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Our briefing for Friday June 26, 2020:
Jun 26, 2020 4:08:56 PM
- The United States has reached a new daily high for COVID-19 infections at 40,000 surpassing a record set at the height of the pandemic in April. Areas of the Southwest have been hit especially hard with states like Texas and Arizona going back on reopening measures. The high numbers of confirmed cases are believed to be in part due to increased testing, but experts are suggesting the virus is seeing a second surge. According to John Hopkins University, the previous daily record was set on April 24th with 36,400 confirmed cases.
- In Canada, the total number of confirmed cases has reached 102,600, with Quebec and Ontario continuing to have the highest number of infections. However, Canada has begun to show signs of improvement with new confirmed cases dwindling to numbers not seen since the beginning of the pandemic in March. Experts foresee a second wave in Canada to be more sporadic than the first, with outbreaks being isolated compared to widespread infections seen at the height of the pandemic. Dr. Isaac Bogoch, an infectious disease physician and scientist with Toronto General Hospital says, “It’s going to be a game of whack-a-mole.”
- Deaths from COVID-19 in the United Kingdom have surpassed 43,000, one of the highest in the world. However, with infections on the decline, Parliament has begun to clarify regulations for re-opening businesses. New legislation will allow pubs and restaurants to serve patrons outside to insure social distancing. As of next Monday, U.K. residents will be allowed to travel for holidays without the need to self-quarantine upon return. The countries on the approved holiday list include France, Spain and Italy, while trips to the U.S. will be on hold until at least December.
- Brazil is second behind only the United States for deaths relating to COVID-19 accumulating a toll of over 50,000. With over a million confirmed cases, Brazil is still without a health minister after the previous two ministers were fired for disagreements with President Jair Bolsonaro. The president has also been criticized for refusing to wear a protective face mask in public, calling social distancing “a job-killing measure” and promoting the anti-malarial drug hydroxychloroquine despite strong evidence against its use for treating COVID-19.
- Also setting a new daily record, India confirmed an additional 17,296 cases of COVID-19 in the last 24 hours. However, according to the Union Healthy Ministry figures, over 58 per cent of those previously infected have recovered. In the last five days the country has seen the third highest amount of new cases globally and has reported the fourth highest amount of deaths. Makeshift hospitals have been set up in city centers with doctors tending to cardboard beds numbering in the tens of thousands. Lockdowns have been put in place across the country with most districts seeing curfews of 7 P.M.
- The United Arab Emirates and China have launched a Phase 3 clinical trial for a COVID-19 vaccine according to state media in the two countries. An agreement was signed on Wednesday by an artificial intelligence company in the U.A.E and a leading pharmaceutical company in China. Their efforts to create a vaccine have surpassed the first two phases which see small groups of people inoculated with the third phase of the process typically involving tens of thousands test subjects. The World Health Organization says there are currently sixteen candidate vaccines in clinical trial worldwide.
Covid-19 – Due Diligence And Asset Management
Wall Street falls as Fed action weighs on bank stocks, virus cases surge
Wall Street’s major indexes dropped on Friday as the United States set a new record for a one-day increase in coronavirus cases and bank stocks fell following the Federal Reserve’s move to cap shareholder payouts. The S&P 500 banks sub-index declined 3.9% after the Fed limited dividend payments and barred share repurchases until at least the fourth quarter following its annual stress test. In the previous session, banks stocks had powered Wall Street’s main indexes higher, helping them offset investor fears due to rising virus infections in several U.S. states, including Texas, Oregon and Utah. Cases rose across the United States by at least 39,818 on Thursday. Texas, which has been at the forefront of easing restrictions, paused its reopening plans after the state recorded its one of the biggest jumps in new infections. The uptick in cases has also threatened to derail a strong rally for Wall Street that brought the S&P 500 within 9% of its February all-time high on the back of record government stimulus measures.
Investors see 'king of distress' Apollo having its best ever crisis
Brief: A credit crunch is hitting many indebted companies, and Apollo Global Management Inc never had it so good. The private equity firm’s shares hit an all-time high earlier this month, outperforming its peers, as investors bet it can invest its $40 billion of unspent capital in cash-strapped companies that are struggling in the aftermath of the COVID-19 pandemic. Central banks and governments around the world have unveiled a raft of credit support and economic programs to help businesses. However, aid is often limited for companies with weak credit ratings, driving many of them into the arms of Apollo and other private equity firms. Since the onset of the crisis, Apollo has invested $1.2 billion alongside Silver Lake Partners in Expedia Group Inc, whose online booking business was hit hard by the coronavirus-induced stay-at-home orders and travel bans. Apollo also provided $250 million to U.S. pipeline operator NGL Energy Partners LP to refinance existing loan facilities. While other private equity firms, such as Blackstone Group Inc and Ares Management Corp, are also very active in this space and have seen their shares rally, Apollo’s stock has outperformed because of the New York-based firm’s record of capitalizing on such opportunities, analysts and investors have said.
Wall Street-owned loans tricky for hoteliers in virus era
Hotel owner and developer Danny Gaekwad survived steep drops in business after the 9/11 attacks and the recession of the late 2000s, but nothing prepared him for the revenue tailspin that followed lockdowns and travel restrictions in March to stop the spread of the new coronavirus. At one hotel, a Holiday Inn in Ocala, Florida’s horse country, revenue last April was $38,000, a drop of almost 90% from the previous April. His problems were compounded by the type of loan he took out for the hotel — a $13 million loan that was bought by Wall Street investors. Commercial mortgage-backed securities loans like the one Gaekwad has for the Holiday Inn are packaged in a trust. Investors then purchase bonds from the trust using properties like a hotel as collateral. The loans are attractive to borrowers because they typically offer lower rates and longer terms. About 20% of hotels across the U.S. use these loans and they represent close to a third of all debt in the hotel industry, according to the American Hotel and Lodging Association. Unlike banks, which have been more flexible in renegotiating loan terms to help them through the tough times, hotel owners like Gaekwad say it has been much more difficult to get any forbearance from representatives of bondholders, and they worry that their businesses may not survive because of the lack of relief.
‘Black Swan’ author says if investors don’t use a ‘tail hedge,’ he recommends ‘not being in the market’—‘We’re facing a huge amount of uncertainty
That’s “Black Swan: The Impact of the Highly Improbable” author Nassim Nicholas Taleb offering his view on the risks swirling in the market and a growing lack of clarity about the future in the era of a deadly pandemic that has created a public-health and economic crisis. Speaking during an interview on CNBC on Friday, the popular author, shared the notion that investors should be hedged against so-called “tail risk,” which refers to extreme events that have a low probability of happening in a distribution of outcomes. Taleb has spent his career chronicling so-called “tail risk” events, which have a tiny probability of occurrence, but nonetheless take place more often than one would guess, and therefore often are underestimated by the broader investment community. Taleb said the current market landscape, perhaps, has amplified uncertainties, even if the stock market has been mostly rising, despite signs of a spreading COVID-19 pandemic that is re-intensifying in places and threatening to de-rail projections for a “V-shaped,” or quick, economic recovery. “We are printing money like there’s no tomorrow,” Taleb said, referencing the Federal Reserve’s efforts to ease the financial pain of the epidemic by delivering trillions of stimulus to the market. The Fed also cut interest rates to a super low range of 0% and 0.25% back in March, and may not have a lot of room to further ease the economic pain of the viral outbreak and other problems that could arise amid this crisis. “And COVID seems to be there even if the pandemic…dies down, you will still have people cautious enough that it will impact a lot of industries,” he said.
Elizabeth Warren demands answers from private equity industry on coronavirus response, lobbying
Sen. Elizabeth Warren has written to the CEO of private equity lobbying group the American Investment Council demanding more information about the organization’s efforts related to the federal government’s multitrillion-dollar coronavirus relief law. In a letter to Andrew Maloney, which was delivered Wednesday and obtained by CNBC, Warren demanded information about the group’s communication with the Treasury Department and White House officials, including Jared Kushner, whose family real estate business has financial ties to private equity firm Apollo Global Management. She also questioned how the industry plans to protect the employees of the companies in which they invest. “I am particularly concerned that the private equity industry you represent may exploit this crisis to continue extracting value out of struggling companies, lining the pockets of wealthy firms at the expense of workers and communities struggling to respond to this pandemic across the country,” wrote the Massachusetts Democrat. In a statement given to CNBC through a spokesperson, Maloney said, “Senator Warren’s home state of Massachusetts is a booming private equity success story.” “Our industry employs over 240 [thousand] workers there, invested over $31 billion in 2019 alone, and recently delivered over 18% returns for the local pension program,” he noted.
Hedge Funds Cling to High Fees — Even in a Pandemic
Very few hedge funds are offering investors fee discounts during the coronavirus pandemic, according to a new survey by Seward & Kissel. The law firm, which polled alternative investment firms about the impacts of Covid-19 on fundraising and remote work, found that less than 10 percent had granted investor-friendly concessions on fees, liquidity, or reporting terms. Roughly three-quarters of respondents managed hedge funds, while the rest ran closed-end vehicles such as private equity or real estate funds. Steve Nadel, partner at Seward & Kissel, suggested that managers may be “more reticent” to grant concessions given how quickly markets have bounced back. High demand for opportunistic strategies may also contribute to why managers don’t currently feel the need to lure investors with discounts and other perks. “With opportunistic structures, because they are bespoke and because they are limited capacity, it evens the playing field in favor of managers, because demand for a particular product is often going to exceed supply,” he said.
