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Coronavirus Diligence Briefing

Our briefing for Friday July 24, 2020:

Jul 24, 2020 3:44:19 PM

  • The United States has recorded 1100 deaths for the third straight day as much of the country remains open to non-essential services like bars, shopping malls and salons. More 150 medical experts, scientists, teachers and nurses have signed a letter to political leaders asking them to shut down the country and start anew in an attempt to slow the surging COVID-19 virus. The letter states that the country is on track to lose 200,000 lives by November 1st. In Texas, one the hardest-hit states, the numbers are plateauing. A shelter-at-home order made by a judge in Starr County has gone into effect this morning and will last through August 11th.  

  • In Canada, the number of asylum seekers has gone up. There were 1500 reports of people seeking asylum in Canada in June up slightly from 1400 in May. This comes as the country tightens its land and marine borders with the United States. On Wednesday a Supreme Court decision stated that the Safe Third Country Agreement between Canada and the US violates the Canadian Charter of Rights and Freedoms. As part of precautionary measures due to COVID-19, all persons arriving at the Canadian border from the US will be turned away. However, persons already inside Canada are still able to apply for asylum.

  • Despite having the third highest death toll in the world, the United Kingdom eased major lockdown restrictions on Friday. Prime Minister Boris Johnson said that people will no longer be told to work from home or avoid public transit. Starting August 1st, Britons will be asked to return to work if possible and all bans on non-essential public transit will be lifted. The Prime Minister is putting the onus on individual businesses to take precautions in a “COVID-secure way” and says that his government is now “preparing for the worst” if a spike in cases is seen during the winter months.

  • India recorded its highest number of confirmed cases Friday with 49,000 and 740 new deaths. It is the biggest daily surge in infections the country has seen since the beginning of the pandemic. The total number of cases in the country is over 1.3 million with new test results showing that nearly one in four people in the capital of New Delhi have been infected with COVID-19. A survey tested blood samples of 21,387 people across Delhi. Among them, 23.48% were found to have COVID-19 antibodies, indicating past exposure to the coronavirus.

  • In a virtual gathering China’s Foreign Minister Wang Yi announced a $1 billion loan to Latin America and the Caribbean to allow the region access to a Covid-19 vaccine when it becomes available. A statement from the Mexican Foreign Affairs Ministry stated "China's Foreign Minister said that the vaccine developed in his country will be a public benefit of universal access, and that his country will designate a loan of $1 billion to support access [to the vaccine] for the nations of the region." Mexican President Andrés Manuel López Obrador said "we're very grateful to China, with the Chinese government, [and] the President.”

  • South Korean baseball fans will be allowed back in the stands starting Sunday despite an uptick of cases in Seoul. Initially baseball and soccer stadiums will be allowed to sell only 10 per cent of their normal tickets as social distancing must be continued in the normally condensed seating areas. Professional golf, however, will continue without spectators for the time being as health authorities begin to develop plans for crowded courses. New daily cases dropped below 50 in the country on Friday and have stayed between 20 and 60 since South Korea eased social distancing measures in May.

Covid-19 – Due Diligence And Asset Management

CFTC Postpones Prosecution of US Coin Bullion Due to Coronavirus

Brief: The US Commodity Futures Trading Commission seeks to postpone the trial of two brothers who defrauded some 150 customers of more than $8 million due to precautions over the novel coronavirus. Salvatore and Joseph Esposito, the owners of precious metals investment firm U.S. Coin Bullion pleaded guilty in October 2019 on charges of conspiracy to commit wire fraud and mail fraud. Salvatore Esposito, 48, was sentenced to seven years and three months in prison, and his younger brother Joseph, 44, to a little less than six years. In a parallel case, the CFTC filed its civil enforcement action charging US Coin Bullion and its operatives with misappropriating customer funds and engaging in fraudulent solicitations. From 2014 to mid-2019, the Espositos engaged in a phony gold business, convincing victims to invest their savings to purchase precious metals and promising big payoffs. The CFTC seeks to retrieve the money that the Orlando brothers misappropriated from clients, but it’s unclear if that will happen, as most was lost.

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Bill Ackman responds to critics of 'hell is coming' TV interview and $2.6B windfall

Brief: Hedge fund manager Bill Ackman said on Thursday that critics of his "hell is coming" declaration on CNBC and $2.6 billion windfall that appeared to follow don't understand the timing. Ackman was accused of playing up coronavirus fears after making a $27 million bet against the market that paid off big-time. "We made $2.6 billion prior six days prior to my coming on CNBC. I gave a message of optimism," Ackman told "Mornings with Maria." "We did hedge our portfolio ... to protect our investors, which is our fiduciary obligation. We didn't sell our stocks, actually. That enabled us to benefit from a recovery." Ackman said he has been "long-term bullish" on the U.S. economy. "My view was, as long as you start shutting down the country, the market will recover," he said. "The day after the appearance on CNBC, California shut down. ... New York shut down, then every state in the country, effectively almost every state, went through the shutdown process."

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Teachers pension fund sues AllianzGI over Covid-induced losses

Brief: The Arkansas Teacher Retirement System claims that AllianzGI's 'market-neutral' Structured Alpha funds put bets in place earlier in the year against the S&P 500 index falling further as the pandemic began to rear its head, shortly before it tumbled 8.5% in February then by a further 12.5% in March. The pension fund claims that, by doubling down on unprofitable trades, Allianz's investors became "dangerously exposed to even the slightest increase in market volatility or decline in equity prices", despite the vehicles being advertised as being able to protect investors during falling market conditions - including during "a severe downside market move, such as the Black Monday of 1987", according to marketing material. As detailed in the lawsuit filed on Monday, the Alpha 250 fund has lost more than 43%, Alpha 350 is down 56% an Alpha 500 has tumbled by 75%. The Arkansas Teacher Retirement System alleges the shorts against market volatility were placed in a bid for Allianz to earn its management fees in the case that February's losses were crystalised. In a statement given to the Financial Times, AllianzGI said that "while the losses suffered in the portfolio are deeply disappointing, there is no basis for legal liability".

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Secretive hedge fund boss Chris Rokos calls staff back to work in the office

Brief: The majority of Chris Rokos’ staff have returned to the hedge fund manager’s Mayfair offices following the lifting of UK coronavirus restrictions, Financial News can reveal. An email memo, sent to Rokos Capital Management’s nearly-200 employees and seen by FN, stated: “All [employees] are invited back, however only if the individual feels comfortable.” Although supposedly optional, most employees have now returned to Rokos’ office in Savile Row, according to a person familiar with the matter. The date of the return to the office is listed as 6 July. “The email was very much taken as an instruction for us to get back into the office and to stop working remotely,” the source said. A spokesman for Rokos Capital Management declined to comment. The hedge fund giant has given staff a £150 daily taxi budget. However, it added that employees who exceed the budget may be asked “to work from home until public transport is open”. The memo, sent in a Q&A format, discouraged staff to take public transport.

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Blackstone-backed quant gains 20% amid wild Covid-19 markets

Brief: A machine-learning hedge fund backed by Blackstone Group is enjoying a growth spurt after notching a 20% gain in this year’s wild pandemic markets. Bayforest Capital, which employs just five people in London, is set to oversee $235m in managed accounts over the coming month, compared to $45m at the end of 2019. It also plans to launch a fund for institutional investors later this year. A record of positive gains every month in this year’s cross-asset roller-coaster is drawing fresh client attention to the firm run by Theodoros Tsagaris, a quant with previous stints at Tudor Investment, GSA Capital and BlueCrest Capital Management. He credits Bayforest’s success to algorithms surfing fast shifts in capital flows in real time. With system trading futures based on the behaviour of different investors, and an average holding period of just eight days, the portfolio has managed to make money even as markets swing from despair to exuberance.

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Wells Fargo Pledges up to $20 Million to Support New York Economic Recovery Efforts

Brief: Wells Fargo & Company (NYSE: WFC) announced today that it pledged up to $20 million to support the New York Forward Loan Fund (NYFLF), an economic revitalization program across New York State. Initiated by New York Governor Andrew Cuomo, NYFLF is aimed at helping small businesses, nonprofits, and small landlords as they reopen following the COVID-19 pandemic. The fund purchased its first loans in July after pre-applications opened on May 26. A total of $100 million is expected to be available through NYFLF, which Wells Fargo is supporting along with other financial institutions and partners. Wells Fargo's commitment to NYFLF is the largest announced to date. NYFLF emphasizes supporting minority- and women-owned businesses and landlords who own small, multifamily properties in low- and moderate-income communities. The loans are intended to help with upfront costs related to reopening, such as inventory, marketing, or refitting for social distancing. Five Community Development Financial Institutions (CDFIs) are processing applications. NYFLF has funded 19 loans across 11 counties totaling $602,103, according to data through July 20. The average loan amount was $31,690. Seventeen loans were distributed to women- or minority-owned businesses and one loan was distributed to a veteran-owned business.

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Contact Castle Hall to discuss due diligence

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

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