manufacturing practices.

  • In Canada, the country’s most populous province, Ontario, was able to move into its first phase of reopening on Friday. Outdoor gatherings of up to 10 people and patio dining up to four per table are now permitted. Non-essential stores can also reopen, although with a 15% capacity and outdoor fitness classes are allowed. Ontario reported 574 new cases of COVID-19 on Friday, but a new record for vaccinations with close to 200,000. Elsewhere in the country, CBC is reporting, citing a government official, that Canada would share up to 100 million COVID-19 vaccine doses with the rest of the world that is struggling to meet their demands, as per the G7 agreement. More details are expected over the weekend on how the government plans to meet this target.

  • In the United Kingdom, the British Medical Association (BMA) are calling on the government to delay the planned easing of restrictions on June 21st. The UK  have seen almost 30,000 new cases of the Delta variant in the past week, with 8,125 recorded on Friday alone, the most since February. Dr. Chaand Nagpual, chair of the BMA Council, said that “relaxing all restrictions will undo the excellent work of the vaccine programme and lead to a surge in infections.” Britons will now sit through an anxious weekend and await word from Prime Minister Boris Johnson on Monday if he still plans to go through what has been dubbed “Freedom Day” on June 21st.

  • During the G7 Summit, China remains top of mind as the leaders of the United States and the UK have vowed to support an independent investigation into the origins of COVID-19, “including in China”. United States President Joe Biden and UK Prime Minister Boris Johnson issued a joint statement, adding to comments made earlier by European Union leaders, urging China to permit inspectors “complete access” to all relevant sites and information related to the pandemic. Although China said it supported further research of the origins of the virus last month, Beijing officials have made it clear they feel as if they complied with World Health Organization investigators earlier in the year and that the “China” part of the investigation is over.

  • In the Middle East, the International Air Transport Association (IATA) announced on Thursday its digital travel pass will go live in the region in the coming weeks. The news comes as Europe and the United States look to ease their travel restrictions. Qatar Airways, Emirates and Etihad Airways were among the first companies to start testing the IATA app back in January. The app would enable passengers to create a ‘digital passport’ to provide proof of their testing and vaccination history that can be shared with airlines and immigration officials. There has yet to be one vaccine certification system that has been universally accepted or recognized, which shows how this will definitely be a work-in-progress type project.

  • Australia, as part of the G7 nations that have agreed to supplying at least 1 billion shots for developing nations, will commit at least 20 million of their own doses to struggling countries around the world. The 20 million doses will be a combination of AstraZeneca, Pfizer and Moderna and will be provided by the middle of 2022. The Australian government has entered into five separate agreements to secure more than 195 million doses of COVID-19 vaccines for its own population. Of the more than 1 billion pledged by the G7 nations, half will be coming from the United States, with the UK contributing 100 million.

Covid-19 – Due Diligence And Asset Management

Rising Financial Risks Should Make the Fed Wary of Loosening Rules

Brief : In the annals of financial crises, perhaps there is no better predictor of impending doom than when financial regulators start loosening regulations. Throughout history, they have shown a remarkably consistent tendency to ease up during economic booms, facilitating reckless lending and asset bubbles. Then they crack down after the inevitable crises ensue, starving households and businesses of credit when they need it the most. Last year, in response to the economic devastation wrought by COVID-19, regulators wisely broke that mold.  As the economy went into freefall, they gave banks flexibility to deal with distressed borrowers and allowed them to dip into capital buffers to expand lending capacity. But now, with recovery at hand, the economy is flashing warning signs of over-heating: accelerating consumer price inflation; ever-rising equity, commodity, and home prices; and irrational speculation (Dogecoin, meme stocks). In this environment, one would hope regulators would see the wisdom of tightening standards. Unfortunately, the Fed’s leadership seems to be headed in the opposite direction.

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Goldman Bankers Lead City of London’s Uneven Return to Office

Brief: After more than a year of near-empty skyscrapers and virtual conferences, the City of London is hoping the U.K. government’s latest lockdown guidance next week will help kickstart a more widespread return to the office. Banks including Goldman Sachs Group Inc. and JPMorgan Chase & Co. have told U.K.-based staff that workers should ready themselves for a gradual return to office from later this month. Those plans could change if Prime Minister Boris Johnson announces an extension of the remaining lockdown restrictions in England on Monday. Even if Johnson unlocks, those hoping for a speedy return to pre-pandemic norms may be disappointed. The scale of any return is unlikely to be consistent across the same firm, let alone the broader industry, according to estimates of foot traffic levels since the onset of the pandemic by data platform Orbital Insight. If you’re a trader or an investment banker, you’re more likely to soon find yourself commuting in -- if you haven’t already returned. But other areas of finance may stay quieter. Foot traffic levels in the main London offices of Bank of America Corp., Citigroup Inc., Goldman Sachs Group Inc., JPMorgan Chase & Co. and Morgan Stanley, which have a substantial proportion of traders and investment bankers among their headcount, were estimated on average to be about a fifth of the pre-pandemic norm as of May 24, according to Orbital’s analysis, which monitors activity levels through satellites and mobile phone data.

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Healthcare Drivers that Private Equity Should be Aware of

Brief: A positive repercussion of Covid-19 has been the massive uptick in the interest in healthy activities and healthy living. Exercise equipment sales in the UK have spiked 5,800 percent during the pandemic, while corporate wellbeing investments, ranging from free gym memberships through to mental health and general wellness services, are on the rise too.  It’s not all been positive though. The NHS and private practitioners found themselves unprepared for remote and digital servicing when the lockdown restrictions were first introduced.  As the vaccine roll out continues and the light at the end of the tunnel shines just that little bit brighter, it’s never been more important to consider what’s driving demand in healthcare and what a sustainable, winning approach may be. Whether it is focusing on preventative care as the preferred prescription, or the changing needs of an ever-increasing elderly population, investors need to be aware. National lockdowns, health panics and homeworking created an overnight shift in demand for remote and digital servicing. The healthcare sector, however, was one of the least prepared, with both the NHS and private care providers rushing to find workable digital solutions.

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Broker Satisfaction with Lenders Edges Close to Pre-Pandemic Levels

Brief: Brokers’ satisfaction with their mortgage lenders has grown 2.5 percentage points since the end of last year. Satisfaction now sits at 80.3 per cent, compared with 77.8 per cent six months ago. The last 12 months have seen the broker-lender market endeavour to recover from the strain put on its relationships by the pandemic.  “Lenders were making significant changes to their product criteria and taking far longer than usual to process cases because of the need to tackle the application backlog that had emerged,” Craig Hall, Legal & General Mortgage Club’s broker relationships head, told FTAdviser. Pre-pandemic, broker-lender satisfaction levels were at 82.70 per cent, according to data from Smart Money People. The research is based on 597 mortgage brokers’ responses concerning 44 mortgage lenders. “I don’t think anyone was happy with lenders early in the pandemic,” said Chris Sykes, associate director and mortgage consultant at Private Finance.

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How Private Credit Survived its First Test

Brief: For at least a year even before the pandemic, investors were alarmed about a possible bubble forming in private credit, an asset class that barely existed until a decade ago when banks stepped back from lending to smaller and riskier businesses. They were right to be concerned: In the years after the financial crisis, investors committed billions to private credit, scores of new asset managers entered the business to meet the demand, and competition for deals became manic. With the pandemic, the asset class got its first real test. While there were bumps in the road, including a big downdraft in publicly traded business development companies, the sector emerged in good shape.  “All through 2019, there was lots of chatter about private debt. Everyone was piling on, saying, ‘Wait until the first credit event and then we’ll see what happens.’ But the industry held up well,” said Art Penn, founder of PennantPark Investment Advisers. Before founding PennantPark, Penn was, among other things, chief operating officer of Apollo Investment Corp, Apollo’s business development company, and was managing partner of Apollo Value Fund, a distressed fund.

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Managers Must Have a Strong 360-Degree View of Their Data

Brief: Most hedge fund managers have taken action to protect their firm’s data from external attacks. However, there is a growing recognition of the importance of shielding the firm from risks which can breed within the firm itself, and also protecting data in transit particularly in the hybrid working environment most of the world currently finds itself in. “In a hybrid working environment it is important to use tools not only to protect users and data, but also to ultimately safeguard the firm,” highlights George Ralph, Global Managing Director & CRO at RFA. “Understanding the way data is being used by people within a firm is critical to protect against potential internal bad actors.” For example, when the data arrives at the endpoint, firms need to know how that data is being used and kept secure by the user. “There are several questions managers need to consider, such as – Should the user be able to send the data on? Is there is two factor authentication process in place to access the data? Should the data be sent as a read only file or so that the document expires after a certain amount of time?” Having a detailed understanding of the answers to these questions will help outline a robust data management strategy.

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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 June 10, 2021:

  • United States President Joe Biden was expected to meet for the first time with United Kingdom Prime Minister Boris Johnson on Thursday ahead of the G7 Summit where both sides are looking to commit to resume travel between the two countries. According to figures released by Prime Minister Johnson’s office, before the coronavirus pandemic, more than 5 million Britons visited the United States every year and over 4.5 million Americans crossed the pond to visit the UK. While both sides are looking to commit, President Biden’s national security adviser, Jake Sullivan downplayed the chances of travel opening up soon. “I don’t think the working groups will finish their work by the time the trip is through so we’re not currently anticipating any specific announcements,” Sullivan told reporters. 
  • In Canada, fresh off the government’s announcement that fully vaccinated Canadians and permanent residents crossing the border into country will soon no longer be required to stay at a hotel for part of their quarantine period, experts are saying more clarity is needed. Some experts point to the United States Centers for Disease Control and Prevention (CDC), releasing guidelines in March for fully vaccinated Americans. Canada’s public health authority still haven’t provided similar guidelines, despite saying over a month ago the guidance was coming “very shortly”. “If you don’t provide guidance, people are going to make it up on their own. Some people might obviously throw caution to the wind and others might still be, quite frankly, unnecessarily cooped up,” said Dr. Isaac Bogoch, an infectious disease physician at Toronto General Hospital and member of Ontario’s COVID-19 task force.
  • In the United Kingdom, Prime Minister Boris Johnson said nations of the world must set aside the “beggar my neighbour” attitude that has led to disagreements over medicine, medical protective gear and COVID-19 vaccines. Speaking at the G-7 Summit as the host, Prime Minister Johnson said the group of leaders will commit to vaccinating the world by the end of 2022. The prime minister wrote in The Times of London that it was time for wealthy countries to “shoulder the responsibilities and to vaccinate the world, because no one can be properly protected until everyone has been protected.” The UK needs to back up those words with action of their own as the country has yet to send any doses abroad and has cut its international aid budget, citing the economic blow of the pandemic.
  • The European Union (EU)’s parliament announced its authorization of the use of digital COVID certificates within the EU, saying it is now up to member states to apply the rules. The measures are set to come into effect as of July 1st and will last for 12 months. The proposed digital certificates are supposed to enable secure travel between EU countries by validating whether someone has been fully vaccinated, has recently tested negative for the virus, or has fully recovered from the disease. The EU parliament website noted 23 countries are “technically ready”, with 9 of those already applying some form of validation certificate. 
  • In Japan, Prime Minister Yoshihide Suga made the bold declaration that all residents wishing to be vaccinated, will be able to by November. The timing of the prime minister’s statement coincides with a snap election that must be held by late October, essentially pushing his chips to the middle of the table and going all-in on vaccines delivering success to his administration. Japan’s vaccination effort has picked up speed recently, but Prime Minister Suga’s government has received criticism for its initial slow rollout to the world’s third largest economy.
  • Australia’s acting Victoria state premier has praised the residents of Melbourne and announced the country’s second largest city can exit their lockdown as of Thursday night. Melbourne’s five million residents have had to remain home for all but essential reasons for the past two weeks after a cluster of cases were linked to the Delta variant of the coronavirus, which is thought to be more transmissible. “This is a good day. Everyone should be absolutely proud of what we all achieved together,” said Victoria state acting Premier James Merlino. Even when the rules are eased, Melbourne residents are expected to remain within 25 KM (15 miles) of their homes, along with mandatory masks indoors and other restrictions, according to government officials.

Covid-19 – Due Diligence And Asset Management

Goldman Tells Workers to Report Vaccine Status by Noon Thursday

Brief : Goldman Sachs Group Inc. set a deadline of noon Thursday for employees to report their vaccination status. The requirement, detailed in a memo sent to employees and seen by Bloomberg News, is the latest in a series of steps Wall Street is taking to return operations to normal after most of the industry’s employees spent more than a year working from home because of the pandemic. Banks reaped record profits even as top executives fretted over the shift. Goldman Chief Executive Officer David Solomon has for months signaled his eagerness to end the arrangement. “This is not ideal for us and it’s not a new normal,” Solomon said at a conference in February. “It’s an aberration that we are going to correct as quickly as possible.” Private equity firms Carlyle Group Inc. and Warburg Pincus have already told employees they’ll require Covid-19 vaccinations to return to the office in September. Employers may demand vaccines under federal law, according to guidance provided last month by the Equal Employment Opportunity Commission. Workers can ask for exceptions for religious or medical reasons.

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Global Investable Assets Reach Record $250 Trillion

Brief: Despite a year of economic uncertainty, financial assets, including stocks, bonds, and other investment funds, globally reached a record $250 trillion in 2020, according to a report by BCG released on Thursday. An additional $235 trillion was in real assets, led by real estate ownership, making up 48 percent of total global wealth. Contrary to analysts’ projections, the total all-time high of financial wealth rose by 8.3 percent over the previous year, due largely to robust stock market performance and increased savings by individuals. The result: More wealth directed toward investment funds, private equity, private debt and real estate, among others. The capital into equities and investment funds rose 11.5% in 2020, according to BCG. Real assets tend to make up the bulk of wealth in developing countries, where capital markets are still in their infancy. “Over the next five years, however, a combination of greater financial inclusion and growing capital market sophistication will change the wealth composition in growth markets,” according to the report. “In Asia, for example, financial asset growth is likely to exceed real asset growth (7.9 percent versus 6.7 percent).

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G-20’s Economy Returns to Pre-Pandemic Level, but Gaps Linger

Brief: The economy represented by the Group of 20 leading industrial and developing nations returned to its pre-pandemic level in the first quarter albeit with differences across the bloc. The G-20 area’s gross domestic product grew 0.8% from the previous quarter, the Organization for Economic Cooperation and Development reported on Thursday. India, Turkey, China, Australia, South Korea and Brazil are now all back at the levels of output seen before the coronavirus struck. But, the U.S., Italy and South Africa were among those still falling short, with the U.K. and Italy recording the largest gaps. The analysis suggests most economies still have a way to go in recovering the ground lost to last year’s recession even though the recovery in demand has been stronger than most economists anticipated. The World Bank this week raised its outlook for global growth, while warning emerging and developing nations will continue to struggle.

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‘We Will see a Financial Crisis’ if COVID-19 Benefits are Left in the Budget: Kevin Brady

Brief: U.S. Representative Kevin Brady (R-Tex.) warns the trillions of dollars spent to overcome the COVID-19 pandemic will add to the U.S. national debt and threaten the country's economic future. "You've got to take all this emergency spending and take it out of the regular budget," Brady told Yahoo Finance Live.  President Joe Biden signed the $1.9 trillion American Rescue Plan into law in March. Then in April, he proposed a $2.3 trillion infrastructure bill called the American Jobs Plan along with another bill, the $1.8 trillion American Families Plan  Biden's proposed federal budget would make some of the COVID-19 pandemic era spending permanent. That would increase government expenditures $6 trillion dollars over 10 years. Biden proposes to pay for it by raising the corporate tax rate from 21% to 28%. The budget proposal posted online by the White House says the increased spending and increased taxes would pay off. "The American Families Plan makes permanent the American Rescue Plan’s expansion of premium tax credits and makes a historic investment to improve maternal health and mortality."

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When Will Emerging Markets Join the Post-Pandemic Recovery?

Brief: Clean balance sheets and higher commodity prices could help EM companies become the biggest beneficiaries of the recovery when "cities reopen and aeroplanes fill up again", say Frank Carroll and Janet Wang, portfolio managers at Oaktree Capital Management. We believe global stock markets have reached an inflection point: value may finally be dethroning growth.  Record-low interest rates and a surge in passive investing helped high-growth stocks outperform equities in traditional value sectors for much of the past decade.  And the Covid-19 pandemic only widened this performance gap.  But in the last few months, investors have begun rotating away from stocks trading at high multiples toward cheaper, value-oriented names that are more sensitive to the economy’s health.  We believe emerging markets offer an attractive entry point for those looking to join this shift toward value. This rotation stems from investors’ expectations of a broad global economic rebound.  While the pandemic is far from over, the rollout of vaccines has injected optimism into the world economy. We believe inflation, reflation and a rebound in economic activity are likely as lockdowns lift, cities fully reopen, planes fill up, and more workers return to offices.

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2020 Saw Record Private Equity Investment of $62 Billion in India

Brief: Private equity investors pumped a record $62 billion into Indian companies last year, according to Bain & Company’s India Private Equity Report 2021. Nearly 40 percent of this inflow came through $26.5 billion worth of investments made in Reliance Industries’ subsidiaries Jio Platforms and Reliance Retail. Excluding the Reliance transactions, the total deal value fell by 20 percent in 2020 (YoY). That’s because large volume deals of more than $100 million slumped by 25 percent. As the pandemic put a stop to all economic activity in the first half of the year, private equity investments too tapered off. However, the second half of the year saw a surge in investments as investor confidence returned. Thus, the number of deals went up by 5 percent from 1,053 in 2019 to 1,106 in 2020. Last year, healthcare saw the highest growth of 60 percent (YoY). However, consumer tech and IT/ITES were the clear favourites, becoming the largest sectors in terms of investment value, according to the report. The virus outbreak moved the world from offline to online and created a large base of digital-friendly and health-conscious users. This led to a deal surge in business for edtech, fintech, verticalized e-commerce and foodtech with big-ticket investments in Byju’s, Zomato, and FirstCry and many more.

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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 June 9, 2021:

  • In the United States, a top health official is sounding the alarm the country should be paying attention on what is happening across the pond, and make sure it doesn’t happen in America. Speaking at a news briefing on Tuesday, Dr. Anthony Fauci, head of the National Institute of Allergy and Infectious Diseases and an adviser to President Joe Biden, said the Delta variant, first reported in India, now accounts for 6% of cases in the United States. Dr. Fauci noted in the United Kingdom, the Delta variant has now taken over as the dominant coronavirus strain; replacing the Alpha variant that originated in the country. Dr. Fauci’s warning comes as 64% of American adults have received at least one dose, but pace of daily inoculations is down by more than two-thirds from April highs.

  • Canada’s Federal Health Minister stated on Wednesday that fully vaccinated Canadians and permanent residents crossing the border into country will soon no longer be required to stay at a hotel for part of their quarantine period. Health Minister Patty Hajdu said the government is hoping to ease some restrictions in stages, starting in early July, but those fully vaccinated Canadians and permanent residents will still have to take a COVID-19 test upon arrival and have an isolation plan until their test comes back negative. The current plan does not apply to tourists and will depend on case counts in the country. The news comes after several weeks of pressure from various groups in Canada and the United States of wanting to see some sort of plan from the federal government on what the easing of travel restrictions will look like and when it will happen. 

  • In the United Kingdom, the country received some troubling news less than two weeks out from the planned easing of coronavirus restrictions on June 21st. The country reported 7,540 new cases on Wednesday, the most since February 26th, according to the government’s data dashboard. As mentioned in the United States briefing, the Delta variant has become the dominant virus strain in the UK. Despite the rise in new cases, the country’s vaccination programme does seem to be lessening the severity of COVID-19 cases with only six fatalities reported, along with the 7,500+ cases reported on Wednesday. The government said it will provide an update on Monday as to whether it can continue with the easing of measures, which would see nightclubs reopen and most other restrictions lifted.

  • The German government has extended its coronavirus financial support until the end of September. Since the start of the pandemic, Europe’s largest economy has approved more than €105 billion in company aid and more than €32 billion in wage support. The latest COVID-19 wave in Germany seems to have officially turned the corner, with the country reporting 20.8 infections per 100,000 people over the past seven days, the lowest rate since early October. As of Tuesday, 45.6% of the population had received at least one dose of a coronavirus vaccine and with cases declining, state authorities have been easing pandemic curbs with restaurants, hotels and cinemas reopening, though restrictions on capacity.

  • China has been hit with a new coronavirus outbreak and the country is moving swiftly to bring it under control, including using police to detain people who have ignored, or broken COVID-19 prevention laws. The latest outbreak has occurred in the city of Guangzhou, home to over 15 million people. The area has moved to introduce mass testing and local lockdowns in areas since detecting their first case of the Delta variant on May 21st. Over 27 million people have been tested since May 26th in the city and surrounding areas, but authorities remain concerned due to the ability of the Delta variant to spread quickly throughout a population.

  • The World Health Organization (WHO) is warning of a “two-track pandemic” as cases decline worldwide but vaccine inequality persists. Speaking earlier in the week, Tedros Adhanom Ghebreyesus, Director General of the WHO, said unequal distribution of vaccines has allowed the virus to continue spreading and increasing the odds that a variant could emerge that could render current treatments ineffective. The two-track pandemic the WHO director general speaks of is the difference between the rich and poor countries in the world. The WHO stated nearly 44% of doses have been administered in what are considered rich countries as opposed to poorer nations, that sit at just 0.4%. Tedros has cautioned countries on lifting restrictions given the increased global transmission of variants of concern.

Covid-19 – Due Diligence And Asset Management

US Financial Crime Compliance Costs Surged in 2020: Survey

Brief : Projected spending by U.S. financial institutions on financial crime compliance shot up by one-third to $35.2 billion in 2020 compared to the previous year, in part due to "increased due diligence times and costs" brought on by the COVID-19 pandemic, according to a new report that surveyed more than 1,000 compliance professionals globally. The $8.8 billion jump from 2019's $26.4 billion projected figure was the second-highest increase of any country, behind only Germany, which added $9.6 billion to its expected tally for the year, according to the report from LexisNexis Risk Solutions. The report shows that virtually all regions of the world experienced sizable year-over-year percentage increases, with the global total across all financial institutions jumping to $213.9 billion in 2020 from $180.9 billion in 2019. "In large part what we're seeing is the effects of COVID-19 and what that's done to shape the regulatory environment and the desire [of companies] to have the right amount of scrutiny in a timely manner," Leslie Bailey, vice president of financial crime compliance for LexisNexis Risk Solutions, told Law360. Labor costs in the U.S. were a main driver of the upticks, accounting for 60% of the total spend in 2020 compared to 54% in 2019. The surge in labor costs could be attributed to additional contracting or entry-level hiring to address increased alert volumes and risks during COVID-19, the report notes.

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Spread of Indian Variant Dampened Enthusiasm for UK Equites in May, says Calastone

Brief: Fund inflows slowed in May after the flood of new capital that poured in during March and April, according to the latest Fund Flow Index (FFI) from Calastone, the world’s largest funds network. Even so, inflows to equity funds reached GBP2.2 billion, their eighth best in any month on Calastone’s record, and more than twice the monthly average over the last year. Investors are showing a particular preference for emerging market funds. They saw the second-highest inflow on record in May (GBP256 million), worth roughly one percent of the segment’s funds under management in a single month. By value, global funds saw the biggest inflows (GBP1.25 billion), their fourth-best month, but as the largest fund category this was a much smaller addition relative to funds under management than for emerging markets. Nervousness about a third Covid wave and about potential delays to lockdown easing in the UK dampened enthusiasm for UK-focused equity funds, however. Flows for the month overall were still positive to the tune of GBP147 million, but this was a sharp reduction compared to March and April (+GBP907 million between them). From 11th May onwards, net flows even turned negative as the UK news darkened with an acceleration in infection levels. European funds remained in the doghouse too with just GBP31m of inflows, a rounding error in the context of GBP1.7 billion of combined buy and sell orders.

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Europe’s Stimulus Likely to Keep Running as Economies Reopen

Brief: The European Central Bank is expected to leave its stimulus efforts running at full steam Thursday — even as the economy shows signs of recovery thanks to the easing of pandemic restrictions. And that could present a challenge for ECB head Christine Lagarde. She faces a balancing act: acknowledging improving economic data without triggering a premature market reaction that anticipates the eventual reduction in central bank support for the economy. Any talk of a stimulus taper could mean higher borrowing costs for companies — the last thing the ECB wants right now.  “Even if economic developments would in our view clearly justify at least having a first tapering discussion, the sheer mention of such a discussion could push up bond yields further and consequently undermine the economic recovery before it has actually started,” said Carsten Brzeski, global head of macro at ING bank. The central bank for the 19 countries that use the shared euro currency has been purchasing around 85 billion euros per month in government and corporate bonds as part of a 1.85 trillion euro ($2.25 trillion) effort slated to run at least through early next year. The purchases drive up the prices of bonds and drives down their interest yields, since price and yield move in opposite directions. That influences longer-term borrowing costs throughout the economy, sending them lower.

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Investors Withdraw £800m from M&G Property Fund

Brief: Investors have withdrawn £800m from M&G’s property portfolio and feeder fund since they re-opened for dealing on May 10. According to data from Morningstar, £789m was withdrawn from the main fund in the past four weeks. This was met by the fund's liquidity, which has been supported by some recent sales. The property fund’s value was around £2.1bn before the re-opening. At the time, the fund’s authorised corporate director and its depositary said the fund’s cash weighting was 33 per cent, which translates to about £709m. The fund had a further £253m of assets which were exchanged or under offer, which have all now sold, and it can generate a further £73m from investments held in a REIT, which can be sold down quickly to generate further cash. During the fund’s gating, around 38 properties were unloaded at a combined -0.1 per cent discount to net asset value, which reduced the portfolio’s exposure to retail from 38.4 per cent to 28.1 per cent and pushed it overweight industrials. The fund continues to target 20 per cent liquidity. M&G Investments did not want to comment on fund flows outside of reporting periods but said they have been consistent with expectations.

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Green Bonds Were a Better Safe Haven Than Gold During the Pandemic

Brief: During the height of the Covid-19 pandemic, one asset proved to be a better safe haven than gold: green bonds. Climate-friendly debt served as a better protection against large market fluctuations than gold, as well as performing better than other environmental, social, and governance investments, according to new research from Imran Yousaf of Pakistan’s Air University, Muhammed Tahir Suleman of the University of Otago in New Zealand, and Riza Demirer of Southern Illinois University Edwardsville. In the paper, the trio argued that green bonds were the “preferable safe haven” investment for passive investors hoping to defend their portfolios against the “uncertainty” of the pandemic. Conventional stock portfolios that included green bonds saw the highest risk-adjusted returns during the pandemic when compared against equity portfolios supplemented by gold and other ESG assets, the researchers found.  In a market downturn like the one seen at the onset of the pandemic, non-risky assets are few and far between. Investors often turn to gold as a familiar, if weak, safe haven asset — but green investments may be able to fill that role, according to the study.

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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 June 8, 2021:

  • In the United States, President Joe Biden will be making his first overseas trip as part of the G-7 summit on Wednesday where he intends on bolstering the availability of Western coronavirus vaccines abroad. Both President Biden and host United Kingdom Prime Minister Boris Johnson plan to rally their richest democratic counterparts to help the rest of the world get a handle on the coronavirus. The United States will look to steer the conversation in this direction in a bid to counter China’s intent for vaccine diplomacy and to calm tensions with allies who have been at odds with America over its hoarding of COVID-19 vaccines and intellectual property rights.
  • With increasing external and internal pressures about border restrictions, Canadian Prime Minister Justin Trudeau stated the eventual easing of travel restrictions and quarantine rules will apply to those who are fully vaccinated against COVID-19. Prime Minister Trudeau made the comments Tuesday while speaking with reporters. Bloomberg is reporting Chambers of Commerce in Canada and the United States, along with other groups, want travelers who’ve been fully inoculated against COVID-19 to be able to cross the border, free of having to show a negative COVID-19 test, or undergo a quarantine. The groups want the changes to go into effect on June 22nd, one day after the pact that limits land border crossings between the two countries is set to expire. Since March 2020, the land border crossing has been restricted against non-essential travel and has been renewed in 30-day intervals ever since.
  • United Kingdom’s Environment Secretary George Eustice might have popped the getaway travel plans of fellow Britons on Tuesday. Speaking to Sky News, the cabinet minister urged people to “holiday at home” in the UK as he stressed the variant now known as Delta (previously the Indian variant) has changed the outlook on overseas travel. “There are still a number of countries on the green list, if they wanted to do that they can, but obviously they will have to understand there are risks in doing so as well,” said Eustice. Those who made the trip to Portugal found that out first-hand last week when the UK changed their travel status from green to amber, which incurred Britons vacationing there to make a mad dash back home before quarantine restrictions came into place this week.
  • In Australia’s Victoria state, authorities have stated plans to ease COVID-19 restrictions on the city of Melbourne remain on track after locally acquired cases of the virus continue to fall. Victoria state was triggered into a snap seven-day lockdown back on May 27 to contain the latest coronavirus outbreak in the region. The lockdown was extended in Melbourne until June 10th, while eased in other regions of the state.  Prime Minister Scott Morrison said he would like to see the COVID-19 lockdown in the country’s second largest city lifted as soon as possible and urged authorities to balance risks when they decide to shut down large parts of the economy.
  • The Philippines have started the “phased implementation” of the vaccination of workers in essential industries, starting in Manila and eight other areas. The process started on Monday and will involve close to 35 million people who work outside of their homes, such as public transport staff, in a bid to curb COVID-19 transmission and open up the economy. This marks the second phase of the vaccine rollout, which started in March where those first targeted were health care workers, senior citizens and those with pre-existing conditions. The Philippines remain a long way from the government’s projected goal of having 70 million (population of 110 million) inoculated by the end of the year with only 9 million doses going into people’s arms so far. 
  • The Canadian-based Mastercard Foundation will spend $1.3 billion over the next three years to acquire and deliver COVID-19 vaccines to more than 50 million people in Africa. The initiative from the Toronto-based non-profit is the first of its kind in order to bolster Africa’s attempt to vaccinate its population as widespread fears of a third wave of infections grip the continent. The foundation will purchase single-dose Johnson & Johnson vaccines at a discounted rate and will begin to deliver on those doses to the African Union’s 55 member states from July to September, with an option to purchase an additional 180 million doses through next year.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Traverse Volatility and Inflation Trends with Biggest Jan-to-May Returns in 25 Years

Brief : Hedge funds are stacking up gains this year as shuttered economies continue to unlock, with the industry navigating volatility and inflation to score its best January-to-May performance in two-and-a-half decades. Hedge Fund Research’s main Fund Weighted Composite index – which tracks the investment performance of more than 1400 single-manager hedge funds across all strategy types – grew 1.7 per cent in May.  That rise – which brought year-to-date returns up to the end of May to almost 10 per cent – was the eighth successive monthly gain for the index. In the trailing eight-month period, the FWC grouping surged 21.9 per cent, the third strongest such period on record.  It was also the biggest January-to-May advance since 1996, when the benchmark gained more than 12 per cent over the same five-month period.  The across-the-board gains for strategies of all stripes and sizes comes despite rising volatility in stock markets and increased inflationary pressures, said HFR president Kenneth Heinz. Managers are currently navigating this environment with an emphasis and focus on inflation/interest rate sensitivity and equity volatility management.  Equity hedge funds’ overall performance has edged into double-digit territory on a year-to-date basis, with May’s 1.48 per cent gain putting the sector up 11.26 per cent in 2021. Energy and commodities-focused managers led the way, with successful oil market calls bringing monthly gains of some 3 per cent, and year-to-date returns up more than 18 per cent.

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World Bank sees 5.6% Global Growth in 2021, Best Since 1973

Brief: The World Bank is upgrading the outlook for global growth this year, predicting that COVID-19 vaccinations and massive government stimulus in rich countries will power the fastest worldwide expansion in nearly five decades. In its latest Global Economic Prospects report, out Tuesday, the 189-country anti-poverty agency forecasts that the world economy will grow 5.6% this year, up from the 4.1% it forecast in January. The global economy last year shrank 3.5% as the coronavirus pandemic disrupted trade and forced businesses to close and people to stay home. The projected expansion would make 2021 the fastest year of growth since 1973’s 6.6%. But the 2021 rebound will be uneven, the bank predicts, led by rich countries such as the United States that could afford to spend vast amounts of taxpayer money to support their economies: 90% of advanced economies are expected to return to pre-pandemic levels next year -- measured by income per person -- versus just a third of developing countries. The World Bank is calling for wider distribution of COVID vaccines to low-income countries, where inoculations have gone slowly.

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Toronto Bankers Dodge Wall Street’s Return-to-Office Pressure

Brief: As Manhattan slowly springs to life again, with Wall Street’s biggest firms pushing traders and bankers back into the office, the scene some 350 miles to the northwest, where North America’s No. 2 financial center lies, is vastly different. Toronto’s Bay Street is quiet, laid low by successive waves of COVID-19. Union Station, normally one of the continent’s busiest commuter hubs, is largely deserted, even in rush hour. It will get busier as the crisis eases but the financial district, most here agree, has undergone a change that is likely permanent. Unlike on Wall Street, where the likes of JPMorgan Chase & Co.’s Jamie Dimon and Goldman Sachs Group Inc’s David Solomon talk excitedly about filling offices back up, top Bay Street executives seem to be in no hurry to end remote work. If anything, they rave about how surprisingly efficient and profitable the arrangement has been. And some acknowledge that their employees have little desire to return to the office five days a week. In one recent comment that captured the mindset in C-suites across the city, James O’Sullivan, the head of fund manager IGM Financial Inc., spoke of a “new normal” where many employees spend part of their workweek at home. Manulife Financial Corp. Chief Executive Officer Roy Gori says remote work has been “incredibly” effective and the global insurer will continue to allow some of it when the pandemic is over.

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Pandemic Spurs Intergenerational Sustainable Investing

Brief: The Covid-19 pandemic has prompted just over half of advised UK adults to move into the sustainable investing space, according to a report by Prudential. While the trend is common across generations, millennials led the way, with 60% taking up sustainable investing, followed by 44% of generation X and 35% of the baby boom generation. Catriona McInally, investment expert at Prudential UK, said: “With £5.5 trillion (€6.4 trillion) in personal wealth due to be passed to the next generation by 2047, the role intergenerational planning advice played, prior to the pandemic, was already a significant one. Yet the crisis has reframed financial priorities. Not just for those later in life with IHT [inheritance tax] liabilities, but for all generations.” Research for the report was carried out by Opinium, which surveyed 1,000 advised families across the UK.  The study looked at intergenerational planning and wealth transfer between advised families amid the financial volatility and insecurity of the pandemic. It found that over 60% now care more about the environment and the planet than they did pre-pandemic.

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The Risk and Rewards in Real Estate Investments

Brief: After a tumultuous year brought on by the pandemic, the real estate market is showing some signs of recovery — albeit slowly, with sharp contrasts between sectors. On the whole: In 2020, the aggregate capital raised by North America-focused private real estate funds fell 26 percent from 2019, according to a Preqin U.S. real estate markets report published on Monday. For 2021, data gathered to April showed the total value of private equity real estate deals was equivalent to nearly 30 percent of last year’s total; though there may be an uptick during the latter half of the year, according to the report. The country’s residential real estate sector has seen the most activity so far this year, totaling $17 billion in deals during the first four months of 2021 — partly due to the shift to remote working with people migrating to warmer and less expensive cities. The new homeworking trends, including the shift to less urban areas, are “already shaping investor demand and city rankings in terms of invested capital.” Some pension funds have already raised their target real estate allocation in the past year. As companies introduce hybrid working options — where employees can work from home for part of the week — flexible working could continue to drive location decisions. The eventual return to the office will require less space and therefore produce a smaller demand for office real estate, according to the report. 

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

Our briefing for Friday June 4, 2021:

  • In the United States, the latest job numbers were released on Friday and President Joe Biden touted the country was “on the move again” as unemployment rates dipped to a pandemic low. America added 559,000 jobs in May, closer to what economists anticipated after April’s disappointing jobs report. The unemployment rate fell to 5.8%, but the country is still down about 7.6 million jobs from pre-pandemic levels, which displays how much the pandemic has hindered the ability to potentially work. President Biden said while he still expects bumps along the way, he was “extremely optimistic” and noted the United States was the only major country where projections of economic growth are better now than they were before the pandemic. 

  • In a joint letter to Canadian Prime Minister Justin Trudeau, the airline industry in Canada, along with the United States called on the Liberal government to allow more flights. According to the letter from the National Airlines Council of Canada and Airlines for America, the Canadian government should “clearly spell out how and when we will restart air travel between Canada and the U.S., with the objective of releasing the plan prior to June 21.” The letter also cited vaccination rates increasing exponentially in both countries and provincial governments releasing their reopening plans as other reasons to deliver a clear roadmap from the federal government. Despite this, Prime Minister Trudeau has yet to outline a timeline for reopening, other than to say it will depend on cases and vaccination levels. 

  • The United Kingdom’s Office for National Statistics (ONS) released their latest data regarding the coronavirus on Friday. Data published by the ONS noted 376,000 people in private households can be considered COVID long haulers where they have reported having symptoms of COVID-19 for at least one year. Those symptoms include those that have been reported previously such as fatigue, muscle pain and “brain fog”. The ONS stated self-reported long COVID cases were greatest in people aged 35-69, females, those living in the poorest areas, those working in health or social care, and those with another activity-limiting health condition or disability.

  • France has introduced a new colour-coded system designed for international travel that will be begin on June 9th. In a document published on Friday, the colour-coding scheme will be green, orange and red depending on the country that traveller is arriving from and their vaccination status. Those on the “green” list will be anyone coming from the European Union, Australia, Israel and Japan, just to name a few, and they will be permitted to travel throughout France without any restrictions. Currently on the “red” list will be residents coming from India, South Africa, as well as others from countries in South America. According to the government update, those arriving from the red list of countries whether they have been vaccinated or not, will only be permitted to enter France for urgent reasons.

  • Philippines President Rodrigo Duterte has appealed to the public to get vaccinated against COVID-19 after recent data has shown the country is far behind the immunization targets it has set out. Speaking earlier in the week, Presidents Duterte said: “I invite all our countrymen to be vaccinated at the earliest possible opportunity because this is the most, if not the only way, effective way, to defeat the COVID-19 pandemic.” A data analyst from the government’s coronavirus task force said that in the three months since COVID-19 inoculations started, just 14% of senior citizens and 8% of people with health conditions had received first doses of a vaccine, short of the 21% target. 

  • In an effort to fast track their coronavirus vaccine campaign, India has given the green light to a domestic made inoculation, even though it is still going through Phase III clinical trials. The news comes as the Supreme Court has criticized the vaccine rollout from the government that has left millions of people still vulnerable. Only 4.7% of the 950 million adult population have been given two vaccine doses. The latest wave of the coronavirus in India killed around 170,000 people in April and May alone. The government has said they will purchase 300 million vaccine doses from local firm Biological-E and has put down an advance of $205.6 million.

Covid-19 – Due Diligence And Asset Management

Carlyle, Warburg to Require Covid-19 Shots for Return to Offices

Brief : Carlyle Group Inc. and Warburg Pincus told employees they’ll require Covid-19 vaccinations to return to the office in September. Carlyle, a private-equity firm that oversees $260 billion of assets, and Warburg, with $60 billion, told U.S. employees of the policy in recent days, according to people familiar with the plans. They’re among the first financial-services companies to demand that employees get vaccinated in order to work in the office. A Carlyle spokeswoman confirmed the information, announced last week at a town hall meeting, and Warburg declined to comment. Warburg has told employees that accommodations can be made for those who don’t get the shots, said a person familiar with internal communications. Carlyle said at its town hall that getting the vaccine was not a condition for remaining employed. Employers may demand vaccines and request proof under federal law, according to guidance provided last week by the Equal Employment Opportunity Commission. Workers can ask for exceptions for religious or medical reasons. Most companies have opted to encourage rather than demand that staff get vaccines, offering to lift mask or testing requirements. About 20% of employers are mandating them in order to return to the office, according to a Morning Consult poll of 1,070 working adults conducted for Bloomberg News at the end of May.

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AIMA Policy Paper Envisages Key Role for Alternatives in UK Recovery

Brief: The hedge fund and alternative investment sectors now have a vital role to play in boosting UK growth and innovation as the country recovers from the economic impact from Covid-19 and readjusts to life outside the EU, the Alternative Investment Management Association and Alternative Credit Council have said. AIMA, the global hedge fund industry trade body, and its private credit affiliate the ACC, have published a new policy paper setting out how, in practical terms, the industry can support the UK government’s goals in increasing economic growth, boosting productivity and levelling up across the UK. The policy objectives, which cover regulation, tax, pensions and real economy financing, are aimed at freeing up capital and creating new jobs, AIMA said.  The industry trade group believes that maintaining the UK’s attractiveness for investment managers and their investors in a post-Brexit and Covid-19 landscape would support the UK’s economic prosperity.

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Federal Court Orders Florida Man to Pay More than $500,000 for Attempting to Fraudulently Profit From COVID-19

Brief: The Commodity Futures Trading Commission today announced that the U.S. District Court for the Western District of Texas entered an order granting the CFTC’s motion for default judgment against defendant James Frederick Walsh of Boca Raton, Florida. The order finds that Walsh failed to answer the CFTC’s complaint charging him with fraud and failure to register with the CFTC. Walsh’s fraudulent solicitations include falsely claiming to generate increased forex trading profits as a result of the COVID-19 pandemic. This was the first enforcement action brought by the CFTC alleging misconduct tied directly to the COVID-19 pandemic.  The order requires Walsh to pay a civil monetary penalty of $555,726 and permanently enjoins him from engaging in conduct that violates the Commodity Exchange Act, from registering with the CFTC, and from trading in any CFTC-regulated markets. The complaint alleged that from at least September 2019 to the July 2020, Walsh fraudulently solicited members of the public for the purported purpose of trading retail foreign currency (forex) on their behalves. 

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Venture Capital’s New Favorite Industry

Brief: The Covid-19 pandemic brought digital health and wellness into the mainstream — and it’s made the retail health and wellness tech industry an increasingly attractive target for venture capitalists. Digitized health and wellness investment activity hit a peak in 2020, generating $7.3 billion in venture capital deal value across 449 deals, according to PitchBook. The industry started off the new year strong, as well: In the first quarter of 2021, industry deal value hit a quarterly record of $4.2 billion across 153 deals, PitchBook said in a first quarter report on emerging technology investments. PitchBook researchers attributed the strong 2020 dealmaking to the pandemic and the increased development and usage of telemedicine products. By 2025, the research firm expects the mobile and digital segment of the health and wellness tech market to reach between $350 billion and $400 billion, a meteoric projection from a less than $50 billion market size in 2019.  “Virtual health companies benefited from the pandemic as rules hindering the use of telemedicine were repealed, payers increased telehealth coverage, and laws preventing ‘noncritical’ in-person appointments forced providers to conduct appointments remotely,” PitchBook said in the report.

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Advisers Predict Business Boom in Next 12 Months

Brief: Most advisers are positive about business prospects over the next 12 months with the majority (81%) predicting their level of net assets under management will increase over the coming year, according to a survey from Quilter Financial Planning. Almost two-thirds of those surveyed (62%) said they expected their gross turnover to increase during the next 12 months compared to the year just gone, and the research found 5% were fearful it would decrease "significantly". Advisers were also bullish on new client business with 63% predicting a rise in new fee-paying clients and a further quarter (23%) saying they expect client numbers to remain stable.  In addition, advisers were fairly confident on the outlook for the British economy with a weighted average score of 7.0 out of 10, Quilter FP said, with those surveyed believing it would encourage clients to seek advice and make investments. Quilter FP managing director Gemma Harle said: "After a difficult year and a half the outlook is looking much brighter for the UK and the economy, so it's pleasing to see this now being reflected in advisers' predictions for the future. "Although the threat of variants still looms, the successful vaccine programme has revealed a future we had not dared to dream about just a few months ago."

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Alternative Asset Managers Found Their ‘Sweet Spot’ in the First Quarter

Brief: As the global economy recovers from the pandemic, alternative asset managers are seeing strong growth across key metrics — including fundraising, assets, and fee-related earnings — with the trend expected to continue. According to Moody’s first quarter report on U.S. alternative asset managers, released this week, total fundraising for the four largest publicly traded managers — Apollo, Blackstone, Carlyle, and KKR — during the quarter rose to $67.3 billion, a 22 percent increase from the same time a year ago, while total assets under management climbed 36 percent over the same period. Of these, KKR had the strongest growth, more than doubling its capital raising to $14.6 billion, followed by Apollo, which saw a jump of 84 percent, raising $13.4 billion. It also added $73 billion in assets due to acquisitions by its insurance partners Athene and Athora. Net performance revenues increased by about 82 percent for the four firms, due to strong financial markets and improved economic conditions. A large part of the revenue growth is linked to the industry gravitating more toward a recurring fee structure, including partnerships with insurance companies, as opposed to realized performance fees, which are less predictable.

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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 June 3, 2021:

  • United States President Joe Biden announced on Thursday the plan to share the first 25 million COVID-19 vaccine doses with the rest of the world and the overall framework for distributing at least 80 million doses by the end of the month. As part of the first round, 19 of the first 25 million doses will be shared through the COVAX imitative, which is pushed heavily by the World Health Organization. Approximately six million will be sent to South and Central America, approximately seven million in Asia and the remaining five million to Africa. The other six million of the original 25 million will be sent to North American neighbours Mexico and Canada, along with several other countries. “Strong American leadership is essential to ending the pandemic now, and to strengthening global health security for tomorrow – to better prevent, detect and respond to the next threat,” said President Biden. 
  • In Canada, the federal government is increasing the fine from $3,000 to $5,000 for air travellers who refuse to quarantine in a government designated hotel for three days once arriving in the country. The news comes one week after a federal advisory panel was actually suggesting to either scrap the hotel quarantine plan altogether or suggested travellers be required to quarantine in a hotel only if they fail to present a credible quarantine plan. The quarantine requirement has been criticized in the past for several reasons including whether or not it actually prevents the spread of COVID-19 and the savvy travellers who found loopholes around it, such as flying into and/or through the United States, and then walking across a land border entry, thus avoiding the hotel quarantine.
  • In the United Kingdom, people who were hoping for an overseas trip this summer are upset with the government changing the list of approved destinations. The government updated their list Thursday and moved Portugal, which had been the only viable destination on the green list, to the amber list. This means Britons vacationing in Portugal face a rush to return home before the new rules begin in the early hours of Tuesday June 8th or face a quarantine upon arrival. Other popular destinations such as Spain, Greece, Italy and France never made their way to the green list and remain in the amber category. A spokesperson for British Airways said the following on the latest moves by the government: “The UK has reached a critical point and urgently needs travel with low-risk countries, like the US, to re-start the economy, support devastated industries and reunite loved ones.”
  • The European Union (EU) also updated their list of travel restrictions with the UK and United States remaining those that may still need to abide by member states’ quarantine requirements. The EU added Japan to the so-called “white” list of nations for which restrictions will be lifted, joining other countries such as Israel, Australia and South Korea. The EU’s recommendation isn’t legally binding and some member states such as Greece have already accepted visitors able to offer vaccination proof or a negative test, without asking them to quarantine. Spain, too announced as of June 7th, all vaccinated travelers would be allowed to visit, even those coming from countries for which restrictions are still in place.
  • Australia’s Victoria state has extended it snap seven-day lockdown into a second week in the city of Melbourne in a bid to contain a strain of the Indian COVID-19 variant. “If we let this thing run its course, it will explode,” Victoria state Acting Premier James Merlino said. “This variant of concern will become uncontrollable and people will die.”  The latest outbreak reached 60 as of Wednesday, though the state has been reporting daily cases in single digits since the lockdown was imposed. Victoria state is trying to avoid a repeat of what happened to them last July/August when more than 800 people died from an outbreak and one of the world’s strictest and longest lockdowns were imposed.
  • One day after Japan’s top medical adviser told a parliamentary committee the country should not be holding the Olympic Games; the organizing committee president says they are soldiering on. In an interview with the Nikkan Sports newspaper, Seiko Hashimoto said: “We cannot postpone again” The scaled down version of the Games, with no foreign spectators is set to begin on July 23rd. Tokyo, the host city, along with nine other regions remain in a state of emergency due to the pandemic. The postponement of the Games in 2020 cost Japan an extra $3.5 billion USD.

Covid-19 – Due Diligence And Asset Management

The Economic Data is Already Starting to Beat Expectations Again

Brief : One of the big themes of the last year has been that almost everyone has been too pessimistic about the economy and corporate fundamentals. The easiest way to see this is by looking at an economic “surprise index” which attempts to gauge the degree to which the data is beating or missing economists’ forecasts. It’s not a gauge of absolute strength but of relative strength. For about a year now, the Citi Economic Surprise Index for the U.S. has been in positive territory. That means this whole time, despite all the stories about the rebound, and the strength of the recovery and the powerful impact of the fiscal response, economists have been too pessimistic. Only very recently in the middle of May did the white line drop ever so slightly below zero, indicating reality more or less meeting expectations. But now it’s already on the rise again as you can see at the end of the chart. Just today we got better-than-expected ADP labor data, initial jobless claims, Markit PMI, and ISM services. They all beat. Not by huge amounts, but it was across the board.

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Impact Investing Shows its True Value During the Pandemic

Brief: LeapFrog Investments, a with Purpose investment firm, reached 221 million people in 35 countries with essential services during the pandemic, according to its Annual Impact Results. Together, LeapFrog’s investee companies were able to reach 16 million more people compared to 2019, at a time when support was profoundly needed. They provided underserved communities with access to a range of healthcare and financial services, including insurance, remittances, diagnostics and telemedicine. At the same time, LeapFrog achieved a 22 per cent uptick in the value of its portfolios over 2020. Across the past decade, LeapFrog companies have grown revenue on average at 26 per cent a year, consistently delivering on the firm’s strategy of Profit with Purpose. Eight in ten, or 174 million, of those reached by LeapFrog companies across Asia and Africa are emerging consumers, defined by The World Bank as living on less than USD10 per day. Over half, or 119 million, are women and girls.  Financial services proved a lifeline during the pandemic for families and businesses. LeapFrog’s insurance companies, for example, paid claims totalling USD629 million, an increase of 37 per cent.

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Distressed Muni Borrowers Are Still Piling Up in Pandemic’s Wake

Brief: The wave of U.S. municipal-bond distress set off by the pandemic is still spreading even as the economy recovers from the devastation of the outbreak. Eight muni borrowers became distressed last week, lifting this year’s tally to 76, according to Municipal Market Analytics. That puts 2021 on track to exceed almost every year since 2012 in terms of impairments. Only 2020, when the coronavirus caused some of the worst market turmoil on record, was worse. The isolated cases of deterioration in certain smaller, typically lower-rated or unrated issuers stand at odds with the optimism in statehouses nationwide, which have been buoyed by strong tax revenue and federal stimulus. It’s been a banner year for munis, with tax-exempt yields near record lows relative to those on Treasuries. Any defaults have mostly been confined to a corner of the market where businesses borrow through government agencies. “While credit conditions are clearly better than at this time last year, they are by no means fully corrected,” Matt Fabian, a partner at Municipal Market Analytics, wrote in a Wednesday note.

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Endowment and Foundation OCIOs ‘Came Roaring Back’ After the Covid-19 Crash

Brief: A year after the Covid-19 market crash, endowments, foundations, and aggressive risk takers have experienced the strongest recoveries, according to outsourced chief investment officers whose clients include major investors across fund types. Out of all outsourced investments tracked by the Alpha Nasdaq OCIO Broad Market Index, endowment and foundation portfolios “came roaring back” with a trailing one-year average net-of-fee returns at 35.8 percent, said Brad Alford, founder of Alpha Capital Management. The “aggressive asset allocation index,” an index that factors in OCIO strategies with a 0 to 20 percent allocation to risk-mitigating asset classes, touted the strongest performance with a 46.3 percent trailing one-year return. The Alpha-Nasdaq indices started in 2019 and aggregate responses from anonymous OCIOs that “represent the broad OCIO market” and “appropriately reflect the nuances across sub-categories, such as plan type and risk profile,” according to this quarter’s report. Index numbers are calculated using reported data from OCIO respondents. In order to be included in the indices, respondents must work with a fund that manages $50 million or more in assets under management. OCIO contributors include J.P. Morgan Asset Management, Verger Capital Management, and NEPC, among others.

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March Trading Profits and Inflows Propel Hedge Fund AUM to Record USD4.07tn

Brief: Hedge funds saw USD19.1 billion in new assets flow into the industry in March. Coupled with a USD28.5 billion monthly trading profit, total hedge fund industry assets rose to more than USD4.07 trillion as March ended, a new record high, according to data released by BarclayHedge. Most hedge fund sectors experienced net inflows in March. Fixed Income funds set the pace adding USD6.9 billion to assets, while Sector Specific funds brought in USD5.8 billion, Emerging Markets – Asia funds saw USD5.6 billion in inflows, Event Driven funds took in USD3.0 billion and Multi-Strategy funds added USD2.9 billion. Notable among sectors shedding assets during the month were Emerging Markets Global funds with USD3.8 billion in redemptions, Equity Long Bias funds with USD3.3 billion in outflows and Macro Funds with USD1.7 billion in redemptions. “Easing of lockdown restrictions, optimistic economic forecasts, rising equity and commodity prices and President Biden’s USD1.9 trillion pandemic recovery plan buoyed investors’ optimism,” said Sol Waksman, president of BarclayHedge. “The last time that hedge funds had a losing month was October 2020 when the Barclay Hedge Fund Index declined -0.11 per cent.”

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Hedge Funds Opt for Some Days of Remote Work – at Least for Now

Brief: Most hedge funds plan to let their employees work remotely at least one day a week starting in September -- a more flexible approach than Wall Street banks that are already summoning staff back to the office. What many senior managers aren’t saying openly is that such accommodations may not last. A May survey from the Managed Funds Association, whose members include mostly hedge funds with at least $1 billion of assets, found that 80% of firms would offer some sort of hybrid model starting in September. The most popular schedule is three days a week in the office, with remote work on Mondays and Fridays, the trade group said, without providing the percentage of firms signaling a preference for that arrangement. The schedule reflects that “firms understand their workforce wants and needs more flexibility as they migrate back to the office,” said Brooke Harlow, the association’s chief commercial officer. Yet a more nuanced picture emerges from conversations with hedge fund managers, many of whom declined to discuss their plans publicly.

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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 June 2, 2021:

  • In the United States, President Joe Biden is expected to make his push to the American public to get vaccinated ahead of his self-imposed July 4th long weekend goal. Nearly 51% of the American population has received at least one dose of a COVID-19 vaccine and nearly 41% are fully vaccinated, according to the latest Centers for Disease Control and Prevention data. Last month, President Biden said he wanted at least 70% of Americans to have at least one shot by July 4th – America’s Independence Day. In order to boost those numbers, the Biden administration will mobilize national organizations, community based and faith-based partners, celebrities, athletes and thousands of volunteers, just to name a few. Twelve out of fifty states have reached President’s Biden’s goal of having at least 70% of their population with at least one inoculation of a COVID-19 vaccine.

  • The Canadian federal government is doubling its monetary commitment to the global vaccine sharing alliance known as COVAX. International Development Minister Katrina Gould made the announcement that Canada would be increasing its commitment from $220 million to $440 million. However, there was no mention of Canada sharing excess vaccines with the COVAX initiative. Canada has been heavily criticized as being the only G7 nation to accept doses from COVAX, which was ideally designed for poorer nations to receive vaccines. The government has previously stated they will donate excess vaccine doses to COVAX but have never outlined when or how many.

  • Speaking to the Jenner Institute in Oxford on Wednesday, United Kingdom Health Minister Matt Hancock revealed that the government has started commercial negotiations with AstraZeneca to secure a “variant vaccine”. The inoculation will be adapted to tackle the variant first discovered in South Africa. “Once again we’re leading the way and backing projects with potential, so we can keep our vaccination programme one step ahead of the virus and protect the progress that we’ve all made,” said Hancock. The health minister was singing the praises of the AstraZeneca vaccine, made in partnership with Oxford University on Wednesday, noting more than half a billion doses have been released to low and middle income countries as official figures show at least three-quarters of UK adults are said to have at least one COVID-19 vaccination in their system. Hancock also touted the vaccine’s affordability and storage capabilities as other reasons the vaccine is so important to help in the world’s global vaccination against COVID-19.

  • Germany, Greece and five other European Union (EU) nations have introduced a vaccination certificate system for travellers, weeks ahead of the July 1st rollout program for the entire EU bloc of nations. The certificates are being issued to people fully vaccinated, as well as to those who have already contracted the virus and developed antibodies, along with others who have a PCR test conducted within the previous 72 hours. The documents will be available in digital and/or paper form, delivered free of charge, distributed in the national language, plus English and be valid in all EU bloc countries. Many EU nations such as Greece, France, Italy and Spain rely heavily on tourism and are looking for that boost to the economy over the summer months.

  • While the EU looks to be very open to the idea of welcoming back tourists, according to Bloomberg, China is in no such rush. The article notes while China is rolling out a world-leading 20 million COVID-19 vaccine doses a day, the country has yet to signal any attention they plan to open their borders or relax strict quarantine for foreign arrivals, and aggressive lockdowns when flareups return. Bloomberg, citing reports from local media, said Beijing has more than 80% of its people with at least one dose of its domestic-made shot. China’s National Health Commission declined Bloomberg’s request for comment on the country’s plan to reopen.

  • Addressing a parliamentary committee on Wednesday, Japan’s top medical adviser, Shigeru Omi, said hosting the Olympics during the current state of infections in the country is “not normal”. Omi went on to add that organizers should explain to the public why the Games are going ahead in the middle of a pandemic. Since the start of the pandemic, Japan has reported more than 750,000 cases of the coronavirus and only 2.7% of its population have been fully vaccinated and the current phase targeting older adults isn’t expected to finish before the Games start on July 23rd.

Covid-19 – Due Diligence And Asset Management

BlackRock CEO Larry Fink sees Potential for ‘Big Shock’ From Inflation

Brief : BlackRock Inc. Chief Executive Officer Larry Fink said that investors may be underestimating the potential for a spike in inflation. “Most people haven’t had a forty-plus year career, and they’ve only seen declining inflation over the last 30-plus years,” Fink said at a virtual event hosted by Deutsche Bank AG on Wednesday. “So this is going to be a pretty big shock.” Concern about higher inflation has already seeped into U.S. markets with the cost of goods including lumber and steel rising this year. Fink began his career at First Boston Corp. in 1976, in a period of elevated inflation. The U.S. Consumer Price Index touched a high of 14.8% in March 1980. Fink, who now runs the world’s biggest asset manager, added that central banks may have to reassess their policies if higher prices become a concern. The Federal Reserve has committed to keep rates near zero in the near term and has indicated it will tolerate inflation above its 2% target to make up for the period where it dipped below that level. If the Fed were to reconsider that, it could seem discordant with separate fiscal stimulus, Fink said. President Joe Biden has proposed additional measures to stimulate the U.S. economy, including a $1.7 trillion infrastructure spending plan.

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The $10 Billion Bright Spot in the Battered World of Office Real Estate

Brief: Even as the remote-work era clouds the future for offices, one segment of the business is drawing cash from investors including Blackstone Group Inc. and KKR & Co. More than $10 billion has gone toward buying buildings used for life sciences and other research this year, according to Real Capital Analytics Inc. That accounted for approximately 4% of all global commercial real estate transactions through May, double the share from last year. That estimate doesn’t count new construction, and fresh buildings are breaking ground in U.S. cities including Boston, San Diego and San Francisco -- many without having signed major tenants. Unlike workers in conventional offices, many scientists don’t work remotely. And as vaccines help fuel the economic rebound, funding for medical innovations is expected to drive the need for more space, particularly in the U.S. and U.K. “The pandemic only amplified the demand growth, but it’s a trend we think will continue for years,” Nadeem Meghji, Blackstone’s head of real estate Americas, said in an interview. “This is about, broadly, advances in drug discovery, advances in biology and a greater need given an aging population.” Last year, as social-distancing emptied out office buildings and damped investor interest in malls and hotels, life science building sales and refinancing totaled about $25 billion, up from roughly $9 billion in 2019, according to Eastdil Secured.

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Data and Due Diligence to Help GPs Thrive

Brief: “The Coronavirus pandemic (Covid-19) highlighted the importance of GPs having deep sector knowledge, expertise and awareness in the sectors they invest in,” Alice Langley, Partner, Investor Relations, IK Investment Partners comments. “With significant uncertainty around the long-term effects of the pandemic on the global economy and businesses alike, having a comprehensive understanding of what recovery might look like for businesses within a specific sector, will stand GPs in good stead. “Having this level of data and insight enables firms to utilise any opportunities as well as mitigate risks by building this into their value creation plans. At IK, we invest across four main sectors; Business Services, Healthcare, Consumer and Industrials. Having deemed this as a sensible approach for many years, Covid-19 simply supported our thesis of investing in businesses within non-cyclical industries.” The pandemic also forced an acceleration of digitisation as the new normal saw GPs and LPs move to remote working and virtual due diligence. Langley notes: “I anticipate digitalisation to be high on the priority list for PE firms with the aim of harnessing technology to streamline operations for themselves and their portfolio companies.

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EU to Keep Pandemic Economic Safety Net in Place Next Year

Brief: European Union countries will continue to benefit from an economic safety net through next year to help their economies recover from the damage inflicted by coronavirus restrictions, the EU’s executive branch said Wednesday. As COVID-19 spread throughout Europe and sent the EU spiraling toward its deepest recession, the European Commission activated a “general escape clause” in March 2020 that allowed member nations to deviate from normal budgetary rules. But with vaccination programs now taking hold and the number of new coronavirus cases dropping, the commission predicts the EU economy will expand by 4.2% in 2021 and by 4.4% in 2022. Given the positive trend, Commission Executive Vice President Valdis Dombrovskis said that “we are prolonging the general escape clause in 2022, with a view to deactivating it in 2023.” Dombrovskis said the decision comes “with our recovery around the corner but with the road ahead still paved with unknowns. We will therefore continue to use all tools to get our economies back on track.”

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Global Economy Will Still be 23 Million Jobs Short Next Year

Brief: The Covid-19 pandemic will cause a “sustained and pronounced increase in unemployment” with low- and middle-income countries that have lagged behind in vaccinations suffering the biggest blow, according to the International Labor Organization. The ILO fears not enough jobs will be created to accommodate those who lost employment as a result of Covid-19, plus new labor-market entrants. The global shortfall is estimated to be 75 million this year, and 23 million in 2022. “Projected employment growth will be too weak to provide sufficient employment opportunities for those who became inactive or unemployed during the pandemic and for younger cohorts entering the labor market,” the ILO said. “Many previously inactive workers will enter the labor force but will not be able to find employment.” The Geneva-based body’s prediction is the latest evidence that the pandemic has reversed years of progressive gains to welfare around the world. Not only has unemployment risen in many countries despite furlough programs to help firms retain staff, but the headline rate masks the extent of the damage. Many people, particularly women and the young, have left the labor market and aren’t being counted. In addition, schooling has been disrupted in many places due to the need to stem spread of the disease. The ILO estimated that those jobs that are created are likely to be lower quality, with the problem most severe in poorer countries with large informal economies.

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What Consumer Data says About Opportunities in Emerging Markets

Brief: Across the globe, consumers’ desires are shifting — and that has implications for investors. A decrease in the consumption of basic goods, like food and personal hygiene products, may present new opportunities for investors in emerging markets, according to a recent paper from investment firm Polen Capital. “We believe the investment opportunities in emerging markets are hard to overstate,” portfolio manager Damian Bird and analyst Pamela Macedo wrote in the paper. “A McKinsey study estimates that by 2025 consumers in emerging markets will spend an estimated USD 30 trillion annually, a future it calls ‘the biggest opportunity in the history of capitalism.’”For their study, Bird and Macedo compiled macroeconomic and industry-specific data from global industries over the past 20 years. They first noted a shift away from the “classic consumer product S-curve,” a visualization that illustrates historical trends of consumers in early-stage developing economies. According to that model, consumers at first tend to purchase low levels of consumer products. However, as a country’s economy grows and individuals acquire more wealth, consumption of consumer products starts to slowly increase, gaining speed as the country’s economy expands.

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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 June 1, 2021:

  • In the United States, a research report out of North Carolina has revealed even with the majority of the population vaccinated, the removal of pandemic precautions could lead to an increase in virus spread. The report published in the medical journal, JAMA Network Open came from Mehul Patel, an assistant professor of emergency medicine at the University of North Carolina and colleagues using a mathematical model to simulate coronavirus spread among approximately 10 million people in the state. Their study suggests for a population of 10.5 million people, approximately 1.8 million infections, 8,000 deaths could be prevented during an 11-month span with more efficacious COVID-19 vaccines, higher vaccinations and maintaining social distancing and use of face masks. Last month the Centers for Disease Control and Prevention (CDC) said it was safe for vaccinated people to go maskless indoors and outdoors, which was met with some skepticism from public health experts who believe it was too soon to relax pandemic precautions.
  • Bloomberg is reporting Canada’s emergency COVID-19 assistance programs ended up helping the country’s highest-earning families, thus potentially opening up the federal government to criticism that its programs were wasteful. According to data from Statistics Canada, the top 20% of income earning families received an average of $6,728 CDN, while the lowest earning households got $4,097 CDN in aid, on average. The Canadian government’s pandemic support was considered one of the world’s most generous but was financed with billions of dollars in new debt and appeared given indiscriminately to dozens of different groups, and the majority ended up being put into bank accounts. Finance Minister Chrystia Freeland’s office declined to comment on the data but has said in the past in the beginning stages of the pandemic, the speed of the support was of utmost importance. 
  • One day after a scientific adviser called for plans to lift all coronavirus restrictions by June 21st to be reconsidered, United Kingdom Prime Minister Boris Johnson stated he sees nothing in the data to suggest a change of course. Via a spokesman for 10 Downing Street: “The Prime Minister has said on a number of occasions that we haven’t seen anything in data but we will continue to look at the data, we will continue to look at the latest scientific evidence as we move through June towards June 21.” Elsewhere in the country, the UK recorded zero coronavirus deaths on Tuesday for the first time since March 2020. 
  • In Germany, there are signs the country is turning a corner in their latest fight against the coronavirus pandemic. Chancellor Angela Merkel said on Monday she plans to allow the controversial lockdown law that granted more powers to the federal government, while effectively suspending states’ rights to expire at the end of the month. “We don’t need to maintain them now, said Chancellor Merkel, but noted the tool exists if needed. “We know if something should develop again, with mutations – which we hope won’t happen – then we can reactivate it very quickly.” On Monday, Germany recorded 35.1 cases per 100,000 people over the last seven days – their lowest level since mid-October and as of the weekend – 43% of the population had received at least one inoculation against COVID-19.
  • An Australian court on Tuesday rejected a challenge to the federal government’s decision to prevent most citizens from leaving the country, so they don’t bring the coronavirus and a potential variant back home with them. A Libertarian group called LibertyWorks argued before the Federal Court in early May that Health Minister Greg Hunt didn’t have the power to legally enforce the travel ban. Australia is flying solo among developed countries in preventing its citizens and permanent residents from leaving the country except in “exceptional circumstances” where they can demonstrate a “compelling reason”.
  • The World Health Organization (WHO), along with the World Bank and World Trade Organization endorsed the International Monetary Fund’s (IMF) call to invest $50 billion to fight COVID-19 by making and delivering vaccines and treatments. The IMF last month proposed a plan that targeted to have 40% of the global population immunized – up from the 30% goal set by the WHO and to have 60% inoculated by the first half of 2022. The three organizations also called on the immediate donation of vaccines doses to developing countries. The IMF says the plan will save lives and deliver a potential $9 trillion economic boost by 2025.

Covid-19 – Due Diligence And Asset Management

The Covid Trauma Has Changed Economics – Maybe Forever

Brief : Once ideas about how to manage the economy become entrenched, it can take generations to dislodge them. Something big usually has to happen to jolt policy onto a different track. Something like Covid-19. In 2020, when the pandemic hit and economies around the world went into lockdown, policymakers effectively short-circuited the business cycle without thinking twice. In the U.S. in particular, a blitz of public spending pulled the economy out of the deepest slump on record—faster than almost anyone expected—and put it on the verge of a boom. The result could be a tectonic transformation of economic theory and practice. The Great Recession that followed the crash of 2008 had already triggered a rethink. But the overall approach—the framework in place since President Ronald Reagan and Federal Reserve Chair Paul Volcker steered U.S. economic policy in the 1980s—emerged relatively intact. Roughly speaking, that approach placed a priority on curbing inflation and managing the pace of economic growth by adjusting the cost of private borrowing rather than by spending public money. The pandemic cast those conventions aside around the world. In the new economics, fiscal policy took over from monetary policy. Governments channeled cash directly to households and businesses and ran up record budget deficits.

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Investment Professionals Think Equity Recovery was “Too Quick”

Brief: Investment professionals think equities have recovered too quickly – possibly due to a disconnect between capital markets and economics. Monetary stimulus measures could be the cause of the disconnect, a senior CFA Institute figure said. The findings were from a CFA Institute survey of members. However, members believed that a correction could be up to three years away. The survey found that 45% of over 6,000 global respondents expressed the view that equities in their respective markets had recovered too quickly and that they expected a correction within the next one to three years. CFA Institute will present its finding in an upcoming report called ‘Covid-19, One Year Later – Capital Markets Entering Uncharted Waters’. Paul Andrews, managing director of research, advocacy and standards at CFA Institute, said: “It is interesting to see the survey results telling us that respondents believe that equities have recovered too quickly, as it could show that CFA Institute members believe there is a disconnect between economic growth fundamentals and capital markets caused in part by monetary stimulus, which could be corrected in a not-too-distant future of less than three years.

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The Economy Will Probably Overheat This Summer: Top Strategist

Brief: With the U.S. labor market likely to bounce back strongly this summer from a surprisingly tepid April showing, the risks of an overheating economy remain on the rise.  "I do think there is a very good chance it [economy] will overheat," said Jefferies Chief Financial Economist Aneta Markowska on Yahoo Finance Live. "I expect us to reach a roughly 3% unemployment rate by the end of next year." As Yahoo Finance's Brian Cheung explains in the latest edition of Yahoo U, there is no official economic definition for economic overheating. But one oft-cited indicator of overheating is inflation, or rising prices. To be sure, there are numerous telltale signs of that happening in the economy currently. The core personal consumption expenditure (PCE) price index increased faster than expected, up 3.1% in April, according to the U.S. Commerce Department. Federal Reserve officials view the index as among the best indicators of pricing pressure in the economy. The Fed believes 2% inflation is a healthy level.  On the other hand, the April Consumer Price Index (CPI) rose at the fastest pace since September 2008, clocking in with a 4.2% increase versus a year ago. And as Yahoo Finance's Sam Ro notes in the Morning Brief newsletter, consumer expectations on inflation are on an upswing. 

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SFC Identifies Vaccination as Key Element of Operational Risk Management

Brief: The Securities and Futures Commission (SFC) issued a circular today urging licensed corporations to review their business continuity plan and consider Covid-19 vaccination as a critical part of operational risk management. In this connection, they should identify functions that are critical to their business operations and client interests and to encourage staff performing such critical functions to get vaccinated. “A higher vaccination rate in the community will accelerate a return to normality and strengthen the resiliency of the financial services industry.  Licensed corporations should strongly encourage their staff, especially critical support staff and those who are client-facing to get vaccinated as soon as possible,” the SFC’s Chief Executive Officer, Mr. Ashley Alder said. The SFC also advised licensed corporations to consider suitable arrangements for critical staff who have not yet been vaccinated or are unfit for vaccination due to medical conditions to undergo periodic Covid-19 testing.

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Manhattan Office Supply Hits Another Record Even as NYC Opens Up

Brief: Manhattan’s supply of office space has reached a fresh record even as leasing picks up. The availability rate rose for a 12th consecutive month in May to 17%, according to Colliers. Since the pandemic started last March, the amount of space up for grabs jumped 70% to a total of 92 million square feet (8.5 million square meters). There are signs that demand is turning a corner. Leasing climbed 8% from last May, while average asking rents ticked up 0.4% to $73.26 a square foot. After more than a year of empty skyscrapers, Manhattan’s office market is slowly coming back to life as social-distancing restrictions ease. Roughly 18% of office workers in the New York metro area were back at their desks as of May 26, according to data from Kastle Systems. Companies including JPMorgan Chase & Co., Goldman Sachs Group Inc. and Facebook Inc. are preparing for a broader return this summer. Offices listed for subleasing represented 23% of total availability, the lowest share since July, according to Colliers. Even so, the amount of sublease space is 75% more than in March 2020.

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