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Covid-19 Diligence Briefing

Our briefing for Monday, February 28, 2022:

  • In the United States, officials say almost half of the 500 million free tests that the Biden administration promised to distribute free to the public are still available. As the wave of demand for tests subsides while case numbers fall, the White House says fewer than 100,000 orders per day are coming in for the packages of four free test kits per household. Initially the number of orders was 45 million on the first day of the giveaway in January. Now according to the White House, Americans have ordered 68 million test kits, which leaves about 46% of the stock still available.  Officials say about 20-25% of tests have gone to people in distressed areas.
  • In Canada, Dr. Theresa Tam has warned that more public restrictions are possible for the fall, even as most provinces take steps to open up. The country’s chief medical officer said on Friday that she hopes Canada is moving forward from the pandemic crisis phase and into recovery. Weekly case counts in Canada are down 26%, Tam said, and the number of people who are seriously ill with Covid-19 has declined more than 20% since last week. She urged Canadians to continue to wear face masks even though they will no longer be mandatory in most parts of the country.
  • In the United Kingdom, the government’s two most senior advisors on the pandemic will exit the spotlight for now and turn their attention to other projects, the Guardian reports. Sir Patrick Vallance, the chief scientific adviser, and Sir Chris Whitty, England’s chief medical officer will be standing with the Prime Minister for the last time at Monday’s announcement. From here onwards, Vallance and Whitty will focus on the data on infections, hospitalizations and deaths, as well as on the effectiveness of vaccines. People should expect however, that the pair will be back should there be another Covid resurgence. 
  • India’s case numbers have fallen below 10,000 for the first time since the beginning of the third wave, at 8,013 infections in 24 hours. The country may be headed for its fourth wave, according to a study by the Indian Institute of Technology-Kanpur. The team of scientists said the fourth wave is likely to last four months, and that the severity of it will depend on the type of coronavirus variant and the country’s vaccination status. The study, which is yet to be peer reviewed, used a statistical model to make the prediction. The same research team previously predicted that the third wave of the pandemic would peak by February 3, 2022. 
  • South Korea has dropped its proof of vaccination or negative test requirement for most businesses, government officials announced on Monday. The move will allow testing and health facilities to focus on a wave of new Omicron cases that the country has been grappling with. South Korea saw its deadliest day of the pandemic on Saturday, when deaths reached 112 in a 24-hour period. The Health Ministry said about 44% of the country’s intensive care units designated for Covid-19 patients are in use. Officials expect the Omicron wave will peak in mid-March at around 250,000 daily cases.
  • In New Zealand, border rules have relaxed, allowing fully vaccinated foreign travellers to enter the country without isolation. From Wednesday, travellers will only have to undergo a Covid-19 test on Day five or six, and the traveller will only have to isolate if they test positive, in line with the protocol for New Zealanders. Unvaccinated travellers still have to stay in managed isolation. “I know this will be welcome news to the members of our team overseas eager to travel home to see loved ones as soon as possible. We can’t wait to see you,” Prime Minister Jacinda Ardern said. “It’s also a huge milestone for our tourism sector and regional economies.”

Covid-19 – Due Diligence And Asset Management

Citigroup executives test positive for COVID, will hold virtual event Wed

Brief: Citigroup Inc (C.N) Chief Financial Officer Mark Mason and investment banking head Paco Ybarra have tested positive for COVID-19, forcing the company to hold its investor day as a virtual day on Wednesday instead of in person. The change in plans was announced in an email from Citigroup to those who planned to attend. The names of the executives was confirmed by a spokesperson. Citigroup executives have been working for weeks to prepare presentations for the investor meeting, its first in five years. The conference is seen as a critical event for the company which has been unable to convince investors that it will be able to improve its financial performance to the level of its big bank peers. "While we hoped to host our Investor Day in person, health and safety must be our top priority,” CEO Jane Fraser said in the email.

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Harvard’s Hometown Aces Pandemic, Heads to Muni Bond Market

Brief: How was your pandemic? That’s a question bond buyers can now get some clarity on, with the omicron variant fading. Issuers can now tell you how they fared financially in the nearly two years of the pandemic, how much they have received in federal assistance, and how much they spent. A not-so-little college town in Massachusetts that’s coming to market this week is a case in point. Cambridge is just outside Boston, and is the home of Harvard University and the Massachusetts Institute of Technology. The city of nearly 120,000 (according to the 2020 Census) is selling $92.3 million in limited tax general obligation bonds this week to help pay for construction of two schools, a fire station headquarters, sidewalks and sewers, among other things. There was some concern very early on in the pandemic that remote learning and closed campuses would hurt college towns dependent upon students’ presence. But Cambridge isn’t your typical small college town.

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U.K. Shares List of Suspected Covid Loan Fraudsters With Lenders

Brief: A list of companies that may have applied fraudulently for emergency loans during the pandemic has been complied by the U.K. Cabinet Office and is circulating among high street lenders, according to people familiar with the matter. The Cabinet Office has shared the information with the British Business Bank which has passed it on to the banks who issued the loans. The list includes companies with duplicate names and firms that had already been dissolved when they applied for support, according to an executive at a bank who asked not to be named given the sensitivity. “We work closely with Cabinet Office counter fraud function, who undertake data analytics for us which identifies possible cases of fraud which we can then share with lenders to investigate, or we can take other action as appropriate,” a spokesman for the British Business Bank said in an email. A spokesman for the Cabinet Office declined to comment.

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Low earners were hit hardest by inflation as savings and pandemic aid dwindle, study finds

Brief: The lowest-income Americans are facing a financial conundrum: Inflation is eating into a substantial part of their household budgets, while savings built up during the Covid pandemic are starting to dwindle. Meanwhile, federal supports like monthly payments of the child tax credit and a pause on student loan payments have ended or will soon lapse. And officials have already warned of delayed tax refunds, which low earners generally rely on more than higher-earning families. Consumer prices in January rose 7.5% from a year earlier, the fastest annual pace in 40 years. However, households don’t feel those price shocks equally. The lowest-income working households (which earn less than $20,000 a year) faced the highest inflation rate of any income group in 2021, according to an analysis by researchers at the University of Pennsylvania’s Wharton School. These families funneled more of their budgets to necessities like energy and transportation, prices of which grew more rapidly than other goods and services.

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Canada’s Top CEOs Press Trudeau to Dial Back Post-Covid Spending Plans

Brief: One of Canada’s largest business groups is calling on Prime Minister Justin Trudeau’s government to pare back stimulus plans, and turn its attention to climate transition goals and innovation strategies to address future economic challenges. In a five-page letter to Finance Minister Chrystia Freeland, the Business Council of Canada outlined areas of focus for the federal government’s coming budget to spur long-term growth, including a call for more spending discipline to restore the nation’s fiscal capacity. “Fiscal policy should be used judiciously to enhance Canada’s long-term productive capacity, rather than further stimulating an economy that is already overly dependent on household consumption,” Goldy Hyder, chief executive officer of the Ottawa-based lobby group, said in the letter.

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

Our briefing for Friday, February 25, 2022:

  • In the United States, the Biden administration will update the guidelines for when and where Americans should be wearing a mask to protect themselves from Covid-19. The Centers for Disease Control and Prevention will announce changes to its metrics for determining face mask recommendations, shifting the focus from caseloads to hospitalizations, officials said. Right now, case counts define whether an area is considered to have substantial or high transmission of the coronavirus - currently 95% of communities in the U.S. - and therefore whether masks are recommended. Under the new metrics, more focus will be placed on things like hospitalizations and health care system capacity. According to the latest available data, the majority of Americans live in areas where indoor masks in public spaces will no longer be recommended. 
  • Health Canada has issued a warning against spilling or ingesting the fluid from rapid antigen test kit solutions, after about 50 calls were made to poison control. The public advisory, issued on Thursday on the federal government’s website, said that no one had been seriously injured by the misuse of a rapid test and that only minor health problems have resulted. The agency said the test kits are safe when used properly, but many test kits contain liquid solutions with chemical preservatives that may be harmful if swallowed or absorbed through the skin. Health Canada advised that the solution be kept out of reach of children and pets, as they’re especially vulnerable. 
  • In the United Kingdom, all remaining coronavirus restrictions have been lifted in England, including the requirement for people who test positive to isolate at home.  As of Thursday, all remaining Covid-19 restrictions have been replaced by the government’s “living with Covid plan.” Adults and children who have the virus will still be advised to self-isolate – but it won’t be a legal requirement. Contact tracing has ended and businesses are no longer required to tell their staff to isolate if they have Covid. "Because of the efforts we have made as a country over the past two years, we can now deal with it in a very different way, moving from government restrictions to personal responsibility, so we protect ourselves without losing our abilities and maintaining our contingent capabilities so we can respond rapidly to any new variant," said Prime Minister Boris Johnson. 
  • Germany’s health minister has warned that the coronavirus pandemic is not over yet, referring to the country’s high infection rates and number of deaths. “We need to be careful not to think that the pandemic is over,” Health Minister Karl Lauterbach told reporters in Berlin. Germany reported 210,743 new coronavirus cases and 226 deaths within the past 24 hours, according to the Robert Koch Institute. Lauterbach also warned that the subtype of Omicron, known as BA.2, could lead to another rise in cases. He said the country will not participate in a Freedom Day type of celebration as some other countries have done.
  • In Japan, drugmaker Shionogi & Co Ltd. announced it has applied for approval to make and sell its oral Covid-19 treatment. The pill would become the third antiviral approved for Covid-19 infections in the country, following Pfizer and Merck. The drug, known as S-217622 would be the first of its kind developed by a Japanese drugmaker. In a press release, Shionogi said that clinical trials focused on people who became sick after the onset of the Omcron wave. The firm has said it can supply between 400,000 and 500,000 doses of the drug by the end of February, and 1 million doses by the end of March.
  • In New Zealand, Prime Minister Jacinda Ardern’s van has been chased down a driveway by a group of shouting protesters, amid growing tensions over coronavirus vaccine mandates.  Ardern was visiting an elementary school in Christchurch when she was met by a crowd of people shouting things like “shame on you” and traitor.” Protesters have been occupying New Zealand’s parliament for more than two weeks now and blocking a number of Wellington’s central streets with their cars. Last month Ardern’s vehicle was chased on to a curb by anti-vaccination protestors, but when asked about the incidents, Ardern said she was not concerned.

Covid-19 – Due Diligence And Asset Management

Wall Street Cuts European Stock Targets as War Prompts Outflows

Brief: Wall Street strategists are cutting their forecasts on European equities on concern that the war in Ukraine will hurt economic growth, while investors pull money from the region’s stock market at the fastest pace in three months. Bank of America Corp. and Goldman Sachs Group Inc. both lowered their index targets, with the latter now expecting virtually no full-year returns for Europe’s Stoxx 600 in 2022. Credit Suisse Group AG reduced its overweight, while EPFR Global data showed $1.8b outflows from the regional equity funds.The conflict has exacerbated an energy crunch in Europe, which is heavily reliant on Russian imports, just as central banks prepare to tighten policy to tackle already-high price pressures. Europe is also expected to be hit harder than the U.S., due to its closer economic ties and geographical proximity to the conflict. “Higher energy prices will likely push up inflation further and any tightness or disruption to the supply of energy, especially gas, in Europe would also have implications for production and GDP,” Goldman strategists led by Sharon Bell wrote in a note to clients.

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Most hedge fund strategies positive in Q4 2021, says Citco

Brief: Q4 was another solid quarter for hedge funds, with most strategies and all AUA categories delivering positive results, according to the Citco 2021 Q4 Hedge Fund Update. Overall weighted average returns for hedge funds were 1.52 per cent. The quarter once again largely continued a trend for funds on the Citco platform with net positive inflows for the months intra-quarter, and the quarter-end trading cycle experiencing some net outflows. In aggregate, investors added a net total of USD5.7 billion over the whole three-month period. In terms of flows into and out of strategies, Private Capital Hybrid saw impressive net capital of USD11.4 billion, while Multi Strategy and Equities saw meaningful outflows of USD2.7 billion and USD3.1 billion respectively. A year of record-breaking activity in Treasury continued into the final quarter, with total volumes breaking through the 100,000 mark after 39,790 payments in December. The grand total for Q4 came in at 102,549, 47 per cent higher than Q4 2020’s 69,905 payments.

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European fund industry net outflows top €12bn in January

Brief: January was a "negative month" for the European fund industry, as estimated net outflows from mutual funds and ETFs topped €12 billion during the month, according to new figures.The latest data from Refinitiv Lipper showed that overall fund flows amounted to net ouflows of €12.4 billion in January. Of the asset types, equity funds were the best-selling, recording net inflows of €38.6 billion in the same month.Detlef Glow, head of EMEA research at Refinitiv Lipper, said: “Despite the deteriorating situation with regard to the Covid-19 pandemic and the sluggish market environment, it was not surprising that January 2022 was, in general, a negative month for the European fund industry.” Promoters of mutual funds “faced outflows” of €38 billion, while promoters of ETFs saw inflows of €25.6 billion, he added.Glow said: “Within this market environment and given the economic uncertainties, it is somewhat surprising that European investors sold money market products, which are normally considered as safe haven investments. As a result, the overall fund flow numbers are heavily impacted by the high outflows from money market products (-€56.3 bn).

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Taking advantage of current market volatility

Brief: We are all hoping that the pandemic is almost over and the global economy is now on a path back to normal. However, what constitutes the ‘new normal' is uncertain and inevitably such uncertainty creates market volatility. Investors have to figure out where this path is leading them. As tepid as the post-Global Financial Crisis recovery was, the post-lockdown recovery has so far been very fast. Post-2008 high inflation was not an issue but in this cycle it has been higher and stickier. Moreover, demographics, deglobalisation and decarbonisation all suggest that the post-1980 disinflation is a thing of the past and that inflation will settle higher and retain upside risks.This is important because inflation pressures and central bank reaction functions will most likely define the tenor of this business cycle. If higher inflation is the new normal, then central banks are right to implement faster rate hikes.For equity investors this dilemma has so far played out as a rotation from growth to value. Strong economic growth and high inflation suggest upward sloping yield curves. Within equities, this is perfect territory for banks and commodity stocks. The prospect of higher discount rates also suggests the sell-off in technology stocks may have another leg to run.

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Axa Profit Jumps Above Pre-Pandemic Levels After Covid Woes

Brief: Earnings last year jumped to 7.3 billion euros ($8.3 billion), the Paris-based insurer said Thursday in a statement, beating the average estimate in a Bloomberg survey of analysts. The figure was more than double earnings posted for 2020, when the firm booked a 1.5 billion-euro charge due to the pandemic. “Regarding Axa’s fundamentals, we are extremely confident,” Chief Financial Officer Alban de Mailly Nesle said in a call with reporters. “This is what we showed in 2021, and we start the year with confidence. Axa is emerging from a difficult period for insurers, which were hit by simultaneous claims across various industries when the coronavirus pandemic shut down large parts of the economy. Munich Re also reported a profit rebound for 2021, saying Wednesday that profit more than doubled, which will allow the company to return 2.5 billion euros via a share buyback and higher dividend.

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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, February 24, 2022:

  • The United States’ Centers for Disease Control and Prevention (CDC) has revised its stance on the time people should wait between vaccine doses. According to the CDC, younger males, and healthy people under the age of 65 should wait around 8 weeks between their first and second doses of an mRNA vaccine. The new guidelines that were posted to agency’s website on Thursday cite increased evidence that a longer wait period between the primary doses of the vaccine can lead to heightened effectiveness and reduce the chance of rare heart conditions found most commonly in boys and younger men. “These additional considerations followed a thorough evaluation of the latest safety and effectiveness data,” CDC spokesperson Kristen Nordlund said. The previous recommendation from the CDC was a wait period of three weeks between first and second doses of the Pfizer-BioNTech and four weeks for the Moderna vaccine. The agency is still recommending that the three-week waiting period for people over age 65 and those who need rapid protection from the virus such as the immunocompromised remain the norm.

  • On Thursday, Health Canada officially approved Medicago’s plant-based, two dose Covid-19 vaccine. The Quebec City-based biopharmaceutical company’s vaccine uses plant-derived, virus-like particles, that mimic the coronavirus that causes Covid-19, but without the use of any genetic material. The vaccine also uses an adjuvant – a chemical compound used to increase the immune response – manufactured by GlaxoSmithKline. The Medicago vaccine, now called Covifenz, has been proven to be up to 75 per cent effective at preventing infections of any severity resulting from the Delta variant and the company has said that the vaccine can and will be adapted as needed to fight Omicron. "While additional confirmatory data are needed, preliminary and exploratory data shows that Covifenz produces neutralizing antibodies against the Omicron variant," noted Health Canada in a statement. The company is currently in the process of testing the vaccine against the Omicron variant and “we will, in the next several months, know how well our vaccine did against Omicron,” the company's medical officer, Dr. Brian Ward said.

  • The Welsh economy is the first in the United Kingdom to return to pre-pandemic size, according recently released data. Gross value added in Wales was up 0.9 per cent in the fourth quarter, returning to output levels seen at the end of 2019. The figures shine a spotlight on the discrepancies in gross value added (GVA) seen across the U.K., with the West Midlands still 10 per cent below where it was at the start of the pandemic. The area is experiencing the slowest rate of recovery in all of England. As pandemic restrictions eased gradually across the country, the U.K. GDP rose by 7.5 per cent over the last year, the most since 1941. The economy is on an upward trajectory and is expected to exceed pre-pandemic size by the second quarter of this year. The strongest GVA growth for 2021 was recorded in London, while the West Midlands and the North West saw the least.

  • Two years after it became the epicenter of the pandemic in Europe, Italy is set to end its state of emergency that was put in place in 2020. The country will not extend its emergency powers that are to expire on March 31 and intends to further ease restrictions said Prime Minister Mario Draghi in Florence on Wednesday.  “The health outlook is improving quickly thanks to the success of the vaccination campaign,” he said. “That allows us to lift the remaining restrictions on people and companies.” The three-tiered system allowing the government to heighten restrictions in hard-hit areas will expire in April, with Covid passports to be examined further in the coming months. Italy has seen cases numbers drop dramatically in the last month and recorded just over 49,000 new cases on Wednesday. The country will also ease quarantine restrictions for school children.  “Our aim is to re-open everything, as soon as possible,” Draghi said.

  • As other countries across the globe are easing Covid-19 restrictions to varying degrees, the government of Singapore has pushed back plans to end its own restrictions among a surge of new cases. The plans to eliminate several Covid-19 mandates, which were scheduled to begin in phases on February 25 and March 4, are now being delayed. The limitations on household gatherings and several other restrictions will now only be removed once the current surge in infections has peaked the Ministry of Health said on Thursday. The city has seen over 20,000 new daily cases in the past two days and the government will release a revised schedule for reopening in the coming weeks. Instead of introducing a phased structure for reopening the government has suggested that restrictions will now be eased all at once. Some of the rules that were to be simplified including the 1-meter social distancing in public places, no close proximity on benches and in washrooms, and a 5-person or single-family bubble in households. Mask mandates, however, will remain commonplace in the city.

Covid-19 – Due Diligence And Asset Management

The Pandemic Created a Health Care Crisis. Can Investors Cure It?

Brief: A world economy that’s still recovering from Covid-19 faces new risks from an energy-priceThe pandemic laid bare gaping holes in the reach and quality of health care services, research, and technology. Even though health care has long been fertile ground for investors, Covid-19 has created even more urgency. Allocators, hedge funds, private equity, and traditional managers are now hiring and investing in new resources to uncover a range of opportunities in the sector. This week alone, UBS O’Connor, the multi-strategy hedge fund manager that is part of UBS Asset Management, and Goldman Sachs Asset Management made big moves. O'Connor expanded its healthcare-focused investment team with the hiring of three medical doctors: Jason Bonodio is joining as a portfolio manager, while Robert Sweeney and Adam Sandler are signing on as research analysts. GSAM has formed a new healthcare advisory council, a group of internal staffers and other resources that will provide expertise and insights for the firm’s private investing strategies.

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COVID-19 vaccine sales push Moderna to US$12B profit in 2021

Brief: COVID-19 vaccine sales jumped 44% for Moderna in the final quarter of 2021, and the drugmaker expects demand for booster shots to fuel more growth in 2022. Moderna said Thursday that it has signed purchase agreements for about US$19 billion in sales for 2022 with options for an additional $3 billion that would cover any updated boosters the company is developing. Company leaders told analysts they firmly believe more booster shots will be required next fall, and they expect sales to be greater in the second half of the year. Shares of the Cambridge, Massachusetts, company soared Thursday, even as broader indexes fell after Russia launched a military attack on Ukraine. Moderna booster shots have already been administered to more than 40 million people in the U.S. The company is working to develop several different versions, including one that targets the omicron variant of the virus that started spreading rapidly late last year.

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U.S. Utilities Adapt Amid Volatility

Brief: Industry setbacks have pressured credit metrics, but asset de-risking and the favorable regulatory environment provide a constructive outlook. Regulated U.S.-based utilities have faced a number of headwinds in recent years, from the 2017 Tax Cuts and Jobs Act's negative impact on cash flows to COVID-19 and irregular weather events. These are generally viewed as one-time or transitory issues, although weather events have become more frequent. The transition from carbon-heavy coal generation to renewables is positive for earnings growth but puts structural pressure on credit metrics as debt is utilized to fund new projects. Funds from operations (FFO) to debt, a leverage ratio commonly used in the industry, have declined nearly 500 basis points since 2017 to around 15%, partially due to the issues mentioned above.

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Stocks fall; oil, wheat prices jump after Ukraine attack

Brief: Stocks fell worldwide on Thursday after Russia’s attack of Ukraine sent fear coursing through markets and upped the pressure on the high inflation already squeezing the global economy. On Wall Street, the S&P 500 sank 1% to continue its dismal start of the year, though it was able to moderate its losses after starting the day down 2.6%. The heaviest losses hit stocks in Europe, after officials called Russia’s nearby moves a “brutal act of war,” with the German DAX down more than 4%. Beyond its human toll, the conflict looks set to send prices rising even higher at gasoline pumps and grocery stores around the world. Russia and Ukraine are major producers not only of energy but also grains and various other commodities. War could upend global supplies, as could sanctions brought by the United States and other allies. Oil prices on both sides of the Atlantic jumped toward or above $100 per barrel to their highest levels since 2014, up more than 5%. As with stocks, prices in Europe swung more sharply than in the U.S. Wholesale prices also shot higher for heating oil, wheat and other commodities. The spot price in Europe for natural gas, for which the continent relies on Russia to supply, jumped as much as 31%.

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Business Leaders Warn That Ongoing Supply Chain Disruption Caused By COVID-19 Is Having A Critical Impact On The Ability To Drive Profitability

Brief: A recent study conducted by Forrester Consulting on behalf of intelligent pricing platform, Flintfox reveals that retail, manufacturing and consumers goods companies are facing fundamental challenges in managing their profit margins, due to the ongoing impact of COVID-19, inflation and supply chain issues. 90% of businesses report that COVID is having a critical impact on the ability to manage pricing across their product range, with 39% stating they are unable to keep up with the scale of real-time price fluctuations in the market. This is having a significant effect; with businesses losing on average $1m a year in lost profitability due to their inability to respond quickly enough to market forces. The study of over 900 business leaders has revealed that existing business models prevent them from managing the pace of change, with 41% still relying on manual processes to manage price fluctuations. Over half (53%) state that the pandemic has forced them to need better visibility into business performance on profitability and margins to respond accordingly.

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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, February 23, 2022:

  • In the United States, the Associated Press is reporting the country’s COVID-19 vaccination has all but bottomed out. The average number of Americans obtaining their first dose of the vaccine is down to about 90,000 a day, the lowest point since the first few days of the country’s vaccination campaign in December 2020. Vaccination incentive programs such as cash, sports tickets and even beer have all largely dissipated, while government and employer vaccine mandates have faced court challenges. About 76% of the U.S. population has received at least one shot and less than 65% of all Americans are fully vaccinated.
  • In Canada, the country’s capital city has learned the ‘Freedom Convoy’ that took over downtown streets for about three weeks to protest COVID-19 restrictions has come with a price tag of close to $30 million. Ottawa city manager Steve Kanellakos told city council members the exact figures will be available sometime next week and, in the meantime, will be reaching out to the province of Ontario and the federal government for funding to help cover the costs. Ottawa city council are discussing a slate of measures to help businesses and residents of the downtown core recover, including a targeted property tax deferral program, funding to help the most impacted business districts, and an expansion of the no-fare transit service that will include all routes that bring customers to and from the affected areas 30 days after the state of emergency ends.
  • Bloomberg is reporting in the United Kingdom, London’s Heathrow airport’s losses from two years of coronavirus disruptions has swelled to £3.8 billion pounds ($5.2 billion USD). In an earnings statement on Wednesday, Heathrow reported a loss of £1.8 billion in 2021, narrowing slightly from 2020 – after passenger numbers fell to their lowest levels since 1972. Heathrow was Europe’s busiest airport pre-pandemic but was the region’s only major hub to see traffic drop again in 2021. Heathrow will now hitch its recovery to a hopeful summer travel rebound and the go-ahead from regulators to raise prices.
  • A Hong Kong lawmaker has said the region should impose a strict, city-wide lockdown for nine days to help control the recent COVID-19 outbreak. Michael Tien, a member of the city’s Legislative Council and a Hong Kong deputy to China’s National People’s Progress, suggested the proposal during an interview with Bloomberg. “I’d rather have a quick fix than long-term pain,” Tien said. “It is time we bite the bullet and take a quick one.” Tien’s other ideas include the lockdown taking place from March 19th-28th, spanning two weekends to minimize business losses and give the city time to build up its testing and isolation capacity. Hong Kong Chief Executive Carrie Liam has repeatedly dismissed the lockdown prospect, instead saying the city will engage in a mass testing effort. 
  • The World Health Organization (WHO) is creating a global training center to help poorer countries make vaccines, antibodies and cancer treatments using the RNA technology that has been successfully used to make COVID-19 vaccines. At a press briefing on Wednesday, Director-General Tedros Adhanom Ghebreyesus said the new hub will be setup in South Korea and will share mNRA technology currently being used in South Africa to recreate the COVID-19 vaccine made by Moderna. The interesting development being the re-creation is taking place without Moderna’s help and is the first time WHO has supported efforts to reverse-engineer a commercially sold vaccine. The WHO is looking to end the run of pharmaceutical companies prioritizing and supplying rich countries over poor countries in both sales and manufacturing.

Covid-19 – Due Diligence And Asset Management

What’s at Stake for Global Economy as Russia Standoff Escalates

Brief: A world economy that’s still recovering from Covid-19 faces new risks from an energy-price spike as the standoff between the West and Russia escalates. The U.S. and its European allies unveiled limited sanctions on Tuesday, in response to Russian President Vladimir Putin’s decision to recognize two breakaway republics in eastern Ukraine, and warned that tougher penalties may follow. Russia, whose troops are massed around Ukraine, says it has no plans for a full-scale invasion. The crisis has driven oil prices toward $100 a barrel and sent tremors through other commodity markets too, threatening another wave of price pressures on top of already-high pandemic inflation. Russia is a commodities powerhouse and a key supplier of energy to Europe. Western nations are caught between the desire for harsh sanctions to deter Putin, and concern that they’ll suffer blowback themselves. For now, Europe and the U.S. have shied away from blocking Russia’s energy exports, or freezing it out of dollar-based finance. Even so, U.S. President Joe Biden warned Americans Tuesday that there’ll be a price to pay at gasoline pumps back home.

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Covid Fraud Will Cost U.K. as Much as £15.7 Billion, Lawmakers say

Brief: Fraud and error on the U.K.’s coronavirus support programs is expected to cost British taxpayers as much as 15.7 billion pounds ($21.4 billion), an influential panel of lawmakers said, calling on the government to ensure transparency around ongoing costs associated with the pandemic. Some 5.3 billion pounds of cash lost through fraudulent or mistaken claims is estimated to have been in Chancellor of the Exchequer Rishi Sunak’s flagship furlough program, the cross-party Public Accounts Committee said in a report published Wednesday. That’s 8.7% of payments made under the program, which paid idled workers as much as 80% of their wages. Other loans and grants programs added to what the panel branded as “unacceptable” losses. The government has spent 261 billion pounds on 374 different measures tackling Covid so far, according to the panel. That is expected to reach 370 billion pounds over the lifetime of the measures, with some loan repayments not due for two decades. It pointed also to other losses, including 21 billion pounds of loans that the government doesn’t expect to ever be repaid.

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JPMorgan’s Kolanovic says Stocks Will Rise on Pandemic End, China Stimulus

Brief: There are two things that give Marko Kolanovic confidence in his bullish stocks call for 2022, even after a difficult start to the year for financial markets, with rising inflation and Russia-Ukraine tensions. The co-head of global research at JPMorgan Chase & Co. has been asserting for some time that investors should buy dips in stocks -- but now he sees the acute pandemic phase of Covid nearing an end and better times ahead from China, which he expects to offset Federal Reserve tightening. And he sees scope for significant rotation within equities as these changes take place. “Our base case is the end of the pandemic completely,” Kolanovic said in an interview. “During the spring and summer we will have a very strong recovery because omicron is in fast decline and now the immunity rates are really, really high.” He added that when looking at pandemics in the last century, they lasted about two years and maybe three to four waves, “and then for the next 10 to 20 years nothing. We think we’re basically at that point, two-plus years of pandemic, we’ve had the four major waves. And so we think now maybe we’ll be fine for the next 10 or 20 years.”

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Fiera Real Estate UK Closes Fifth Value Add fund at GBP180m

Brief: Fiera Real Estate UK (FRE UK) has held the final close of Fiera Real Estate Opportunity Fund V (FREOF V) at GBP180 million. FREOF V is the fifth and largest Fund in the Firm’s value add series which has raised over GBP780 million to date. The firm launched FREOF V in November 2019 to take advantage of the unprecedented transitional buying opportunities created by Brexit and the Covid-19 pandemic. The fund is targeted to deliver a 15 per cent total net IRR to investors with little to no leverage. The GBP180 million came from both UK and overseas investors, which, coupled with its successful close during the pandemic, reflects the resilience of UK real estate as an asset class and increased global investor confidence in the UK market.

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In Private Credit, Bigger is Better – At Least When Attracting Assets

Brief: As competition in private credit heats up, larger managers have begun to squeeze their smaller and newer competitors out of the market. While private credit funds reached a new fundraising record in 2021, less established managers generally had to settle for a smaller piece of the pie. Forty-two percent of capital raised by private credit managers last year was taken in by the ten largest funds, according to Charles McGrath, author of Preqin’s latest Global Private Debt report. The private debt industry has seen continued growth in assets under management since the onset of the pandemic. Distressed debt, for example, was a big hit for investors interested in betting on a wave of corporate defaults caused by Covid-19. As the market matures, however, the rules of the game are being rewritten by the bigger players. “Just as we see in private equity, experience is a big draw for investors,” McGrath said. “Experienced managers generally raise larger funds and also take a larger share of the market.” 

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

Our briefing for Tuesday, February 22, 2022:

  • According to a report from the Seattle Times, the Omicron variant has been more deadly than the previous Delta variant in the United States. Since the Omicron variant was discovered in South Africa in November of last year, the United States has recorded over 30,163,600 new infections and 154,750 new deaths. When compared to August 1 to October 31 in 2021 – roughly the same amount of time – the United States recorded 10,917,590 infections with 132,616 deaths. These numbers represent an increased death rate of nearly 17 per cent during the time when the Omicron variant was the dominant strain in the country. "When the number of infections is as astronomical as 30 million,” the report said, “even a tiny death rate will mean a catastrophic death count." As the number of people infected with the virus drops, the report aimed to highlight "the country's continuing vulnerability," in the face of relaxed Covid-19 restrictions and nationwide easing of mandates.

  • Over 200 people were arrested in Ottawa over the weekend at protests over Canada’s Covid-19 mandates. Police sought to disperse protestors by towing vehicles and launching pepper spray at crowds that have been clogging the nation’s capital for several weeks. Prime Minister Justin Trudeau defended his use of the Emergencies Act at a news conference on Monday saying, “right now, when the situation is still of people pre-positioning, people being out there indicating that they are ready to blockade, to continue their illegal occupations, to disrupt Canadians' lives, we feel that this measure needs to remain in place while this emergency situation is still in place.” Through the Emergencies Act, the federal government can freeze the assets of anyone suspected of financing the illegal protests. Mike Duheme, the Royal Canadian Mounted Police (RCMP) deputy commissioner of federal policing, said that the RCMP froze 206 financial products, including a payment processing account valued at 3.8 million dollars. "We continue to work at collecting relevant information on persons, vehicles and companies and remain in daily communication with the financial institution to assist them," Duheme said.

  • On Monday, Prime Minister of the United Kingdom Boris Johnson unveiled his plans for an end to Covid-19 measures in England. Johnson said that it was now time for England to start “living with Covid” and detailed his intensions to remove self-isolation rules and put an end to free Covid-19 tests. The announcement came just a day after Queen Elizabeth II had tested positive for Covid-19. “Today is not the day we can declare victory over Covid, because this virus is not going away.” Johnson said in an address to parliament. “But it is the day when all the efforts of the last two years finally enabled us to protect ourselves while restoring our liberties in full.” The restrictions will be dismantled in phases, with the legal requirement to self-isolate ending on February 24, close contacts will no longer have to take a Covid-19 test, and employees will no longer have to disclose a positive test to employers. As of March 24, some of the financial support for those who are unable to work due to Covid-19 will be removed, and as of April 1, the government will no longer provide free rapid tests for the public.

  • Abu Dhabi, the capital of the United Arab Emirates has not disclosed its growth data since the pandemic began. The UAW hasn’t provided any official annual gross domestic product data since 2020, and the oil-producing nation’s hesistancy to disclose such information is frustrating investors worldwide. Ziad Daoud, chief emerging-markets economist at Bloomberg said, “withholding basic economic statistics, like GDP, isn’t great in normal times. It’s especially counterproductive when the economy faces and recovers from a global pandemic.” Abu Dhabi’s statistics office is “currently processing the GDP report 2020” according to government sources, and there has been no explanation for the delays in reporting the data. The UAE, consisting of seven emirates did, however, post 2022 GDP estimates but the federal statistics website only shows figures that go as far as the second quarter of 2020. According to the website, Dubai’s economy contracted nearly 11 per cent during the pandemic, although, those numbers only reflect the first nine months of 2021.

  • Hong Kong Chief Executive Carrie Lam said on Tuesday that city will require mandatory Covid-19 tests for all 7.5 million residents starting in March. The city is in the midst of the worst outbreak of the virus since the pandemic began and will now test each resident three times in March. Lam said that the testing capacity will be increased to 1 million people a day and expects that the process will take about a week. Hong Kong has recorded nearly 5000 new cases a day since February 15, with the city amassing 54,000 cases in total and 145 deaths. While mainland China has repeatedly put entire cities on lockdown, Lam says that will not be the case in Hong Kong, as locking down a city of that size is “not realistic.” Lam has also denied that the semi-autonomous city is taking directions from the central Chinese government and remains steadfast that the decisions surrounding Covid restrictions rest with officials in Hong Kong. “I reiterate that the central government never issued any instructions on our anti-epidemic work,” she said. “The central government will offer support as needed or upon our request, but of course we will always exchange our views.”

Covid-19 – Due Diligence And Asset Management

Allianz nearing settlements with investors in Structured Alpha hedge funds

Brief: Allianz is close to agreeing settlements with the major investors in its failed Structured Alpha hedge funds, which failed during the early days of the global pandemic, according to a report by Bloomberg. Speaking in an interview on Bloomberg TV, Chief Financial Officer Giulio Terzariol, said: "We achieved an agreement with the majority of the investors. There are still ongoing conversations with remaining plaintiffs. We are in conversations with the US Department of Justice, and this conversation is very constructive." Blue Cross & Blue Shield and New York's Metropolitan Transportation Authority as well as other pension funds are among the investors to have brought multiple lawsuits against Allianz over the failure of the funds, leading the German insurer to last week announce that it would take a EUR3.7 billion charge in relation to the legal action and regulatory investigations.

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HSBC donates US$12.8 million to help needy Hong Kong families hit by Covid-19, while AlipayHK cuts SME fees

Brief: HSBC, the biggest lender in Hong Kong, has donated HK$100 million (US$12.8 million) to help low-income households hit hard by the Covid-19 outbreak, the biggest so far by the city's financial sector. The lender has joined a slew of companies, including Bright Smart Securities, Futu Securities, Ant Group and FWD, which over the past week have offered support ranging from monetary donations, testing kits and other assistance to the city facing record infections nearly every day amid the fifth wave of the coronavirus outbreak. The Hongkong Bank Foundation, the bank's charitable arm, has teamed up with the Hong Kong Red Cross to help households who need to undergo compulsory home quarantine because of infections among family members or lockdowns of residential buildings for tests.

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The M&A Frenzy May Be Over – But That’s Not a Bad Thing

Brief: After hitting records in 2021, deal-making looks like it may be coming down to earth this year. In 2021, the total value of mergers and acquisitions reached an all-time high of $5.9 trillion, up from $3.7 trillion the year before, according to a report on global M&A in 2022 from Bain Consulting. In January, however, the number of M&A deals declined for the first time in almost two years, according to data from II’s sister company, BCA Research. In a daily briefing, BCA noted that the dimming M&A outlook is a result of decelerating economic growth, sluggish equity returns, rising interest rates, and strong regulatory headwinds. “The environment is now less conducive for mergers and acquisitions,” according to BCA. “This is compounded by the fact that the number of M&A deals over the past 12 months far exceeds previous peaks, which raises the likelihood that dealmaking activity experiences a mean reversion.”

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‘Living with Covid’ strategy could do more harm than good, say businesses and unions

Brief: Business leaders and unions have warned the government that scrapping free Covid tests in England and watering down sick pay will discourage workers from self-isolating and could damage the economy. Although welcoming Boris Johnson’s ambition to ease restrictions almost two years into the pandemic, company bosses said the prime minister’s newly unveiled “living with Covid” strategy came with major risks and could do more harm than good. Claire Walker, co-executive director of the British Chambers of Commerce (BCC), said the changes inched companies closer to pre-pandemic conditions. “However, for many firms, this move will not be without its challenges, and government must not pass public health decisions on to the business community, who are not public health experts.”

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PDI: Credit Hemorrhaging Is Accelerating Into A 'Global Credit Crunch'

Brief: The prolonged era of ultra-low interest rates has pushed many investors into riskier "high-yield" assets. Older investors who are at or near retirement have never had as high allocations into risk assets as they do today. This issue has only worsened with inflation which has lowered real yields to unprecedented levels. At the same time, the global economy is slowing at a faster-than-expected pace, and, finally, interest rates are starting to rise back to normal levels. Today, investors face an undoubtedly odd set of market conditions with a multitude of both inflationary (supply & labor shortages) and deflationary forces (extreme public and private debt). In such an environment, high-risk assets, particularly credit assets, can easily lose most of their value if market conditions continue to sour. Thus far, most riskier credit assets have failed to hold their weight, given the rise in interest rates. This issue can already be seen in the breakdown of popular riskier-credit funds such as PIMCO Dynamic Income Fund (PDI).

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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, February 18, 2022:

  • In the United States, new modelling suggests that 73% of Americans are now immune to Omicron, and that number could rise to 80% by mid-March. Factoring in booster shots, confirmed infections and those infections that are never reported, experts calculated that millions of Americans’ immune systems now recognize the virus. Further, scientists at Johns Hopkins University estimate that three out of four Americans will be infected by Omicron by the end of the surge. Ali Mokdad works on the Institute for Health Metrics and Evaluation model, which calculated the 73% for the Associated Press. Mokdad says he’s confident about the coming months in America. “I am optimistic even if we have a surge in summer, cases will go up but hospitalizations and deaths will not,” Mokdad said.

  • In Canada, the federal government is offering cities a one-time cash supplement of $750 million, to help address revenue losses for public transit due to Covid-19. Finance Minister Chrystia Freeland says the funding comes with two conditions: provinces must match the funding, and work with cities more closely to increase the supply of housing. During the federal election, the mayors of Canada’s biggest cities asked for a multi-year funding commitment to help make up public transit shortfalls. Toronto’s operating shortfall for this year is expected to be $561 million, Edmonton’s $53.7 million and close to $100 million for Vancouver.

  • In the United Kingdom, the government will stop supplying universities with free Covid-19 testing, in the latest step towards dropping the mass provision of free lateral flow tests.  The contract to supply the test kits to universities, through the National Health Service (NHS) and U.K. Health Security Agency, will be terminated and not renewed. The Guardian reports that the cabinet is divided over the future of the testing strategy, with the Treasury pushing for an end to free testing in order to save money, and the health secretary wanting to keep some free testing in place to support community tracing. 

  • Israel has announced that the country’s vaccine “green pass” system has been suspended as coronavirus infections decline. The green pass limits entry to indoor venues and large gatherings to people who have had three doses of vaccine or people who have recovered from the virus. On Thursday Prime Minister Naftali Bennett said there was a serious decline in case numbers, and that now is a good time to end the proof of vaccination system. Israel was one of the first countries in the world to require a vaccine certificate, and to date, some 48% have had three doses of vaccine, while 72% have had at least one dose.

  • In South Korea, cases have topped 100,000 for the first time, as authorities plan to relax restrictions for businesses. The curfew for restaurants and cafes has been moved from 9 PM to 10 PM after the government received negative feedback from business owners. The remaining pandemic restrictions will stay in place until at least March 13, officials said. They include limits on private gatherings to six people, seven-day quarantines for international travellers, vaccine passport systems and mask mandates in public spaces. The move to ease restrictions comes as the country prepares for its next pandemic election, which is set for March 9. 

  • In Australia the states of New South Wales (NSW) and Victoria will begin to ease pandemic restrictions over the next week, with similar changes taking place across both states. From 6 PM on Friday, Victoria will remove capacity limits on venues, and QR code check-ins will no longer be required in most settings. In NSW, capacity limits will be scrapped from 12:01 on Friday, and singing and dancing in nightclubs can resume. The order to work from home will also be lifted in NSW, leaving the decision to employers. Mask mandates will remain in place in NSW until February 25.

Covid-19 – Due Diligence And Asset Management

UK retail sales bounce back from tough December but 'warning lights blinking'

Brief: UK retail sales increased by 1.9% during January following a 4% fall in December, according to figures released today (18 February) by the Office for National Statistics, with home improvements significantly contributing to the uptick. While non-food items provided the biggest bump, having risen by 3.4% during the month, food store sales volumes fell below pre-Covid levels for the first time, dropping 0.8% below where they were in February 2020. Sales volumes across the piste were 3.6% above their pre-pandemic levels, although 76% of consumers say they can now feel the impact of rising inflation. Neil Birrell, chief investment officer and fund manager on the Premier Miton diversified fund range, said given the rise in inflation and borrowing costs, as well as spikes in energy prices and tax increases, "we are likely to see some patchy data in the coming months".

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61% of people working from home are doing so because they want to, even though their office is open

Brief: More people are choosing to work from home because they want to, even if their office is open and they’re less concerned about Covid risks, according to new findings from Pew Research Center. According to a January survey of 5,889 workers, 61% of people working from home today say they’re not going into their workplace because they don’t want to, and 38% say their office is closed. It’s a reversal from October 2020, when 64% of people were working from home because their office was closed, and 36% were doing so out of preference. Even as more offices open up, “people are making a conscious choice to work from home, rather than just out of necessity,” says Kim Parker, Pew’s director of social trends research. Teleworkers say they’re choosing to stay home for better work-life balance, productivity or because they’ve relocated away from the office. Fewer people say Covid is the main reason why they’re working from home (42% now vs. 57% in 2020).

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Uneven Recovery Worsens Risks for Global Economy, Indrawati Says

Brief: An uneven economic rebound is complicating discussions among finance chiefs and central bank governors of the world’s biggest economies as they meet this week to navigate a fragile global recovery. “Some are facing this with high growth and inflation, so they have to adjust their policy domestically, but at the same time other countries are still left behind,” Indonesia’s Finance Minister Sri Mulyani Indrawati told Bloomberg Television’s Yvonne Man and Haslinda Amin in an interview Friday from the sidelines of the Group of 20 meetings. “That can create an environment for policy that is not easy.” Indonesia, which is taking the helm of the G-20 for the first time, is seeking to release a communique when the meeting ends Friday that can address equal access to financing and ensure the transition to renewable energy can be affordable to all countries. An uneven economic rebound is complicating discussions among finance chiefs and central bank governors of the world’s biggest economies as they meet this week to navigate a fragile global recovery.

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Covid-19 Partially Closes Iconic Hong Kong HSBC Building

Brief: British-based, Asia-focused bank HSBC has closed down several floors of its landmark main Hong Kong office from Friday after several staff tested positive for Covid-19. The closure comes as Hong Kong’s business and financial institutions react to a coronavirus outbreak that is growing rapidly despite a so-called “dynamic zero” government policy that calls for suppression rather than containment of the virus. Health officials are expected to a record 3,600 new cases on Friday, with a further 7,600 testing preliminarily positive. People who test positive in Hong Kong for the virus are sent to public hospitals for isolation while their close contacts are ordered to isolate for 14 days, sometimes in austere government facilities. HSBC said that it would temporarily close the BL1, L3, L5 and L6 levels of its headquarters in Hong Kong’s Central district. The bank did not indicate how long the closure would last or how it would affect operations in the iconic Norman Foster-designed tower in the heart of Hong Kong’s Central district.

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Resilient return profile for real estate investors

Brief: The Covid pandemic had a massive effect on the global commercial real estate market. The preliminary success of return to work continues to decline as new Covid-19 variants emerge, making a mass return to work more unlikely, while the retail industry is taking big hits from e-commerce and the expansion of home delivery services. Despite the outlook, a number of real estate sectors give reason for optimism, one of those is life sciences real estate. With the market already seeing strong demand conditions attributed to an ageing population, rising healthcare spending, and enthusiastic venture capital investments, the start of the pandemic has only accelerated this growth. The rapid development of several effective Covid-19 vaccines led to a significant increase in capital focusing on the life science office sector. Research and development of vital medicines, as well as increased testing and treatments to tackle Covid-19, have also boosted occupancy levels.

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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, February 17, 2022:

  • Texas is saying that the American Centers for Disease Control and Prevention overstepped its boundaries with a rule intended to stop the spread of Covid-19. The state is suing to block the Biden administrations mask mandate on all public busses, planes, and trains. Texas alleges that the mandate, which has been in place for almost a year, was put in place without following the proper channels, including the implementation of a public comment period. The state filed the complaint on Wednesday in Fort Worth seeking a court order that would permanently block the mandate, which also applies to transportation terminals. The state claims that the mandate is overreaching and that it is a “blanket preventative measure against people that may or may not carry infectious disease.” Texas Attorney General Ken Paxton, who has filed several lawsuits against the federal government in the past said that “President Biden cannot continue governing through executive edicts,” and “now is the time to strike down his administration’s air-travel mask mandate.”

  • Canada has approved another Covid-19 vaccine for use in people aged 18 and older. The American manufactured Novavax vaccine has now joined Pfizer, Moderna, AstraZeneca and Johnson and Johnson on the list of acceptable vaccines for use in adults in Canada. Novavax’s two-shot Nuvaxovid product has not yet been approved for use in people under 18, as its effectiveness has not yet been proven for that age group. Test results from trials of the Novavax vaccine have shown that it is 90 per cent effective in preventing symptomatic cases of Covid-19 and 100 per cent effective in preventing serious illness caused by the virus. The Nuvaxovid shots have also shown the ability to produce neutralizing anti-bodies that are effective against the Omicron variant. As of Wednesday, the Canadian government has ordered 52 million doses of Nuvaxovid, with an option to purchase another 24 million if the government sees fit. Other countries that have already approved the vaccine include the U.K., New Zealand, and Australia.

  • Children aged 5 to 11 in the United Kingdom will now be offered a low dose of Pfizer/BioNTech coronavirus vaccine. The decision comes after months of deliberation from the Joint Committee on Vaccines and Immunisation (JCVI). The committee has suggested that the low dose shots are beneficial to children, despite the large number of whom have already contracted the virus, because the vaccines will provide them further protection against any variants that may arise in the future. The JCVI estimates that vaccinating one million children will effectively prevent nearly 100 hospitalizations if the next variant is similar to the previous Delta variant, or 17 if the next wave is similar to the less severe Omicron variant. The vaccination effort is set to begin in April of this year, with pharmacies and general practitioners being selected to administer the doses. Health Secretary Sajid Javid said “the NHS will prepare to extend this non-urgent offer to all children during April so parents can, if they want, take up the offer to increase protection against potential future waves of Covid-19.”

  • In Portugal, government officials have rescinded the recommendation that people should work from home whenever possible as case numbers in the country have dropped over the last several weeks. The government also plans to scrap the need for people to show a negative Covid-19 test before entering sporting events, nightclubs and restaurants, Presidency Minister Mariana Vieira da Silva said in a cabinet meeting on Thursday. Capacity limits in malls and other urban settings will be removed, along with the need to self-isolate after coming into close contact with someone infected with the virus. Some of the restrictions still in place include the need for children to wear masks in classroom setting, and Da Silva said that if deaths continue to decline, more restrictions will be lifted. Earlier in the year, Portugal experienced record-breaking numbers of Covid-19 infections, however, due to one of the highest vaccination rates in the world, intensive care units did not see a large influx of patients.

  • Japanese Prime Minister Fumio Kishida has eased border restrictions as he tries to navigate away from the stringent mandates the government has employed throughout the pandemic. Experts suggest the alleviation of the previously strict border measures is an attempt to cling to power as Covid-19 policies have proven a political nightmare in a country who has toppled two prime ministers within the span of the pandemic. In a news conference on Thursday, Kishida said that the country will now allow foreigners to enter, but not for tourism. Only those with business or familial obligations will be allowed across the border, and quarantine regulations have also been dialed back. “The circumstances have changed greatly not only within our borders, but overseas,” Kishida said. “We have decided to revise border control measures but it’s not realistic to ease them all at once.” Japan has capped the number of daily entrances to 5000, up from the previous 3500. The government has been facing backlash as of late from prominent voices in the business community who say that due to border restrictions, companies were having trouble finding workers.

Covid-19 – Due Diligence And Asset Management

Great Resignation Increased in Eight U.S. States in December

Brief: The Great Resignation improved in most U.S. states in December but worsened in eight, with Alaska, Virginia and Ohio seeing the largest increases in their quits rates. The quits rate -- or the number of quits as a percent of total employment -- fell in 36 states and the District of Columbia in the final month of 2021, according to Labor Department data released Thursday. Six states saw no change. Meanwhile, the quits rate in Alaska rose 1.6 percentage points at the end of 2021 to 5.5% and jumped 0.7 point to 3.3% in Virginia. With a near-record number of job openings nationwide, the number of Americans voluntarily leaving their jobs has surged. Those leaving can often secure a job with better pay, more flexibility or both. The unemployment rate has fallen to 4% nationally, and companies have bid up wages in an attempt to attract and retain employees. While all states have struggled with similar issues, the extent of the problem differs by location. Thirty-four states had higher quits rates than the national figure of 2.9% in December. North Carolina, Illinois and Georgia saw the largest decline in the number of people quitting in the month.

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Mass Testing Paves Way for Hong Kong Reopen, Stock Watchers Say

Brief: Market watchers are optimistic that Hong Kong’s plans for mass Covid-19 testing could stem the resurgence of virus cases, with stocks tied to economic reopening advancing in a volatile session Thursday. Leveling out daily infections could ultimately lay the groundwork for an eventual reopening - even if that seems far away, they say. Hong Kong is intensifying efforts as the latest outbreak rips through the city, with local media reporting about 5,000 new Covid cases on Thursday. While broader markets in the financial hub and in Asia were whipsawed by renewed geopolitical tensions over Ukraine, shares of Macau casino operators and cosmetics makers climbed in Hong Kong. Further gains could help broaden the rise in the MSCI Hong Kong Index, which has rallied more than 8% since a December low, among the top-performing stock benchmarks in Asia. The advance was boosted by financials, which make up about half of the gauge’s weighting, amid a surge in global bond yields.

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Yellen Calls for New World Bank Fund to Fight Future Pandemics

Brief: U.S. Treasury Secretary Janet Yellen urged her counterparts from leading industrialized countries to support the establishment of a new World Bank fund intended to prevent and prepare for future global health crises. A new “financial intermediary fund” under the auspices of the World Bank would help address gaps in preparedness, particularly among low-income countries, Yellen said, according to prepared remarks she’s scheduled to deliver virtually on Thursday to a meeting of finance ministers and central bank governors from Group of 20 countries. “We don’t see this as a pool of money that sits idly waiting to respond to the next pandemic,” Yellen said. “It will be used in the near term to incentivize countries to make investments to fill existing gaps in their ability -- and our collective capacity --  to prevent and prepare for the next crisis.”

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Trudeau Anti-Protest Law Sweeps Across Canada Finance Sector

Brief: Prime Minister Justin Trudeau’s emergency orders aimed at cutting off funds to protesters have cast a wide net across the Canadian financial industry, forcing portfolio managers and securities firms to take a harder look at who they are doing business with. The new rules make demands of a broad list of entities — including banks, investment firms, credit unions, loan companies, securities dealers, fundraising platforms, insurance companies and fraternal benefit societies. They must determine whether they’re in “possession or control of property” of a person who’s attending an illegal protest or providing supplies to demonstrators, according to orders published by the government late Tuesday night. If they find such a person in their customer list, they must freeze their accounts and report it to the Royal Canadian Mounted Police or Canada’s intelligence service, the regulations say. Any suspicious transactions must also be reported to the country’s anti-money-laundering agency, known as Fintrac.

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AI Robots Battling Supply Chain Disruptions Valued at €5 Billion

Brief: Finnish software maker Relex Solutions raised 500 million euros at a valuation of 5 billion euros ($5.7 billion) in a funding round spurred by demand from retailers suffering from supply-chain disruptions. Relex’s artificial intelligence products let businesses such as grocery stores forecast which products to buy, in what quantities, and where best to allocate space for the inventory in stores and warehouses. “Global supply chain disruptions were one of the reasons why we decided to do the round, to enable us to grow,” Relex Chief Executive Officer Mikko Karkkainen said in an interview. “The past couple of years have shown many companies vulnerabilities in their supply and value chains.” Relex said in a statement Thursday that it has about 1,300 employees, and the CEO said the company will use some of the money raised to hire hundreds more across roles in software development, marketing, customer support and delivery.

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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, February 16, 2022:

  • In the United States, the Biden administration is asking congress for an additional $30 billion for the country’s ongoing pandemic response. The plan would be $17.9 billion for vaccines and treatments, $4.9 billion for testing, $3 billion to cover uninsured people with coronavirus, and $3.7 billion to prepare for future variants, officials confirmed on Tuesday. White House Press Secretary Jen Psaki spoke of the need for more money, without indicating any specific amounts. "While we continue to have sufficient funds to respond to the current Omicron surge, in the coming weeks, our goal has always been to ensure that we are well-prepared to stay ahead of the virus," Psaki said at a White House briefing on Tuesday.
  • In Canada, the provinces are taking different approaches to their vaccine passport systems as they move through their reopening phases. British Columbia announced that they are removing the limits on gatherings but keeping vaccine passports in place for now. Quebec announced on Tuesday that they will remove vaccine passports entirely by March 14, while Ontario also announced recently that their vaccine passport system will end on March 1, when capacity limits lift. Alberta cancelled vaccine passports last week when capacity limits were removed for most venues. Saskatchewan’s vaccine mandate ended on Monday, though some organizations and businesses have said they will continue to check vaccination statuses.
  • In the United Kingdom, some scientists and public health experts are warning the government not to scrap free Covid-19 testing, ahead of an expected government announcement.  Prime Minister Boris Johnson is meeting with cabinet ministers this week to discuss the government’s “living with Covid” strategy and is expected to later announce the removal of all remaining Covid-19 restrictions in England. Ministers are also considering whether to end the distribution of free lateral flow tests to adults without symptoms. The Association of Directors of Public Health said in a statement that requiring people to pay for lateral flow tests would have a “detrimental impact,” especially on vulnerable communities. 
  • In Germany, Chancellor Olaf Scholz is meeting with the country’s 16 state governors today to discuss the possible easing of coronavirus restrictions. At the meeting, Scholz and the governors are expected to consider plans to drop most restrictions by late March, working in several phases. Possible steps include eliminating the need for shoppers in non-essential stores to show proof of vaccination, and increasing the limits on private gatherings to 20 for vaccinated people. The second phase of the plan would include the reopening of nightclubs, and the allowing of unvaccinated people back into restaurants by March 4. Mask requirements are to remain in place.
  • The Philippines is now back to being “low risk” for coronavirus as vaccinations rise and hospitalizations fall, a spokesperson for President Rodrigo Duterte said on Tuesday. "The National Capital Region and the entire Philippines now have a low-risk classification" in terms of case growth, prevalence and health system capacity,” spokesperson Karlo Nograles told reporters. The country just reopened last week to foreign travellers for the first time in two years. The reopening had originally been set for December 1 but was postponed due to the emergence of the highly contagious Omicron variant. After surges of both Omicron and Delta, the country’s hospital bed occupancy rate has eased to about 30%. 
  • In Australia, thousands of nurses in New South Wales (NSW) walked off the job on Tuesday, protesting staff shortages and pandemic-related stress. Nurses gathered in front of the state parliament building in Sydney, holding signs that said “Fatigued, exhausted, worn out and burnt out,” and “Need more nurses now.”  They were seeking a 2.5% pay raise and better nurse-to-patient ratios.  NSW Health Minister Brad Hazzard said the strike was “disappointing” and “unfortunate,” and added that better nurse-to-patent ratios could cost up to a billion dollars. Nurses defied a strike ban ordered by the state’s industrial relations commission, despite it saying they could put public health in danger.

Covid-19 – Due Diligence And Asset Management

Post-pandemic change is afoot among asset managers, study says

Brief: The global pandemic continues to significantly impact investment strategies among global asset managers, according to new research from Clearwater Analytics (CWAN). A poll of over 140 asset managers and owners representing more than USD5 trillion in AUM showed more than a third of investors investment strategies will change this year in response to Covid. The study asked how investment strategies had changed since the start of the pandemic, and how this compares to what they have planned for 2022 in the wake of the recent omicron surge. At a macro level, 58 per cent of companies reported making changes to their strategy two years ago, albeit only 13 per cent said the change was material. Looking forward from today, 33 per cent plan further changes to their strategies and 5 per cent said they will be material changes.

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Wall Street Is Back in Office While Its Regulators Stay Home

Brief: While Wall Street banks press employees to return to the office this month, its regulators in Washington are largely sticking with a flexible approach to remote work. The U.S. Securities and Exchange Commission, which has a staff of about 4,500, pushed back until June 6 its earliest date for requiring employees to return, according to a person familiar with the plans. The Federal Reserve in Washington remains mostly in a remote posture, and at the Office of the Comptroller of the Currency, no final decision has been made on when workers will be called back on a mandatory basis. At other agencies across the government, employees are largely still working from home. Meanwhile, financial giants from Citigroup Inc. to Goldman Sachs Group Inc. have pressed to bring back staff this month after a nationwide surge in coronavirus cases at the end of last year and in the early weeks of this year. 

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Majority of meat industry 'incubating' next pandemic

Brief: Conditions at most of the world’s large meat, fish and dairy producers are said to be “incubating” future pandemics, according to a report by the FAIRR Initiative. An assessment of the industry as part of the organisation's Emerging Disease Risk Ranking found that 63% of animal protein producers are failing to take the necessary steps to prevent future zoonotic pandemics.  Jeremy Coller, chair of the FAIRR Initiative, said: "Business-as-usual animal agriculture risks incubating the next zoonotic pandemic, posing both an intolerable investment risk and a threat to global public health. The sector must improve rapidly, starting with welfare conditions for animals and workers." FAIRR highlighted that three out of four new diseases are zoonotic ones like Covid-19, which means they have jumped from animals to humans.

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UK inflation hits 30-year high of 5.5%

Brief: Inflation in the UK rose to 5.5% in January, up from 5.4% in December 2021, continuing the streak of reaching the country’s highest inflation rate in thirty years. The Office for National Statistics said that the 12 month UK Consumer Price Index was at the highest level since records began in January 1997 and was last higher in the historical modelled series in March 1992, when it stood at 7.1%. The ONS said that the largest contributors to rising inflation came from clothing and footwear, furniture and household goods, food and non-alcoholic beverages, and alcohol and tobacco. It also credited the price rises for gas and electricity following the increase in the cap on energy prices. In contrast, the ONS said it saw large downward contributions to change from restaurants and hotels, and transport.

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Global Policy Chiefs Confront Hawkish Market Bets on Inflation

Brief: Investors are betting on the fastest pace of interest-rate hikes since 2010 across the world’s biggest developed markets, pressuring policy makers who want to slow inflation without crash landing their economies. That’s the backdrop to this week’s meetings of central bank chiefs and finance ministers from the Group of 20 nations, who hold virtual and in-person discussions in Jakarta on Thursday and Friday, their first gathering of the year. It’s a remarkable turnaround from when they last met in October, a period when Federal Reserve Chair Jerome Powell was still describing inflation as “transitory” and markets were pricing in at most two Fed rate increases this year. Now, six Fed hikes are priced in.

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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, February 15, 2022:

  • The rate at which people in the United States are getting Covid-19 booster shots is at an all-time low according to data from the Centers for Disease Control and Prevention. As of Monday, only 28 per cent of the American population has received a third dose of an approved vaccine. People who have received the Johnson and Johnson vaccine are appearing less likely to get a third dose compared to other vaccinated groups. Among those eligible for a booster, only one-third of those who initially took the Johnson & Johnson vaccine have received a third injection, compared to 52 per cent who received the Moderna vaccine, and 47 per cent who received Pfizer. Only 4 in 10 people who are vaccinated but not boosted said that they would like to get a booster shot as soon as they become available and another 4 in 10 said they would definitely not get a booster or will do so only if it is mandated. The data suggests that booster uptake is divided among party lines, with 58 per cent of Democrats suggesting they would get a booster versus only 18 per cent of Republicans.

  • Canadian Health Minister, Jean-Yves Duclos, is expected to announce sweeping changes to border mandates aimed at stopping the spread of Covid-19 on Tuesday. The federal government currently advises against all non-essential foreign travel due to the rise in the Omicron variant. Travelers entering the country must be fully vaccinated and are subject to testing before and after they cross the border, or travel throughout the country via plane. Travelers are also required to quarantine as they await a negative test result. The changes expected may come as a surprise after the recent backlash from the federal government surrounding the weeks long protests in Ottawa. Although the worst of the Omicron variant seems to be over, there are still approximately 130 deaths associated with the virus daily and hospitals in the country continue to be stretched thin. Some Canadian provinces are nonetheless reconsidering stringent Covid-19 measures, including the province of Ontario, which has decided to remove the vaccine passport requirements for indoor activities as of March 1.

  • Two judges in the United Kingdom have decided that former health secretary, Matt Hancock, did not comply with public sector regulations when appointing fellow conservatives, Baroness Dido Harding and Mike Coupe, to posts in 2020. Independent think tank, Runnymede Trust joined by an organization called the Good Law Project, also contested in a High Court proceeding on Tuesday that the government did not adopt an “open” process when making appointments “critical to the pandemic response” but the claim was dismissed. The judges’ decision states that Hancock had not complied with “the public sector equality duty” when he appointed Baroness Harding as the interim executive chair of the National Institute for Health Protection (NIHP) and Coupe as director of testing for NHS Test and Trace (NHSTT). Jason Coppel QC, who led the two organizations’ legal teams, said that the government had a “policy or practice” of making appointments without a “fair or open competitive processes,” and that those “less likely to be known or connected to decision-makers” were put at a disadvantage.

  • The World Health Organization (WHO) has warned that a rise in Covid-19 infections caused by the Omicron variant is soon to hit Eastern Europe. The WHO’s European office claimed that a “tidal wave” of new infections is approaching the region and pleaded with officials to ramp up vaccination efforts. Hans Kluge, Director for WHO Europe, said that new daily Covid-19 cases had doubled in six countries within the region over the past two weeks. The 53-country region has seen over 165 million cases of the virus and just over 25,000 new deaths in the last week. The 6 countries most affected are Armenia, Azerbaijan, Belarus, Georgia, the Russian Federation, and Ukraine. Tensions in the region are already running high with the possible invasion of Russian forces into Ukraine and the new wave of Covid-19 cases has further added to the instability. Less than 40 per cent of people over age 60 have been fully vaccinated in the region, with Russia being an outlier, having a slightly higher vaccine uptake. “I call on governments, health authorities and relevant partners to closely examine the local reasons influencing lower vaccine demand and acceptance, and devise tailored interventions to increase vaccination rates urgently, based on the context-specific evidence,” Kluge said.

  • Authorities in China have officially authorized the use of the Pfizer anti-viral pill Paxlovid in what could be a signal of a departure from the strict Covid Zero policy it has held thus far in the pandemic. Paxlovid is now under conditional approval in the country and is the first foreign pharmaceutical that has been authorized for use. Until now, only domestically manufactured vaccines and other Covid-19 treatments were allowed, most notable was the exclusion of the Pfizer-BioNTech vaccine which has been widely distributed across most of the world and been proven extremely effective. Zeng Guang, a former chief scientist at the Chinese Center for Disease Control and Prevention, said that the adoption of Paxlovid may lay the groundwork for an eventual reopening of the country and a change to the current containment methods. “China won’t self-isolate from the rest of world [forever] and has various measures at its disposal to change tack,” Zeng said. “Strategizing precedes action.” Several experts have suggested that due to China’s own vaccines having a lesser efficacy than those from other countries, it is becoming increasingly difficult to control the spread of infections caused by the Delta and Omicron variants.

Covid-19 – Due Diligence And Asset Management

Investors are moving away from biotech stocks as COVID wanes

Brief: The first year of the COVID-19 pandemic fueled a frenzy for biotechnology stocks. Now, with vaccines in millions of arms and the Omicron variant on the wane, there are signs investors are ready to move on. After cresting at nearly $5 billion a month in early 2020, inflows into health care funds have slowed to a more modest $800 million a month, according to data compiled by Bloomberg Intelligence. While that suggests that a healthy appetite for the shares of vaccine makers and other drug companies remains, the excitement—and fear—stoked by the early days of the pandemic has subsided. What's more, those who embraced the shares of riskier drug makers have taken their lumps of late. The Nasdaq Biotechnology Index, the most widely watched gauge of the sector's performance, has lost 26% since hitting a 52-week high on Aug. 9 including a decline of 1% as of Monday at 9:55 a.m. The SPDR S&P Biotech, or XBI, an exchange-traded fund that specialists use to track the industry’s performance, has plummeted about 42% over the past year.

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Top Hedge Fund Managers Made $15.8 Billion in 2021 Riding Volatile Markets

Brief: Karthik Sarma outearned Steve Cohen last year. The little-known hedge fund manager made an estimated $2 billion in 2021, mostly thanks to an 11-year-old wager on Avis Budget Group Inc., a bet that paid off handsomely as the stock soared 456%. Sarma, it’s safe to say, isn’t your stereotypical, fleece-vested Manhattan hedge fund manager. When the pandemic struck, he didn’t flee to the Hamptons, Palm Beach or Aspen like many other Wall Street elites. Instead, he moved in with his sister and her family, living in their modest home in a middle-class New Jersey suburb, where the houses sit side by side -- and there’s only room for two cars in the driveway. Sarma, 47, runs his firm differently, too. At SRS Investment Management, he avoids the hefty leverage many other funds embrace, and runs a much more robust short book. Moreover, he isn’t afraid to go big on a single investment — and hang on for as long as it takes.

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Hedge Funds Are Starting to Win Over Allocators Once Again

Brief: There’s nothing like a good dose of volatility to get allocators once again thinking about hedge funds. Investors had hedge funds on their minds well before the market rout this year. About half of U.S. allocators plan to increase their investments in hedge funds in 2022, according to the latest report by the Alternative Investment Management Association. In December, the group surveyed 224 allocators across the country, with 49 percent working at foundations and endowments, 15 percent at public pensions, and 11 percent at family offices. While private equity remains the top choice of investors, hedge funds have begun to attract some attention again, according to the AIMA report. “Three years ago, many institutions were indeed adjusting their alternatives portfolios away from hedge funds. And often doing so vocally. They were making space for larger allocations to the likes of private credit and real assets,” the report said. “While the trend toward illiquid opportunities remains, we anticipate some positive changes with a renewed focus on hedge funds this year.”

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Private Equity Investment Rebounds “Spectacularly” - KPMG

Brief: Mid-market private equity investment rebounded "spectacularly" in the Midlands during 2021, according to the latest figures from KPMG. The findings, which track deal flow and sentiment, show 2021 generated an upturn in both deal volume and value when compared to 2020. The region experienced an increase of 54 per cent in volumes with a total of 86 deals completed, up from 56 in 2020. Additionally, the Midlands leapfrogged the North West to become the second largest region by deal value at £5.3bn, up from £3.5bn. The number of private equity exits completed in the Midlands also increased from 17 to 25, further surpassing 2019 levels of activity and ranking the region second only to London. Alongside this, the value of Midlands-based exit deals also accelerated to £2.5bn, a 133 per cent increase from £1.1bn. Khush Purewal, partner and head of deals for KPMG in the Midlands, said: "Mid-market private equity deal activity rebounded spectacularly in the Midlands during 2021, as confidence to complete transactions returned and pent-up demand was released.

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Pandemic and ‘revenge travel’ helps power Heygo to a $20M Series A funding round

Brief: During the worst throes of the COVID-19 pandemic, very few people could travel. Meanwhile, both 2021 and 2022 were predicted to be the years of “revenge travel” where people would do a great deal more. Or at least plan more. In the background was a site that allowed people to travel virtually, either out of sheer interest, or to plan their own travel. Heygo’s live tours are live-streamed by, it says, tour guides in more than 90 countries and counting. Think “Twitch, but for travel”. It’s clear that plenty of people cottoned-on to the site and its usefulness during the pandemic, because Heygo has now raised a $20 million Series A funding round, led by Northzone. Also Participating was Lightspeed Venture Partners, Point 9 Capital, TQ Ventures and Ascension. Heygo is tapping into a different kind of creator economy. Their guides can share the places and subjects they love on their own live channels with a global audience while earning money via tips. It’s managed to hit a 300% growth in bookings this January over last year, and recently hit the 2 million bookings mark, claims the company.

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

Our briefing for Monday, February 14, 2022:

  • The United States’ coronavirus vaccine for children under five has been put on hold for at least another two months, after the Food and Drug Administration (FDA) decided that it needed more information. At the FDA’s request, Pfizer submitted the data earlier this month, with a decision expected around next week and the rollout starting as early as February 21. The FDA was initially concerned about the Omicron wave and wanting to make a decision right away, but on Friday the agency said they needed more data before moving forward after reviewing new trial information. Parents should be reassured that the agency is taking the time to meet high review standards, the FDA said.
  • In Canada, the province of Alberta has scrapped masks for students in schools, after nearly two years of having the rules in place. Children under 12 also don’t have to wear masks at all in any setting. School boards don’t have the power to override the directive, the provincial government has said. Meanwhile in Quebec, gyms and spas can now reopen and sports and recreation activities can resume. This phase of the government’s reopening plan came into effect over the weekend when limits on indoor gatherings were removed and restaurants were allowed to seat a maximum of 10 people at one table.

  • In the United Kingdom, the Treasury is pushing for an end to most free Covid-19 testing in a bid to save billions of dollars. Under the new plans, most free PCR testing would end by March, with the exceptions being people who are at high-risk of developing serious illness and people in hospitals. Lateral flow tests would still be distributed for free to those with symptoms, while those without symptoms would be advised not to test at all. The Guardian reports that the Treasury is pushing for the change, but the U.K. Health and Security Agency wants to keep the existing testing procedures in place until at least April 1.
  • In Brazil, vaccination uptake has slowed, and some officials say it could be due to disinformation campaigns where the country’s leadership was involved. Despite more than 86% of the Brazilian population being fully vaccinated, vaccination rates in younger populations are very low, along with booster rates. So far only 23% of Brazilians ages 12 and older have gotten their booster shots, compared with 94% who have had at least one dose. Only 10% of children ages five to 11 have gotten the vaccine, despite being eligible to do so from January 17. President Jair Bolsonaro, who is unvaccinated himself, has been widely criticized for spreading false information around vaccines and for downplaying the seriousness of the virus.
  • South Korea’s parliament approved plans to allow for special time for Covid-19 patients to vote in the country’s upcoming presidential election. According to the legislation, voters diagnosed with Covid-19 or those in quarantine will be allowed to visit the polling stations and cast ballots after the regular voting closes at 6PM. The move comes as the country struggles with an Omicron wave, with health authorities warning that the country could see up to 170,000 new daily cases by late February. In light of the recent surge, the country also announced that they will start administering fourth doses of Covid-19 vaccines to high-risk groups.
  • New Zealand’s prime minister denounced protesters who oppose coronavirus vaccine mandates as they gathered in the thousands over the weekend. Police arrested 122 people on Thursday, appearing to take a tougher stance toward the convoy of demonstrators. "I very clearly have a view on the protesters and the way that they've conducted their protest because it has moved beyond sharing a view to intimidation and harassment of the people around central Wellington," she told reporters. "That cannot be tolerated." The protesters oppose vaccine mandates and were inspired by similar protests in Canada. Despite the arrests, dozens of tents remain on the Parliament’s grounds.

Covid-19 – Due Diligence And Asset Management

'The pandemic was a litmus test': Why Canadian firms are seeing an uptick in shareholder activism

Brief: Baker Steel Capital Managers LLP, a large resource investment fund based in London, boosted its stake in Canadian miner Iamgold Corp. by nearly 40 per cent in 2021, reasoning that there was value to be unlocked in the gold miner with operations in Canada and Africa. So it came as a shock to Mark Burridge, chief executive and managing partner of Baker Steel, when news broke last month that Iamgold’s chief executive, Gordon Stothart, was leaving abruptly after less than two years in the top job. “When the announcement came with the CEO leaving, yeah, we got a little bit uncomfortable,” Burridge said in a recent interview. “We’re not the guys who build the big position just to then, you know, knock on their door and say, ‘Hey, you know, we’re the big shareholders, you need to do what we say.’ That’s not our style at all.” But with a 2.8 per cent stake in hand as of the end of 2021, they felt they had to do something, so they contacted management and the board with suggestions on how to turn the company around. They weren’t alone.

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Here’s What the Pandemic Has in Store for the World Next

Brief: As a virus-weary world limps through the third year of the outbreak, experts are sending out a warning signal: Don’t expect omicron to be the last variant we have to contend with — and don’t let your guard down yet. In the midst of a vast wave of milder infections, countries around the world are dialing back restrictions and softening their messaging. Many people are starting to assume they’ve had their run-in with Covid-19 and that the pandemic is tailing off. That’s not necessarily the case. The crisis isn’t over until it’s over everywhere. The effects will continue to reverberate through wealthier nations — disrupting supply chains, travel plans and health care — as the coronavirus largely dogs under-vaccinated developing countries over the coming months. Before any of that, the world has to get past the current wave. Omicron may appear to cause less severe disease than previous strains, but it is wildly infectious, pushing new case counts to once unimaginable records. 

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Investors Unwind Speculative Bets as Pandemic Fears Fade

Brief: The first year of the Covid-19 pandemic fueled a frenzy for biotechnology stocks. Now, with vaccines in millions of arms and the omicron variant on the wane, there are signs investors are ready to move on. After cresting at nearly $5 billion a month in early 2020, inflows into health-care funds have slowed to a more modest $800 million a month, according to data compiled by Bloomberg Intelligence. While that suggests that a healthy appetite for the shares of vaccine makers and other drug companies remains, the excitement — and fear — stoked by the early days of the pandemic has subsided. What's more, those who embraced the shares of riskier drugmakers have taken their lumps of late. The Nasdaq Biotechnology Index, the most widely watched gauge of the sector's performance, has fallen 25% since hitting a 52-week high on Aug. 9. The SPDR S&P Biotech, or XBI, an exchange-traded fund that specialists use to track the industry’s performance, has plummeted 44% over the past year. Over the same span, the broader market has been climbing, with the S&P 500 up 13%.

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Private Companies Held Their Own in January’s Rocky Markets (And Not Just for the Obvious Reasons)

Brief: January was the worst month for public stocks since March 2020 as investors wrestled with inflation fears. In contrast, the value of private companies, by a number of measures, held far steadier last month. The comparison is an important one, given that more companies are choosing to stay private longer — and a record number of them reached the $1 billion “unicorn” valuation mark last year.  Of course, by definition, private companies are less volatile. They don’t trade in the same way as public securities on exchanges where their prices fluctuate in real-time. Instead, committees or outside firms calculate private company valuations based on the performance of public peers and other metrics on a quarterly basis. Valuations can also be plucked from a company’s most recent funding rounds. Many experts argue private companies are just as volatile as public stocks, but the risk is hidden from view.

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JPMorgan Removes Mask Mandate for Vaccinated U.S. Workers

Brief: JPMorgan Chase & Co. said fully vaccinated staff no longer need to wear masks anywhere in its U.S. buildings, amid an easing up in Covid-19 cases that’s paved the way for Wall Street staff to return to offices. The biggest U.S. bank said in a memo to employees that masks are now “completely voluntary” unless there are more stringent local restrictions in place. Unvaccinated staff or those that have chosen not to disclose their status will need to wear a mask, apart from when they’re at workspaces or eating and drinking. “With Omicron cases declining in many U.S. locations, and expected to continue to decline, vaccine boosters and treatments more readily available, and a large percentage of our workforce vaccinated, we are continuing to make adjustments to some of these safeguards,” the bank said in the memo.

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

Our briefing for Friday, February 11, 2022:

  • The United States is exiting the “full blown” phase of the coronavirus pandemic according to Dr. Anthony Fauci, the country’s top infectious disease expert. Fauci told the Financial Times on Tuesday that he also expects all Covid-19 restrictions to be lifted in the coming months, and that includes the mandatory use of face masks. “As we get out of the full-blown pandemic phase of COVID-19,” Fauci said. “Which we are certainly heading out of, these decisions will increasingly be made on a local level rather than centrally decided or mandated. There will also be more people making their own decisions on how they want to deal with the virus.”
  • In Canada, interim Conservative leader Candice Bergen has tabled a motion calling on Prime Minister Justin Trudeau to end all Covid-19 restrictions and “transition to a post-Covid society.” Bergen argues that Omicron cases are on the decline and that Canada is one of the most vaccinated countries in the world, and that public health officials have signalled that it’s time to do away with restrictions. Responding to the motion, Health Minister Jean Yves Duclos said the country might be in a different place than it was two years ago, especially because of vaccinations, but that the pandemic is not over yet. 
  • In the United Kingdom, all testing requirements for fully vaccinated travellers have now been dropped. Travellers who have had at least two doses of an approved coronavirus vaccine will now only need to fill out a passenger form before travelling to the U.K. Unvaccinated travellers still need to take a test upon departure and arrival, but no longer need to self-isolate while awaiting results. Earlier this week, Prime Minister Boris Johnson said he hopes to lift the final coronavirus restriction – mandatory isolation for people who test positive – by the end of February. The move is part of the government’s strategy to live with Covid-19, making the shift from legal restrictions to advisory guidelines.  
  • In Germany, a top court has ruled that a coronavirus vaccine mandate for healthcare workers should go into force as originally planned. Germany’s Constitutional Court on Friday said they rejected an injunction that sought to stop the measure until a legal challenge against its constitutionality is formally reviewed. A decision on whether the vaccine mandate is constitutional will be ruled on at a later date. The vaccine mandate, which will go into effect on March 15, requires staff in hospitals, nursing homes and outpatient clinics, to prove they have been fully vaccinated against Covid-19 or have recently recovered from the illness. 
  • South Korea announced they will be rolling out the Novavax vaccine at hospitals, care homes and public health centres next week. The Novavax vaccines will be administered to unvaccinated people, especially those in high-risk groups, officials say. The Korea Disease Control and Prevention Agency (KDCA) reported a record 54,122 cases on Thursday, a 12-fold increase from the daily levels seen in January. The country also announced on Thursday that coronavirus patients with moderate symptoms will have to treat themselves from home.  Authorities plan to only treat people aged 60 and older, or those with underlying conditions, with the goal of freeing up medical resources for the more serious cases. 
  • Australia requires three doses of the Covid vaccine for a person to be considered “up to date” on their vaccinations. The Australian Technical Advisory Group on Immunisation (Atagi) updated their guidance to include the third shot for someone to be considered “up to date.” The new terminology replaces the old “fully vaccinated” status that applied to someone who had two doses. “Atagi has advised that if it has been longer than six months since a person’s primary course and they haven’t had a booster, they will no longer be considered ‘up to date’ and instead will be considered ‘overdue’,” said Health Minister Greg Hunt in a statement.

Covid-19 – Due Diligence And Asset Management

Fed Is Slamming the Door on Pandemic Era of Dirt-Cheap Credit

Brief: For much of the past two years, money managers were handing out credit to just about anyone that asked for it: Tech startups with no profit. Cruise companies struggling to navigate a pandemic. Retailers that rely on fading malls. But in less than two months, the carefree days of ultra cheap credit have shown signs of coming to an end. Central banks around the world that pumped trillions of dollars into markets to keep economies afloat are now rushing to scale back the liquidity and fend off inflation. Those efforts could be hastened after U.S. Labor Department data on Thursday showed higher-than-expected price increases in January. Across debt markets, borrowing has gotten harder for the riskiest companies and more expensive for even the most creditworthy. Orders for new U.S. investment-grade notes are dropping. Rogers Communications Inc., a Canadian wireless company, last week scaled back its ambitions on a $750 million bond offering that was initially contemplated at $1 billion, and ended up paying more interest than it expected, according to a person with knowledge of the deal.

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European CLOs Prepare for Post-Pandemic Risks With More Flexible Terms

Brief: Collateralized loan obligation managers in Europe are preparing for the post-pandemic world of rising credit risk by adding more flexibility to their traditionally strict structures. CLOs -- which package speculative debt into bonds -- have been including options to participate in restructurings and remain involved in financings even if they go south. And while managers don’t expect a sudden deterioration of junk-rated loans and bonds anytime soon, with defaults in Europe still historically low, they want to be prepared in case things sour. “With the ability to follow their money, CLOs now have better options to sell out if they have significant concerns on poor recoveries or provide new money and benefit from the potential upside of any turnaround,” said Oliver Harker-Smith, a portfolio manager at Barings in London. CLOs historically had strict checks on their documents regarding the risks they were able to take. This meant that more often than not they were forced to sell their positions in situations when borrowers got distressed.

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Investors wary of subscription model businesses as cost-of-living pressure increases

Brief: Over the last number of months some of the most popular stocks of 2020 and 2021 plummeted as their figures failed to impress, with Netflix, Peloton and Spotify all seeing share prices tumble. One thing they all have in common is the subscription model. This has led experts to question whether those models can continue to succeed particularly when consumers are facing a cost-of-living squeeze and there is substantial competition sitting in the wings. "Companies which saw high demand for services as the pandemic took hold like Peloton, Spotify and Netflix have suffered because they have not been able to hook customers in for the long haul as much, as economies have opened up and other forms of socialising have taken over," explained Susannah Streeter, senior investment and markets analyst Hargreaves Lansdown. "They are seen more as one trick ponies, offering either TV streaming, gym classes or audio on demand."

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UK GDP defied Delta and Omicron to rise 7.5% over 2021

Brief: UK GDP rose 7.5% over the course of 2021, defying the year’s three-month opening lockdown and emerging variants to record the highest rate of growth since 1940. This increase followed a record 9.4% decline in 2020, as a result of the onset of lockdowns and the pandemic. Despite a variety of restrictions across the home nations, GDP only dropped slightly in December, down 0.2% for the month, less than the consensus 0.5% expectations. Emma Mogford, fund manager at Premier Miton Investors, described this as an "encouraging sign for the health of the economy", adding the "self-imposed protect Christmas" lockdown had only a "mild impact" on December growth. Daniel Casali, chief investment strategist at Tilney Smith and Williamson, agreed, suggesting that with restrictions lifted, the economic outlook is "constructive" for 2022.

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How inflation and tangled supply lines are gripping the economy

Brief: Since the pandemic erupted two years ago, Forest Ramsey and his wife, Kelly, have held the line on prices at their gourmet chocolate shop in Louisville, Kentucky. Now, they're about to throw in the towel. In the past year, the costs of ingredients for their business, Art Eatables, have surged between 10% and 50%. The Ramseys are paying their employees 30% more than they did before the pandemic. And in the face of supply shortages, their packaging costs are up. They've begun using 12-piece trays in their eight-piece chocolate boxes because they can no longer get any eight-piece trays. So having just tried to survive for the past two years, the Ramseys, who own three retail outlets and sell custom chocolates to about 25 bourbon distilleries, have reached an unpleasant decision: They're going to raise their customer prices 10% to 30%. “We’ve got to adjust this — we can’t afford to keep taking the hits anymore,” Forest Ramsey said.

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

Our briefing for Thursday, February 10, 2022:

  • In the United States, more and more states are making it clear they aren’t waiting for Washington for guidance on how the country will emerge from the latest forms of pandemic restrictions. On Thursday, Nevada was the latest state to drop their mask mandate, effective immediately. President Biden’s administration has long promised to “follow the science” in confronting the pandemic but is currently between a rock and a hard place, waiting on fresh guidance from federal health officials. So far, the Centers for Disease Control and Prevention are still recommending that nearly all Americans wear masks in most indoor settings. However, even Democratic states such as New York, New Jersey and Connecticut aren’t waiting – loosening mask restrictions for most public indoor settings earlier in the week. 
  • Canada’s border blockades over COVID-19 restrictions are continuing to last, expanding to other provinces and now angering their neighbours south of the border. Michigan Governor Gretchen Whitmer is urging Canadian authorities to step-in on their side of the Ambassador Bridge, which connects Detroit to Windsor, and is one of the busiest land border crossings in North America. “My message is simple: reopen traffic on the bridge,” Whitmer said in a statement. The bridge closure has negatively impacted the economy, including the automotive, agriculture and manufacturing sectors on both sides of the border. Canada’s national capital Ottawa is about to enter its third weekend of protests, while border protests persist in Ontario, Alberta and now demonstrators have set-up at the Manitoba/North Dakota border.
  • In the United Kingdom, Prime Minister Boris Johnson continues to face criticism over his role in “partygate”. Currently in Poland, reporters peppered the prime minister with questions on whether parties held in 10 Downing Street during lockdown had “shredded” Britain’s diplomatic reputation. “That is demonstrably untrue,” said Johnson. Pressed on whether he had broken his own party’s lockdown rules, Johnson replied, “I’m going to have plenty to say on that in due course.” Making a speech in London, Sir John Major, the country’s former prime minister, lashed out in a wide-ranging attack on Prime Minister Johnson saying his ministers have had to “defend the indefensible” and believed Johnson and his team had broken the law with their parties and their response has left the government looking “distinctly shifty.”
  • Looking to avoid the mistakes made in Canada, authorities in France and Belgium on Thursday banned road blockades threatened by groups organizing online against COVID-19 restrictions. Paris and Brussels officials citing “risks of trouble to public order” banned protests aimed at “blocking the capital” from Friday through Monday. Paris police will put measures in place to protect roads and detain violators. Blocking traffic can lead to two years in prison, €4,500 in fines and a suspended driver’s license, the police department said in a statement. 
  • The Philippines have lifted a nearly two-year ban on foreign travelers on Thursday. Foreign travelers from 157 countries with visa-free arrangements with the country and who have been fully vaccinated against COVID-19 and tested negative for the virus will be welcomed back. They also no longer need to quarantine upon arrival. The Philippines imposed one of the world’s longest and strictest lockdowns, which has caused the worst economic recession since the 1940s and has pushed unemployment and hunger to near record levels.
  • Japan has granted fast-track approval for Pfizer’s COVID-19 pill, the country’s health minister announced on Thursday. The approval is much faster than what Japan would normally ever allow when it comes to foreign drug approvals, since Pfizer only applied in mid-January. However, the country is struggling to contain fast-spreading omicron infections with most of Japan’s 47 prefectures under a mild version of a state of emergency. Prime Minister Fumio Kishida announced plans to extend current COVID-19 restrictions in Tokyo and 12 other areas for three more weeks until March 6th. Kishida said the country has secured 2 million doses of the Pfizer pills with distribution set to begin on Monday.

Covid-19 – Due Diligence And Asset Management

Inflation Surges 7.5% on an Annual Basis, even more than Expected and Highest Since 1982

Brief: Consumer prices surged more than expected over the past 12 months, indicating a worsening outlook for inflation and cementing the likelihood of substantial interest rate hikes this year. The consumer price index for January, which measures the costs of dozens of everyday consumer goods, rose 7.5% compared with a year ago, the Labor Department reported Thursday. That compared with Dow Jones estimates of 7.2% for the closely watched inflation gauge. It was the highest reading since February 1982. Stripping out volatile gas and grocery costs, the CPI increased 6%, compared with the estimate of 5.9%. Core inflation rose at its fastest level since August 1982. The monthly CPI rates also came in hotter than expected, with headline and core CPI both rising 0.6%, compared with the estimates for a 0.4% increase by both measures.

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Oil Gains on Traders Pouring into Commodities as Inflation Hedge

Brief: Oil recovered from earlier losses as soaring U.S. consumer prices prompted traders to pour into commodities as a hedge against inflation. Futures in New York rose as much as 2.3% on data that showed U.S. inflation rose to a four-decade high. Central banks are under pressure to tame higher consumer prices, boosting the chances of further interest-rate hikes. While equities dropped after the U.S. data was released, oil is viewed as a safer bet as the dollar loses purchasing power. “When you have an inflationary period, that’s generally good for commodities,” said Stewart Glickman, energy equity analyst at CFRA Research in New York. “As a physical commodity, oil tends to hold its value better. Oil and gold are now seen as safer havens while other assets are being inflated out.” Also keeping crude afloat are the market’s consistent signals of tight supplies. U.S. crude stockpiles fell to the lowest since 2018 last week. Geopolitical tensions remained a supportive factor as Russian forces started joint military exercises in Belarus that include drills near the border with Ukraine.

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Only 25 per cent of the Biggest Chinese Quant Hedge Funds Made Money in Q4 2021

Brief: Only seven of the 28 largest Chinese quant hedge fund managers – those managing more than CNY10 billion – generated positive returns in the last quarter of 2021, according to a report in The Wall Street Journal. High-Flyer Quant took the biggest hit losing an average of more than 11 per cent across its funds and made a public apology to investors as a result, citing problems with its algorithms and rapid industry growth for the setback. By comparison, seven of the 28 generated cumulative returns of more than 100 per cent over the past three years according to fund distributor Simwuang. And the company predicts that as Chinese quants increasingly trade against each other, the opportunities to generate excess returns will dwindle.

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Integrating Hybrid Services Could Transform the Advice Industry

Brief: After the long slog of the pandemic, we were hoping we would be able to welcome some of our clients in person at our annual conference last week. In fact, we had planned ourfirst ever hybrid conference, with attendees joining us in London and more participating remotely from their homes and offices.  But as we have learnt repeatedly over the past couple of years, the virus has no respect for our plans. When Omicron hit and the government confirmed the extension of plan B measures in early January, we reluctantly took the decision to move the whole thing online. Fortunately, another thing that has happened over the past couple of years is that technology has made advances that might otherwise have taken a decade.  I cannot deny that the experience of speaking on stage in an almost empty auditorium was a strange one. But, thanks to innovations made by our virtual event partner, many of the small but vital interactions that delegates experience when they attend conferences in person were still possible. Almost four times as many delegates attended online as could have been accommodated in the venue.

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Wells Fargo asks Employees to Return to Office in Mid-March

Brief: Most of Wells Fargo & Co's employees, including those in customer-facing roles, will return to their offices on March 14 and work under a hybrid flexible model, according to a company memo seen by Reuters on Wednesday. The bank had delayed plans to bring its staff back to the office in December, citing "changing external environment" amid the spread of the Omicron coronavirus variant. At the time, it had said it would announce plans for a full return in the new year. The San Francisco-based bank's announcement comes a little over a week after Goldman Sachs Group Inc ushered its U.S.-based staff back to the office with several of its rivals set to follow a similar return this month as the number of COVID-19 cases drop. Contact center employees and those in operations will return shortly after staff employees resume work from office, the memo said, adding that there is no change to the work schedules for essential employees.

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

Our briefing for Wednesday, February 9, 2022:

  • In the United States, the Biden administration might be changing the way hospitalizations for Covid-19 are counted, as officials work to provide a clearer understanding of the strain on healthcare systems and what resources might be needed to fight the surges. The Department of Health and Human Services and the Centers for Disease Control and Prevention have created a task force to work with hospitals across the country to improve on Covid-19 reporting. The group is asking hospitals to keep the number of patients who go in with Covid-19 separate from the number of those who go in for other reasons and still test positive. The goal is to get a clearer understanding of Covid-19’s impact on hospitals and whether it is causing severe disease.
  • In Canada, Alberta Premier Jason Kenney announced the removal of some Covid-19 restrictions, explaining that the Omicron wave has peaked and hospitalization numbers are slowing. As of today, the restrictions exemption program is no longer in place, which means people no longer have to show proof of vaccination.  Food and beverage restrictions were removed and all capacity limits have ended except for very large (500+) venues. Meanwhile in Quebec, the premier has said that most Covid-19 restrictions will end by March 14, including the removal of all limits on indoor gatherings. The province will however, be keeping vaccine passports and mask mandates in place. 
  • In the United Kingdom, Health Secretary Sajid Javid has said he will hire 15,000 more healthcare workers by the end of March, to deal with the National Health Service (NHS) backlog. His pledge comes after the government was warned that waiting lists might not go down until 2024. Of the new recruits, 10,000 would be overseas nurses and 5000 would be healthcare support workers. Right now there are about 6 million people in England on the NHS waiting list for treatment, and the list could potentially grow longer due to people not coming forward in the pandemic.
  • France has announced they will drop Covid-19 testing requirements for fully vaccinated travellers outside of the European Union. Currently, any traveller arriving from a country outside of the EU, including Britain and America, is required to show a negative test result from the previous 24 hours, regardless of vaccination status. Europe Minister Clement Beaune told France 2 TV on Tuesday: “We again required tests in December over the Omicron variant. In the coming days, we will announce that tests are no longer needed for vaccinated people.” He added that there will probably be a new protocol for vaccinated people arriving from outside of the EU, with eased measures.
  • In Germany, some states are beginning to roll back Covid-19 restrictions, even as the Omicron surge continues. Germany reported 95,267 new daily cases on Monday, a 22% rise compared with the same day last week. Hospitalization rates, however, are at their lowest point in more than two months. The state of Bavaria has said they will lift a nighttime curfew on restaurants and ease restrictions on sports and cultural events. Berlin’s neighbouring state of Brandenburg is set to make a decision about easing retail restrictions and may allow unvaccinated people to enter some shops with a mask. Other regions like Saxony announced the easing of restrictions last week. 
  • New Zealand’s Omicron wave will likely peak by mid-March, says Prime Minister Jacinda Ardern. The country reported 202 cases on Tuesday, down from Saturday’s record of 243. Case numbers have been their highest ever since the pandemic began over the past seven days. On Tuesday morning, Ardern told the national radio broadcaster that she expects New Zealand’s peak numbers to be between 10,000 and 30,000 cases. It’s widely variable and ultimately the defining feature of where we will peak will be booster uptake. The more people who take a booster, the lower the likelihood of our peak,” she said.

Covid-19 – Due Diligence And Asset Management

Bracing for a stock market that's going 'a whole lot of nowhere'

Brief: Unless your name is Meta (FB) or Peloton (PTON), the fourth quarter earnings season has been surprisingly kind to corporate America. Leaving the beleaguered social network (whoops, I mean metaverse pioneer) and fitness brand aside, Q4 results have continued to post strong growth in the face of the Omicron variant of COVID-19, skyrocketing inflation and supply chain headwinds. The latest of the encouraging batch of results came from Chipotle (CMG), which expects to top 7,000 restaurants in North America this year, continuing to ride the COVID-19 era trend of digital orders that accounted for around 42% of Q4 sales, Yahoo Finance’s Brooke DiPalma reported on Tuesday. The closing chapter of 2021 saw S&P 500 growth up over 23%, with nearly 80% of companies beating earnings estimates, according to S&P Global data. That’s been just enough to mollify an incredibly jumpy market where investors are struggling to adjust to the impending end of cheap money.

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Macro Funds Are Designed to Outperform When Markets Tank. January Put Them to the Test.

Brief: The financial markets were battered by extreme volatility in January, but macro hedge funds saw strong, negatively correlated gains in the choppy environment, according to a Hedge Fund Research report. “In 2021 and 2020, higher beta strategies were the best performing strategies; risk-on dominated over that period of time,” Kenneth Heinz, president of HFR, told Institutional Investor. “January was the opposite of that — equities declined, fixed-income declined, and commodities were up.” Heinz said that compared to most investment methodologies, macro strategies generally produce the lowest returns, but their relatively low correlation to short-term market movements can make them a perfect antidote to a tough, volatile market environment like the one seen in January. HFR’s macro index gained 0.85 percent in January, and the HFRI 500 Macro Index grew 1.35 percent.

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Pfizer eyes $100B year on pandemic boon for 2022

Brief: The pandemic has been transformational for many businesses, but few can boast near-global domination the way Pfizer (PFE) can. The Pfizer/BioNTech (BNTX) vaccine accounts for 70% of all doses in the U.S. and E.U., as of February 5, according to CEO Albert Bourla Tuesday. He added that the vaccine and other Pfizer medicines reached 1.4 billion patients in 2021, or about one in six people on Earth. As a result, the company saw a 92% increase in operational revenue growth in 2021 alone, of which only 6% was not related to its COVID-19 vaccine, Comirnaty, or it oral treatment, Paxlovid. "This year, we'll do 5% operating growth, excluding COVID and Paxlovid," said CFO Frank D'Amelio. But that didn't seem to sway investors Tuesday, as the company's stock took a hit on news that it would miss revenue estimates for the upcoming year. But Bourla said the company sees sustained need for the vaccine and oral treatment, which supports the 2022 outlook. 

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Fund selectors: Covid repercussions top economic risk in 2022

Brief: The top risks facing global economies are supply chain disruptions, easing central bank policy and new Covid variants, according to a survey of international fund selectors carried out by Natixis Investment Managers. The 436 global fund selectors expect to "battle a difficult market landscape" in 2022 as inflation hits 30-year highs, central banks across the globe withdraw stimulus, while client expectations "exceed realistic returns", the survey found. Between them, the fund selectors - based in 23 countries across Africa, the Americas, Asia and Europe - manage a combined $12.6trn in client assets. Half of them are concerned about the impact of supply chain disruptions to the global economy, while 45% said less supportive central bank policy is a top economic risk. Meanwhile, recent disruptions caused by the Omicron variant of Covid-19, such as frontline labour shortages, prompted 40% of the fund selectors to rank new Covid variants as a key cause for economic concern in 2022.

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UBS survey: Investor optimism in Europe falls

Brief: Investors in Europe are less optimistic than they were in the autumn of last year, with rising interest rates and inflation among the biggest concerns, according to the latest UBS Investor Sentiment survey. The decline in optimism is, however, from a relatively high base. The survey by UBS showed that in Europe, excluding Switzerland, investor optimism has fallen nearly 10 percentage points since the previous survey in the third quarter of last year, with 68% of European investors feeling optimistic about the region’s economy in the short-term.Short-term optimism in stocks has also fallen, with 43% planning to invest more in the next six months. Switzerland bucked the wider European trend. Swiss investor optimism is up from last quarter, with 68% feeling optimistic about their economy in the short-term, a 12 percentage points increase from the previous survey.Among Swiss investors, 68% are optimistic about Swiss stocks, up from 46%.

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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, February 8, 2022:

  • Several American states are rolling back mask requirements in schools in the coming weeks. Despite recommendations for continued mask use from the White House and the Centers for Disease Control (CDC), governors in New Jersey, Delaware and Connecticut are all planning to remove state-level mask mandates, leaving the choice up to individual municipalities. Connecticut Gov. Ned Lamont said "I think now is the time for us to say, the statewide mask mandate is no longer at our level. Each and every mayor, each and every superintendent, can make that call for themselves.” Officials in Oregon have also decided to end indoor mask mandates in schools on March 31 and will consider repealing the mandate for all indoor gatherings if cases continue to drop. After the changes were announced, White House press secretary Jen Psaki argued on Monday that the changes were too soon. “The guidance is very clear, which is that we recommend masking in schools,” she said. “That is the recommendation from the CDC. It is also true that at some point when the science and the data warrants, of course, our hope is that that's no longer the recommendation.”

  • On Tuesday, Canadian truckers were blocking the busiest bridge to the United States as part of an ongoing protest over vaccination mandates for cross-border trucking. The truckers blocked both sides of the Ambassador Bridge linking Windsor, Ontario and Detroit shutting the passage down early Tuesday morning. The bridge sees over 8000 trucks on a regular day, and is an important route for Canadian exports, 75 per cent of which are sent to the United States. Prime Minister Justin Trudeau is set to be back in the House of Commons on Tuesday, after spending 10 days in isolation following a positive Covid-19 test. “Individuals are trying to blockade our economy, our democracy, and our fellow citizens’ daily lives. It has to stop,” Trudeau told an emergency debate in the House of Commons on Monday night. Ottawa Mayor Jim Watson has called for independent mediator to be chosen to deal with the disruptions caused by the protests in his city, however, federal ministers have said that is unlikely to occur.

  • Although Covid-19 restrictions in the United Kingdom have largely gone by the wayside, offices in the country are still seeing empty desks. As cases drop throughout the U.K. and the rest of Europe, offices are beginning to reopen, but many employees are still choosing to work from home. It is becoming increasingly difficult for employers to suggest that their offices will fill up once the pandemic abates. This is according to Julia Hobsbawm, author of The Nowhere Office: Reinventing Work and the Workplace of the Future, who says “everybody really did have an expectation that it would all go back to normal. And I think now is a dawning realization that it isn’t.” Both large and small companies across the country are now implementing a hybrid work week that sees at least a portion of the time usually spent at the office now spent at home. Overall, only the largest – and richest – companies are requiring that employees spend all their time at the office, including Goldman Sachs whose CEO David Solomon has called working from home “an aberration.” According to Future Forum, over 68 per cent of the 11,000 knowledge workers surveyed say that they prefer a hybrid working model, while 95 per cent want flexibility in work hours.

  • The European Commission (EC) has proposed to extend the EU Digital COVID Certificate until June 30, 2022. Currently, member states can accept the digital certificate for nine months showing that a person has received at least two doses of a primary vaccine allowing them to travel throughout the bloc unimpeded. ‘The COVID-19 virus continues to be prevalent in Europe,” the EC said, “and at this stage, it is not possible to determine the impact of a potential increase in infections in the second half of 2022 or of the emergence of new variants.” The EC is also considering a number of amendments to the certificate including the addition of high-quality laboratory-based antigen tests to widen the scope of diagnostics at a time when tests are in high demand. It aims to have the digital certificate show vaccines administered in any member state, not just the member state issuing the certificate. The certificate is not all encompassing, and each member state has the authority on whether to use it domestically, it also does not prescribe or prohibit lifestyle choices nor does it allow access to public gatherings.

  • For the first time since the pandemic began, Hong Kong is limiting gatherings in private homes. Beginning on Thursday, private gatherings will be limited to two households in an effort to stop the spread of the virus which has been rapidly circulating across the country in the last few weeks. “Now given this severe epidemic, I hope the public will accept that we have to go back to the most stringent level,” Chief Executive Carrie Lam said on Tuesday. Public gatherings will be limited to two people, down from four, and shopping malls, hair salons and food markets will require proof of vaccination. Hong Kong reported 625 new cases of Covid-19 on Tuesday, which has dealt a massive blow to the Covid-Zero approach the city has taken thus far in the pandemic. Although Hong Kong officials are attempting to avoid large-scale lockdowns seen throughout the rest of the continent, rising case numbers have put a severe strain on the health care system, including testing and quarantine facilities.

Covid-19 – Due Diligence And Asset Management

Bond Rout Wipes Out Europe Government Investors’ Pandemic Return

Brief: A plummet in European bond prices on the prospect of the European Central Bank withdrawing its stimulus has erased two-and-a-half years of gains. The total return on investment-grade debt from the region’s governments has fallen more than 3% this year to the lowest since the middle of 2019, according to the Bloomberg Euro Government Index. That means any investors tracking the benchmark have lost their gains since then. The latest leg lower reflects bonds losing value following the ECB’s shift to a more hawkish stance last week to deal with a surge in inflation. That followed the first loss in European government securities last year since 2006. Italian debt has been the worst performer.

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Even Bosses Are Giving Up on the Five-Day Office Week

Brief: With pandemic restrictions in the U.K. largely gone, offices are getting busier. Yet vast numbers of desks still remain empty. Even with Covid-19 case numbers flat or falling in the U.K., U.S. and much of Europe, many employees are still actively choosing to work from home for at least part of the week. It’s increasingly hard for managers to claim that their offices will simply fill up when the virus abates. Companies large and small are now adopting hybrid work patterns unrecognizable from pre-pandemic routines — all but killing off the five-day-a-week commute. Few predicted such a seismic shift, even when the pandemic began. “Everybody really did have an expectation that it would all go back to normal. And I think now is a dawning realization that it isn’t,” said Julia Hobsbawm, author of The Nowhere Office: Reinventing Work and the Workplace of the Future, to be published in the U.K. this month and the U.S. in April.

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Downturns Can Throw Portfolios Out of Whack. Here’s How to Fix Them.

Brief: How asset owners rebalance their portfolios depends on how they value private investments — and there’s more than one way to get it right. According to a recent paper published by PGIM, massive market dislocations like the one that took place in March 2020 leave asset owners with a conundrum: if, and when, they should rebalance. “When reported private equity valuations lag public market valuations during public market declines, CIOs often find their portfolios over-allocated to PE,” the paper said. But the lag in valuations may not represent the most updated private equity performance data, meaning that allocators could be rebalancing when they don’t have to. PGIM explored two different ways to value private investments: proxy market value (PMV) and the Takahashi Alexander (TA) model. What PGIM found is that the decision to rebalance is affected significantly by the valuation method an allocator uses, and that the appropriate use for each depends on the type of institution using it. 

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Air Canada, WestJet And Pearson Want End Of Airport Covid-19 Testing

Brief: Medical officers from Canada’s two major airlines and Toronto Pearson Airport have written an open letter requesting that the Canadian government move PCR testing from travellers at airports and into communities. Canada’s mandatory testing requirements for travel have led to significant flight cancellations for Air Canada and WestJet. The letter argues that because people travelling to Canada must get a PCR test prior to entering Canada and must be fully vaccinated, there is no good public health reason to require a second test upon arrival. “Over the last two months, Omicron has quickly become the predominant variant of Covid-19. As it spreads throughout our communities, we need to ensure Canada's limited testing resources are being used where Canadians need them most—to support our communities, schools, hospitals and long-term care homes.

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How investors should approach a potentially bumpy 2022: Portfolio manager

Brief: Coming off a volatile five-day period to close out January last week, the stock market continues to run wild as investors reconsider rebalancing their portfolios. Consistent profits may be more difficult to come by in the near future as markets adjust to new financial conditions, one portfolio manager asserts. First Republic Private Wealth Management CIO Christopher Wolfe joined Yahoo Finance Live on Monday to discuss the outlook for the market in 2022. “It is [an investible market], let’s be clear about it,” Wolfe said. “But I think the Fed’s gonna make it a bit more challenging than it has in the past. Just so we’re clear, it’s been really easy in the past, because the monetary base has been growing so wildly.” As the Fed pursues a more hawkish monetary policy to curtail inflation, which reached 7% last December, markets have been especially jittery. Consensus economists expect a 7.2% increase in the Consumer Price Index in January, reflecting a cooling — though still undesirably high — rise in inflation.

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

Our briefing for Monday, February 7, 2022:

  • In the United States, data from Johns Hopkins University shows the country surpassed 900,000 on the cumulative death toll, fuelled by the Omicron wave. Though the number of deaths appears to now be levelling off, the grim milestone comes less than two months after the country surpassed 800,000 fatalities. According to a Reuters’ analysis, the total number of deaths as of Friday was 904,228, which is more than the entire population of South Dakota. The United States has the highest number of Covid-19 related deaths of any nation, followed by Russia, Brazil and India. According to the Centers for Disease Control and Prevention, about 212 million people, or 64% of Americans are fully vaccinated.
  • In Canada, the mayor of Ottawa has declared a state of emergency, in response to over a week of protests against Covid-19 measures taking place downtown near Parliament Hill. The protests began with groups of truckers who were angry over U.S. – Canada border vaccine mandates, but they have since evolved into larger movements against broader public health measures and Prime Minister Justin Trudeau’s government. Protesters first reached the capital on January 29 and have parked their trucks on city streets and put up tents, fully occupying the downtown core. Ottawa Mayor Jim Watson said he was concerned that the demonstrators outnumbered police and seemed to be in control of the situation.
  • In the United Kingdom, a plan detailing how to tackle the National Health Service (NHS) backlog was due to be released today, but it has been put on hold. Health Secretary Sajid Javid denied reports that the Treasury had blocked the plan, instead blaming Omicron for the delay. The Daily Telegraph recently reported that the Treasury had refused to sign off, but Javid said this wasn’t the case, explaining that the government had to shift their focus to the booster program with the emergence of the new variant.  Javid says the plan to tackle the NHS backlog will be published shortly, but warned that “waiting lists will continue to grow” and that it is “hard to say” when things will improve. 
  • Spain will remove a requirement for people to wear masks outdoors this week as it begins to roll back more Covid-19 restrictions. Health Minister Carolina Darias says the cabinet plans to approve the end to mandatory outdoor mask wearing at Tuesday’s cabinet meeting, and it will become effective two days later. "We said it would last only while it was strictly necessary," Darias said. “As contagion rates and other indicators have fallen for several days, the government considers the Covid-19 situation to have eased.” As of February 1, travellers who arrive in Spain must have had their booster doses for their vaccine certificates to be considered valid, joining countries like France and Italy.
  • South Korea will no longer use GPS monitoring to enforce quarantines and will also end daily check-ups to low-risk coronavirus patients, as it struggles with the intensity of the Omicron wave. The high transmissibility of the new variant has made it difficult to maintain control over the country’s pandemic response, Jeong Eun-kyeong, the country's top infectious disease expert, said Monday. The country extended social distancing rules for two weeks on Friday, including a 9 PM curfew for restaurants, bars and gyms. New daily cases have tripled over the past two weeks, but the number of deaths has remained relatively low thanks to high vaccination rates. 
  • Australia will reopen its borders to fully vaccinated travellers from February 21, the government announced. Australia enacted some of the world’s toughest border measures in March 2020 when the pandemic first hit. Last November, some rules were relaxed to allow international students and skilled migrants to enter. Now, international tourists will be welcomed back, but they must be fully vaccinated, Prime Minister Scott Morrison has stressed. "Events earlier in the year should have sent a very clear message, I think, to everyone around the world that that is the requirement to enter into Australia," Morrison said, referring to the recent deportation of unvaccinated Serbian tennis star Novak Djokovic.

Covid-19 – Due Diligence And Asset Management

BMO starts bringing back investment, corporate bankers to the office

Brief: Bank of Montreal has started bringing investment and corporate bankers back to their offices this week, and is seeking to have staff fully returned on a hybrid basis by early April. Bankers began their return on Feb. 7, and workers on all teams will spend two to three days a week in the office as of April 4, Alan Tannenbaum, head of global investment and corporate banking, said in a memo to staffers last week. Employees who aren’t vaccinated will have to continue working from home, according to the memo.Bank of Montreal’s plans mark one of the first moves by Canada’s banks to start refilling offices after the omicron variant caused a wave of infections that prompted governments to tighten restrictions and recommend companies let employees work remotely.

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Junk bond flows dropped by most since early days of pandemic

Brief: Investors pulled the most money last week from a popular high-yield bond fund since the coronavirus crisis first landed in the U.S. The SPDR Bloomberg High Yield Bond ETF JNK, -0.10% saw outflows of $717 million last week, according to FactSet Research. That’s the most since March 2020, according to Bloomberg News. Some investors have been encouraged by the resilience of credit during the stock-market turbulence of 2021. This year, the high-yield fund has slipped 3%, which is less than the 6% drop for the S&P 500 SPX, 0.01%. Investors like corporate bonds as an alternative when the economy slows but doesn’t fall into a recession. While equities suffer as growth prospects slump, companies are likely to continue to meet their debt obligations as long as the economy is growing.

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Geopolitical Risks Amid a Global Pandemic

Brief: 2022 is starting with several issues that could create serious volatility for traders in the months ahead. Aside from the supply chain problems and other economic disruptions caused by the pandemic, tensions triggered in the Indo-Pacific and Eastern Europe have added to growing uncertainty. The commodity markets are poised for potential price adjustments from the ancillary effects of these tensions. The situation in the Indo-Pacific is a slowly developing story between China and Taiwan. With Taiwan one of the largest producers of semiconductors, any disruptions could produce shortages and serious supply chain issues for everyone using semiconductor chips. The Forex markets might also be a good proxy for these developing events. Moves in the yuan and yen could foretell possible problems. The Ukrainian situation is a bit different in that there are two main markets which could be directly affected: grains and energy.

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How Working From Home Will Permanently Change the Way We Travel

Brief: It was the first glimmer of hope for the beleaguered travel industry in 2020 when locked-down citizens started doing something new amid the pandemic: not working from home, but working from anywhere. Off they’d go for weeks or months at a time, to any locale with good surf and better Wi-Fi, to show off a new Zoom background after early morning swims. Today the era of decamping from your hometown might seem as far in the rearview mirror as a five-day, in-person workweek might appear on the horizon. But a new version of the trend is emerging—and it could prove a serious boon for the travel industry. The ability to work from home is profoundly, and permanently, changing the way we travel. More lenient office policies mean many workers can travel anytime, even during busy workweeks, as long as they can hit deadlines from far afield.

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Biden sees US economy as powering past the pandemic

Brief: That bleak jobs report the White House had been bracing for never arrived Friday. Instead, President Joe Biden got the pleasant surprise that the U.S. economy had powered through the omicron wave of the coronavirus and posted 467,000 new jobs in January — along with strong revisions to job gains in the two prior months. It showed just how much the pandemic's grip on the economy has faded, though the nation is still grappling with high inflation. “Our country is taking everything that COVID has to throw at us, and we’ve come back stronger," Biden declared at the White House. The jobs report suggested the United States has entered a new phase in its recovery from the pandemic. And it capped something of a comeback week for the president. Also on Friday, the House passed a bill to jumpstart computer chip production and development, a key step for reconciling differences with an earlier measure approved by the Senate.

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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, February 4, 2022:

  • In the United States, the jobs report for January, just released today, shows the economy created far more jobs than expected despite the disruptions caused by Omicron. The survey of establishments showed that nonfarm payrolls increased by 467,000 jobs last month, while estimates had only ranged from a decrease of 400,000 to increases of 385,000.  The employment report also showed 709,000 more jobs were added in December and November than previously estimated. Between December 29 and January 10, about 8.8 million people reported not being at work because of coronavirus reasons, according to the Census Bureau’s Household Pulse Survey that was published in mid-January.
  • In Canada, the federal government issued an order-in-council to clarify that unvaccinated and partially vaccinated truckers are not exempt from a vaccine mandate. Last month the Canada Border Services Agency told the media that unvaccinated truckers would remain exempt from quarantine and testing requirements after entering the Canada-U.S. border.  The federal government has since said that statement was made in error. The government has now issued an order-in-council to clarify that this was not the case, and that unvaccinated and partially vaccinated truckers are not exempt from the mandate. The order-in-council will be in effect until at least the end of February.
  • In the United Kingdom, four of Prime Minister Boris Johnson’s top aides have resigned in the latest struggle over the “partygate” scandal. Johnson's head of policy, Munira Mirza, chief of staff Dan Rosenfield, principal private secretary Martin Reynolds, and communications director Jack Doyle all left their positions on Thursday, only days after the release of Sue Gray’s report found that multiple parties took place at Downing Street while the rest of the country was under lockdown. "Against the backdrop of the pandemic, when the Government was asking citizens to accept far-reaching restrictions on their lives, some of the behaviour surrounding these gatherings is difficult to justify," the report said. 
  • France is set to start using Pfizer’s Covid-19 drug Paxlovid, the first European Union country to start providing the treatment since it won regulatory approval last week. France’s health ministry announced on Wednesday that 10,000 doses of Paxlovid have arrived in the country and will be available in pharmacies starting today. The drugs will be given to those at highest risk of developing serious illness, according to European Medicines Agency Guidelines. The French government began to lift restrictions on Wednesday, making outdoor masks no longer mandatory and allowing crowds to return to large venues. 
  • In India, coronavirus deaths have reached 500,000, although some analysts believe the figure to be much higher because of underreporting. The exact number of deaths in the federal health ministry’s update was 500,055, up 1,027 in the previous 24 hours.  Infections rest at 41.9 million, behind only the U.S. in numbers. India is in the midst of its third wave of coronavirus infections, led by the Omicron variant, though the health ministry said last week there were indications that the virus was plateauing in several parts of the country.  To combat case numbers, officials are carrying out vaccination drives in remote parts of the country, with healthcare workers going door-to-door to administer shots.
  • In Australia, the government is considering deploying defence forces to help manage a Covid-19 outbreak in the long-term care sector. Defence Minister Peter Dutton says the government will make the move if that’s what is required. "Well, if that is what is required to fix this problem and to provide dignity to these people, that is what we will do. But at the moment, I mean, we're bringing in nurses, we're bringing in the extra shifts," Dutton told local media. As death rates and daily case numbers in the care homes continue to rise, the minister says more booster shots are also being rolled out.

Covid-19 – Due Diligence And Asset Management

Emerging market investors get 'jitters' in January

Brief: Money has flooded out of emerging market securities at breakneck speed in January as concerns over geopolitical tensions, monetary policies and recovery speeds gave investors the “jitters”, according to the latest data from the Institute of International Finance. With flows into emerging markets totalling an estimated $1.1bn for the month, IIF said increased volatility has generally pushed investors out of their emerging market bets. In December last year, IIF said foreign investment in emerging markets had come to an "abrupt standstill". Following a global pattern, inflation still remains an issue for many policymakers across the emerging market landscape while geopolitical tensions brew. IIF economist Jonathan Fortun said: "We see investors pulling money from emerging markets' bonds and equities at the fastest pace since March-2021, as anxiety builds over tighter monetary conditions, geopolitical frictions and fears that many economies will not recover quickly enough from the pandemic this year.

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Canada lost 200,100 jobs in January as Omicron hit economy

Brief: Canada’s labor market suffered a larger-than-expected setback last month after the nation was hit with fresh lockdowns meant to contain the omicron variant of COVID-19. The country shed 200,100 jobs in January, Statistics Canada reported Friday from Ottawa, ending a seven-month streak of gains. Economists in a Bloomberg survey were expecting a drop of 110,000. The unemployment rate rose to 6.5 per cent, from 6 per cent at the end of last year. Despite the setback, analysts expect a rebound as early as this month as containment measures are lifted, putting the economy back up against what the Bank of Canada believes is full capacity. Still, the sharper-than-expected decline could raise questions about the timing of Governor Tiff Macklem’s expected interest rate hikes. The Canadian dollar fell 0.7 per cent on the report to $1.2763 per U.S. dollar as of 9:22 a.m. Yields on Canadian two-year bonds rose, after U.S. employers added more jobs than expected in January.

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It’s Taken a Pandemic to Get the Boardroom in Touch With the Workforce

Brief: Companies often say that employees are their most important asset, but you’d never know that by looking at corporate boards. Directors largely come from the ranks of current and retired CEOs, finance chiefs, lawyers and investors, with a smattering of academics thrown in. What you rarely found in the boardroom were human-resources experts.That’s changing. With workers quitting jobs at a record clip and corporate cultures convulsing over issues like remote work, burnout and diversity and inclusion, boardrooms are opening the door to more directors with actual experience managing workforces. The share of directorship roles across all companies in the S&P 1500 with specific human-resources skills increased to 19.4% in January from 11.3% two years ago, according to ISS ESG, the responsible-investing arm of Institutional Shareholder Services.

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Oil majors are close to erasing all losses since pandemic began

Brief: European oil majors are erasing their pandemic slump as tensions between Russia and the West drive Brent crude above US$92 a barrel. The Stoxx Europe 600 energy sub-index is outperforming all other sectors on Friday as crude heads for its seventh week of gains. Shell Plc, BP Plc and TotalEnergies SE led the rally, and the companies have now either erased their pandemic losses entirely or are close to doing so. Energy stocks have had the best returns in Europe so far in 2022 and strategists are bullish on a sector that underperformed in the past three years. A tight market and tensions around Ukraine have sent crude prices soaring. Now, investors are looking to earnings and guidance from the biggest companies to see where the stocks go from here.“Energy stocks are an attractive diversifier as the sector remains absolute and relative cheap with ongoing earnings upgrades,” said Ulrich Urbahn, head of multi-asset strategy and research at Berenberg. “On top, the sector could also benefit from geopolitical tensions, strong nominal GDP growth in 2022, rising bond yields and heightened inflation risks.”

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Roche sees slower 2022 sales growth as COVID tests demand eases

Brief: Swiss drugmaker Roche said on Thursday sales growth would slow this year as it braces for less demand for its COVID-19 medicines and tests, expecting immunity against the novel coronavirus to prevail in the population from about April. In an earnings statement, the company said it expected currency-adjusted 2022 sales to be flat or grow in the low-single digits, below last year's 9% gain. Roche anticipates sales of COVID-19 medicines and diagnostics to decrease by about 2 billion Swiss francs ($2.17 billion) to around 5 billion francs, it added. It proposed raising its 2021 dividend to 9.30 francs per share but its stock fell 2.6% on the outlook. Group earnings edged higher in 2021 as brisk demand for COVID-19 diagnostic tools and new prescriptions for drugs such as Hemlibra against haemophilia and cancer immunotherapy Tecentriq offset a sales decline in older cancer drugs.

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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, February 3, 2022:

  • Figures presented by the American Centers for Disease Control (CDC) on Wednesday suggest that vaccinated people are 14 times less likely to die from Covid-19 than non-vaccinated people. The U.S. population has reached a 64 per cent vaccination rate yet only 42 per cent of eligible people in the country have received their third dose. According to CDC director Dr. Rochelle Walensky, who presented the numbers based on 25 jurisdictions across the U.S., says that boosted Americans are 97 per cent less like to die from the virus. The data suggests that out of 100,000 people, 9.7 unvaccinated people were killed from Covid-19, compared to 0.7 of those fully vaccinated and 0.1 of the boosted. Dr. Anthony Fauci, Chief Medical Advisor to the President said of the study that “the data are really stunningly obvious why a booster is really very important.’’ The two spoke at a brief press conference on Wednesday and were able to confirm that the Omicron wave was slowly subsiding, with new cases nationwide down 36 per cent, bringing the new daily case average to 446,000 compared to the previous week.

  • The Canadian province of Ontario is set to begin a partial reopening next Monday after lockdown restriction were imposed late last year. Ontario’s top doctor, Dr. Kieran Moore is expected to give a news conference on Thursday that will detail the province’s plan despite analysis from modelling software that shows cases will rise if restrictions are eased. Due to limited PCR testing, pandemic advisers are not sure by how much the cases will increase but have said it will depend on how many people have already been infected without knowing. Restaurants, gyms, and theaters will reopen with half capacity and proof of vaccination requirements to enter. Social gatherings are limited to a maximum of 10 people in an indoor setting and several types of elective surgeries, that were paused to reduce strain on the health care system, are allowed to resume. On February 21, indoor gatherings will be increased to 25 people and 100 people outdoor.

  • The United Kingdom has approved the protein based Novavax vaccine for use in people over age 18 to combat what officials are calling the next phase of the pandemic. In a U.S. trial conducted last year, Novavax was found to be 90 per cent effective against a variety of variants, including Delta, and experts are suggesting that it may also be effective against the Omicron variant. Unlike previous vaccines, the Novavax shot is not based off genetic material and instead uses protein solutions to combat infection. The UK Vaccine Taskforce placed an order for 60 million doses in 2020 and says that the new jab could be used as a booster by next winter after the company has tweaked its properties to become effective against the Omicron variant. Professor Paul Heath, of St George's, University of London, who led a clinical trial of the vaccine, said “anecdotally we believe there are people out there who have been waiting for a vaccine which has been developed with a more traditional platform.” Heath continued that due to the less experimental nature of the Novavax shot, people may be more likely to receive it. "I suspect those who have not been vaccinated yet may now be more inclined to be - and that's what we need," he said.

  • Dr. Hans Kluge, director of the World Health Organization (WHO) said in a press conference on Thursday that Europe is entering a “plausible endgame” to the pandemic. As the number of new cases has begun to plateau across Europe, Kluge said that there is a “singular opportunity” for countries to regain control over transmission of the virus. The increased number of vaccinations, the virus’ tendency to spread less in warmer weather, and the decreased severity of the Omicron variant are three important factors that will give European nations a chance at controlling the virus once and for all. “This period of higher protection should be seen as a cease-fire that could bring us enduring peace,” Kluge said. As winter ends in Europe, and more protections against the virus become available, Kluge believes that there is a “much higher level of population defense against any resurgence in transmission.” He continued that if a new variant was to emerge, that nations will be able to keep it in check provided that immunization and boosting efforts remain in place.

  • On Thursday, South Korea started to enforce a new Covid-19 testing strategy that will be more focused on rapid testing after a record-breaking number of new cases were reported following the Chinese New Year celebrations. The Korea Disease Control and Prevention Agency recorded 22,907 new cases on Thursday after reporting just over 20,000 the day before. The numbers have increased fivefold since January when the Omicron variant officially became the dominant strain in the country. Citizens lined up across several city blocks as rapid tests were distributed by health care workers, who then approved further testing for anyone that tested positive. The new strategy will see PCR tests be made available only for those at high-risk of infection, such as the elderly and health professionals. Until Thursday, most tests in the country were administered at hospitals and as cases rise, the process which involves several rounds of professionals, was becoming too costly. The government is now increasing the availability of at-home tests and decreasing the isolation period required after testing positive, citing disruptions to workplaces and essential services if large numbers of people are quarantined.

Covid-19 – Due Diligence And Asset Management

2021 UK private equity market soars as deal volumes and values set new record

Brief: Despite uncertainty caused by Covid-19, economic and geopolitical factors, new analysis from KPMG has confirmed that mid-market private equity investment in the UK in 2021 soared to the highest level ever recorded. Both volumes and values saw a boost, as a total of 803 deals, worth GBP46.8 billion were completed in 2021 - an increase of 40 per cent and 36 per cent, respectively. KPMG’s latest study also showed that while disruptions caused by the pandemic made 2020 an atypical year for dealmakers, the levels of activity seen in 2021 still surpassed pre-pandemic levels, with deal volumes up 20 per cent and deal values up 15 per cent, compared to 2019. The UK’s private equity market overall also thrived with a total of 1,545 deals worth GBP159.2 billion completed in 2021, up from 1,117 in 2020 and 1,246 in 2019. In line with the increase in values, KPMG’s research found that deal multiples rose across the UK private equity market, from 8.7x earnings in 2020 to 9.6x in 2021, while multiples in the mid-market remained fairly steady at 10.4x in 2021, versus 10.7x earnings in 2020.

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Investors Are Turning to Active Managers — Even if ‘They Can’t Predict the Future’

Brief: Amid inflation worries and market volatility, a growing number of institutional investors are beginning to hand over the portfolio reins to active managers. The trend can be seen in the findings of a November CoreData Research survey of 378 global institutional investors. When institutional investors were asked what they considered to be the most important elements of portfolio construction in the current economic environment, 31 percent pointed to the need to hire skilled active managers. Thirty-seven percent of institutional investor respondents identified the importance of diversifying into uncorrelated assets. Institutional investors indicated that they believe inflation will pose the biggest risk to their investment portfolios in the coming year.

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Firms handed £1.3bn in Covid contracts claimed £1m in furlough grants

Brief: Companies handed a combined £1.3bn in controversial fast-track Covid contracts with minimal scrutiny also claimed at least £1m in furlough grants, it can be revealed. Analysis of the accounts of companies that won lucrative emergency contracts to supply personal protective equipment (PPE) to the NHS during the height of the pandemic shows 12 also claimed funds to put staff on furlough at taxpayers’ expense. Many had no prior history of supplying PPE but received huge boosts in revenue after securing deals to supply items ranging from gowns to masks. Overall the scramble to obtain PPE resulted in the Department of Health and Social Care (DHSC) spending £9bn on personal protective equipment that was either substandard, defective, past its use-by date or dramatically overpriced.

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Hit by the ‘Great Resignation,’Marketing and Distribution Jobs Are Plentiful in Alternatives. But Competition Is Still Fierce.

Brief: Last year’s tight labor markets are given marketing and distribution professionals in alternative investments a lot more job mobility and the opportunity to earn a higher paycheck. According to Sasha Jensen, founder of eponymous executive search firm Jensen Partners, compensation skyrocketed for these professionals, including those in junior roles. This comes alongside more movement generally in the industry. With increasing competition among alternative investment managers for investors’ capital, firms are in search of the right employees to raise funds. What’s more, long-established and new alternatives firms have started launching new products and strategies — meaning there are more jobs for the taking. “The Great Resignation in our universe just meant multiples of new hiring,” Jensen said. But it’s not as though companies are struggling to find top talent.  

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BMO to start bringing back some bankers next week

Brief: Bank of Montreal plans to start bringing investment and corporate bankers back to their offices next week, and is seeking to have staff fully returned on a hybrid basis by early April. Bankers will begin their return on Feb. 7, and workers on all teams will spend two to three days a week in the office as of April 4, Alan Tannenbaum, head of global investment and corporate banking, said in a memo to staffers Tuesday. Employees who aren’t vaccinated will have to continue working from home, according to the memo. Bank of Montreal’s plans mark one of the first moves by Canada’s banks to start refilling offices after the omicron variant caused a wave of infections that prompted governments to tighten restrictions and recommend companies let employees work remotely. Bank of Nova Scotia and Manulife Financial Corp. were among the Canadian financial firms that had set January dates for large-scale returns to their offices, only to pull those plans as omicron spread.

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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, February 2, 2022:

  • In the United States, many Americans have accepted that living with Covid-19 is the new normal, according to results from a recent poll. The poll was released on January 31 by Monmouth University in New Jersey, it included 794 adults and was conducted between Jan. 20 and Jan. 24. Of the survey respondents, 23% said they were very concerned about getting sick from one of the new Covid-19 variants, while 27% said they were somewhat concerned. About 70% of survey respondents said, “it’s time we accept that Covid is here to stay and we just need to get on with our lives.” Some poll participants, about 28%, said they thought a return to normalcy would never happen. The poll has a margin of error of 3.5 percentage points.
  • In Canada, Quebec Premier Francois Legault has done a surprising about-face and announced that he is scrapping a plan to tax people who are unvaccinated against Covid-19. Plans for the tax were first introduced back in January, when hospitalization rates were on the rise from Omicron. Legault initially said the tax was necessary to address the burden unvaccinated people put on the healthcare system. He has since admitted that the plan was divisive and polarizing. “My role is to try and bring Quebecers together and stay united as a people,” he told reporters in Quebec City. “This is why we won’t go ahead with the health contribution.”
  • In the United Kingdom, reinfections (people who have had more than one positive test for the coronavirus) are now being included in the official Covid-19 statistics, going back to the beginning of the pandemic. England reported another 92,000 Covid cases on Monday, a steep rise from the day before when reinfections weren’t included in the data. Reinfections have not been included in the case counts until now because health officials were not sure whether they occurred, or about the interval between cases. With the emergence of the Omicron variant, reinfections are becoming increasingly common. Health officials are using the universally recommended definition of reinfection, which is at least 90 days between two positive tests.
  • Germany has failed to meet its target of vaccinating 80% of the population by the end of January. As of Monday, 75.8% of Germans have received at least one vaccine dose, placing behind other European countries such as Italy, France and Spain. Officials have not set a new target for the 80% threshold but have said the goal is still to augment vaccination rates going forward. On Friday, the health minister said the protection of older people who have not been vaccinated is the country’s main priority. "Germany has a comparatively high number of unvaccinated older people - four times as many as England and three times as many as Italy," Health Minister Karl Lauterbach said in a news conference.
  • In India, frontline healthcare workers are struggling to address the issue of vaccine certificate fraud. Workers say second doses could be falsely registered by people who didn’t attend appointments by using personal records from their first dose, and that the fraud is happening because of pressure to meet government targets. India set a goal of having everyone vaccinated by the end of 2021, which they failed to meet but according to official statistics, 75% of the population is now fully vaccinated. However, as the Guardian reports, these figures may have been manipulated, and as many as 20-35% of those people may have been falsely registered as double vaccinated. The figure could be as high as 40-60% in rural areas.
  • Australia is seeing hospitalizations fall to their lowest numbers in weeks, as the Omicron wave continues to slow. Hospitalizations fell to 4,600 after reaching a peak of nearly 5,400 a week ago. "We've seen the peaks of Omicron, I think, come through in (New South Wales and Victoria)," Prime Minister Scott Morrison told a media briefing. Morrison said he has asked health officials to check the status of the system before making a move to ease more border measures. Morrison says he hopes the border will be able to reopen fully before Easter.

Covid-19 – Due Diligence And Asset Management

U.S. Private Jobs Plunged Last Month on Omicron, ADP Data Show

Brief: Employment at U.S. companies declined in January by the most since the early days of the pandemic as the omicron variant of the coronavirus registered a swift yet likely temporary blow to the nation’s labor market. Businesses’ payrolls fell by 301,000 last month in a broad-based decline, according to ADP Research Institute data released Wednesday. The median forecast in a Bloomberg survey of economists called for a 180,000 rise. The decrease in employment, due to a surge in Covid-19 infections that led to some business closures and restrained activity, exacerbates tightness in the job market. A near-record number of unfilled positions and increased employee turnover are contributing to capacity constraints. Still, employment growth is seen picking up as the spread of the omicron variant wanes.

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After a huge year for growth, the U.S. economy is about to slam into a wall

Brief: Spurred by a massive inventory rebuild and consumers flush with cash, the U.S. economy last year grew at its fastest pace since 1984. Don’t expect a repeat performance in 2022. In fact, the year is starting with little growth signs at all as the late-year spread of omicron coupled with the ebbing tailwind of fiscal stimulus has economists across Wall Street knocking down their forecasts for gross domestic product. Combine that with a Federal Reserve that has pivoted from the easiest policy in its history to hawkish inflation-fighters, and the picture has suddenly changed substantially. The Atlanta Fed’s GDPNow gauge is currently tracking a first-quarter GDP gain of just 0.1%. “The economy is decelerating and downshifting,” said Joseph LaVorgna, chief economist for the Americas at Natixis and former chief economist for the National Economic Council under then-President Donald Trump.

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Bridgewater Sees Market Turmoil on ‘Aggressive’ Fed Tightening

Brief: Investors may be underestimating the need for “aggressive” monetary tightening from the Federal Reserve and other central banks to combat inflation, resulting in “significant risks” for markets, according to Bridgewater Associates. Following hawkish comments from the Fed Chair Jerome Powell last week, investors have brought forward expectations of tightening, pricing in five quarter-point rate hikes this year. Further out, however, they’re predicting fewer rate increases, anticipating the Fed will end the cycle with the policy rate at about 1.65% and long-term inflation expectations anchored around 2%. Consumer prices surged 7% in December from a year earlier, the fastest pace since 1982. “The markets are discounting a smooth reversion to the prior decades’ low level of inflation, without the need for aggressive policy action -- that it will mostly just naturally happen on its own,” the world’s biggest hedge fund said in its 2022 outlook. “We see a coming clash between what is about to transpire and what is now being discounted.”

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PayPal Joins the Growing List of Pandemic Boom-to-Bust Stocks

Brief: PayPal Holdings Inc. shares were set to sink to almost the lowest level since the pandemic’s onset, joining the likes of Peloton Interactive Inc. and Netflix Inc. in a post-earnings selloff. These companies have given back most of their multi-fold gains as demand for their services during Covid-19 lockdowns and mobility restrictions have quickly come to an end. PayPal’s December quarter numbers showed the same, prompting investors to dump the stock and hand losses of 19% in premarket trading. If these levels hold, it will be the stock’s worst day on record. Total payments volume climbed just 23% in the final three months of last year, the smallest increase in two years and fell short of analyst expectations. The results dragged down the share price of rival Block Inc., formerly Square Inc., by 8% and Affirm Holdings Inc. by 3% in premarket trading.

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Black Americans’ lack of participation in the stock market likely to widen post-pandemic wealth gap

Brief: Thanks to the historic stock market rebound from pandemic lows, affluent 401(k)-holders and savvy investors in the U.S. enjoyed double-digit returns from stocks over the past two years. But not for the majority of Black Americans. Only 34% of Black American households owned equity investments, as compared with 61% of white families, according to Federal Reserve Board’s most recent survey in 2019. The average value of stocks Black Americans owned amounted only to $14,400, nearly a quarter of what their white peers held, the data said. “Because Black households are less likely to be invested in the stock market and on every level less likely to be engaged in the financial system, they not only entered the pandemic with large gaps, the likelihood is that we are going to see some of these gaps widen coming out of the pandemic,” said John Lettieri, the Economic Innovation Group’s president and CEO.

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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, February 1, 2022:

  • On Monday, the United States granted full approval to the Moderna Covid-19 vaccine, the second most widely distributed vaccine in the country. The drug had been on emergency approval status and is now the second vaccine to gain full approval from federal regulators following the approval of the Pfizer-BioNTech shot in August of last year. The green light came only five months after Moderna had applied for full regulatory approval and will now adhere to various mandates that have been in place across the country for Pfizer. Over 204 million doses of the Moderna vaccine have been administered in the U.S. to date. Federal regulators will remain busy however, because on Tuesday Pfizer Inc. began sending data to the United States seeking approval of its Covid-19 vaccine for children under age 5. The current Pfizer-BioNTech vaccine is approved for children over aged 5 and the new data submissions may include evidence to support giving children a third dose.

  • Canadian Prime Minister Justin Trudeau has condemned anti-vaccine-mandate protests which have gripped the country, after most of the convoy left the capital on Tuesday. The prime minister, who is currently isolating after having tested posted for Covid-19, said that the protesters are not representative of most Canadians. He further reiterated his pro-vaccine stance and continued that vaccine mandates are the best way to move through the pandemic. The PM refused to meet with anyone who held what he called “anti-science” views and who “promote hate” after several memorials had been defaced over the weekend. The Conservative party has said that Trudeau is instead maligning peaceful protesters that only want their views to be heard by those in power. With respect to how he is feeling as he recovers from Covid-19, Trudeau says he is feeling “fine,” and will continue to isolate and work remotely. "It's a big challenge that my family and I are facing but there's nothing unusual or special about it. It's a challenge too many Canadians and people around the world know all too well," Trudeau said.

  • Former Prime Minister of the United Kingdom Theresa May grilled her successor Boris Johnson in Parliament on Monday for his alleged disregard for Covid restrictions. "The Covid regulations imposed significant restrictions on the freedoms of members of the public. They had a right to expect their prime minister to have read the rules,” said May in the House of Commons. May’s remarks come after British civil servant Sue Gray released an update on her investigation into parties held at 10 Downing Street during country-wide lockdowns last year. The report suggested that members of Johnson’s staff were in attendance at the prime minister’s residence the night before Prince Phillips funeral, which saw the Queen sit unattended due to restriction imposed by the government. "What the Gray report does show," May continued, "is that No. 10 Downing Street was not observing the regulations they had imposed on members of the public. So, either my right honorable friend [Johnson] had not read the rules or didn't understand what they meant.”

  • Denmark has officially lifted all Covid-19 restrictions as it deems the virus no longer causes a “socially critical sickness.” Mask mandates, vaccination records and the legal obligation to self-isolate upon receiving a positive test will all be removed as of Tuesday. The country is the first in the European Union to remove the restrictions and comes as the nation has the second-highest infection rate, or seven-day average of new infections, in the world. Danish Health Minister Magnus Heunicke told CNN in an interview on Monday that "no one can know what will happen next December. But we promised the citizens of Denmark that we will only have restrictions if they are truly necessary, and we'll lift them as soon as we can. That’s what’s happening right now.” Heunicke said that widespread vaccinations are helping the country open up and that the number of patients in intensive care units is falling. Currently, 81 per cent of the Danish population is fully vaccinated.

  • Authorities in China are worried that celebrations for the Lunar New Year, or Spring Festival, will become a super spreader event in the country. The Chinese government estimates that 1.8 billion trips will be made over what is regarded as the largest holiday in the calendar year. That number is still lower than pre-pandemic levels, but the government – still trying to enforce its Covid Zero policy – is on high alert. Chinese citizens are being placed under strict surveillance with a color-coded system intended to mark where and when a person will be able to travel. The new measures include having to show a green pass on their phone to prove that they have not been in a Covid-infected area before boarding public transit or passing through highway checkpoints. The Winter Olympics are scheduled to take place on the first day of the Spring Festival and authorities are doubling their efforts to make sure those games can continue without mass outbreaks. Several municipalities have been shut down completely after Covid exposures have been detected, forcing residents to remain in their house and business to be closed. 

Covid-19 – Due Diligence And Asset Management

Bill Ackman reportedly made nearly $4 billion from $200 million in pandemic-related bets — and here are his next moves

Brief: Billionaire investor Bill Ackman turned about $200 million in complex, pandemic-related bets into payoffs totaling nearly $4 billion, The Wall Street Journal reported Monday.  The first bet happened early on in the pandemic. The CEO of Pershing Square Capital Management in February 2020 invested $27 million into instruments that would pay off if corporate bonds tumbled in value, the WSJ said. Ackman then sold his position a few weeks later for $2.6 billion after investors realized that companies affected by the crisis might not be able to pay off their debts. The second bet occurred as 2020 was winding down. This time, he assumed consumer spending would soar, stoke high inflation, and prompt the Federal Reserve to respond with rate hikes to cool prices.

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Lenders Help Private Equity Hang On to Pandemic-Hit Companies

Brief: With the pandemic wrecking the growth plans of some private equity-owned companies, lenders are helping buyout shops hold on to such assets until they develop further. Fund-to-fund transfers -- which allow a private equity firm to sell an asset from one of its fund to another -- are set to increase in 2022, bankers say. Strong investor demand for the debt package behind BC Partners’ transfer of CeramTec suggests more buyout firms may follow this model. The deal will let one arm of the buyout shop sell the commercial ceramics maker to satisfy the return requirements for one customer base, while allowing the other to sponsor an asset BC Partners believes has longer term potential. This kind of move isn’t entirely new, but it’s far from widespread. Bankers are entering into talks with a number of private equity firms about such transactions in a bid to deal with the adverse impacts of Covid-19. The moves are popular with institutional investors, as it’s quicker and easier to reinvest in an asset they already know and believe has bright prospects.

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Viking Hedge Fund Blames 2021 Losses on ‘Underestimating’ Covid

Brief: After posting its worst ever performance last year, Viking Global Investors is trying to explain its losses -- and it’s pinning the blame on the Covid-19 pandemic. The firm’s hedge fund, which invested in 2021 laggards such as Peloton Interactive Inc., Coupa Software Inc. and Adaptive Biotechnologies Corp., fell 4.5% in the year because it “underestimated the ongoing impact of Covid,” founder Andreas Halvorsen wrote in a letter to investors dated Jan. 18. Viking has been one of the hedge fund world’s biggest successes since its founding in 1999, registering only four down years, including the most recent one. But it suffered because of its bet that consumer spending would normalize, and that shoppers would shift back toward services such as travel and elective medical procedures. “In hindsight, these were bad bets,” Halvorsen said in the letter. But, he added, “we have maintained our positioning and believe companies exposed to reopening will benefit from both an improvement in fundamentals and a re-rating of multiples.” 

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Hines Looks to Wealth Managers for New “Recovery Fund”

Brief: Investors like family offices and high-net worth individuals have an opportunity to put their money into transformative real estate redevelopments planned by Hines, an international real estate firm that announced the first of a series of "tactical" real estate investment funds in January 2022. Investors have already committed about $590 million in equity to Hines U.S. Property Recovery Fund—the money gives the fund the capacity to invest $1.5 billion immediately. Hines plans to close the fund by May 2022 with a total investment of $1 billion, with a purchasing power of $2.5 billion after leverage. The fund has already bought assets like a trailer park in California with plans to redevelop it as industrial. Other projects might redevelop empty malls as mixed-use town centers or redevelop aging office buildings as apartments. So why does Hines believe now is a good time for a fund focused on redevelopment? And why is Hines so interested in small, equity investments from investors like family offices and high-net worth individuals?

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Private Equity In The Aftermath Of COVID-19

Brief: In 2019 we interviewed Omiros D. Sarikas, the visionary CEO of Brookstreet Equity Partners – a London-based fund innovating the Private Equity and Venture Capital asset class – about the concept of investing in ‘asymmetric’ markets to generate alpha returns.  In 2022, we ask Omiros what has changed in the aftermath of COVID-19.  He talks to CEO Today about the development of Brookstreet 2.0, the era of ESG, and brings to the table Lucia Labuzikova to highlight the importance of Diversity, Inclusion and Talent Management in unlocking value for private equity investments. Omiros, good to have you back. Please reintroduce our readers to Brookstreet Equity Partners. Brookstreet Equity Partners (Brookstreet) is an award-winning, Mayfair-based investment platform that seeks out global asymmetric opportunities in undercapitalised markets. We set up the firm with the intention to be a beacon in the industry and developed a solid infrastructure. By means of example, our legal counsel also advised on Softbank’s $100bn+ Vision fund, our administrators handle $1.3+ trillion, our senior professionals have worked at McKinsey, Bulge Bracket Investment Banks and top tier Cross-Border Funds, our teams were educated at Harvard, Oxford and London and train at the British Venture Capital & Private Equity Association (BVCA) and the CFA Institute.

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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.