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Covid-19 Diligence Briefing

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.

READ MORE...


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

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

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