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Our briefing for Friday June 5, 2020:
Jun 5, 2020 4:00:20 PM
- The United States government received some good news on Friday when the latest job numbers revealed a 13.3% unemployment rate. While that number is still incredibly high, some economists had predicted the rate could spike to 20% when the month of May ended. The American economy added 2.5 million jobs in May after 20.7 million positions were cut in April.
- Canada too unexpectedly added 289,600 jobs to its economy in May after seeing its unemployment number rise to record highs the month before. Canada’s unemployment rate in April was 13.7%, surpassing the previous high of 13.1% in 1982. Economists had predicted 500,000 jobs would be lost in the month of May, but with provinces reopening a little earlier than most expected, some businesses were able to rehire.
- United Kingdom’s health secretary has pleaded with British citizens not to attend large demonstrations over the death of George Floyd due to the coronavirus. “Like so many I am appalled by the death of George Floyd and I understand why people are deeply upset but we are still facing a health crisis and coronavirus remains a real threat, said Matt Hancock. So please for the safety of your loved ones do not attend large gatherings including demonstrations of more than six people.” Planned anti-racism protests are expected to happen this weekend in the UK.
- Australia tried a different approach in stopping or limiting their anti-racism protests: the court system. The police in the state of New South Wales took the protest planned by Black Lives Matter activists all the way to the New South Wales Supreme Court. The police wanted the protest banned, citing coronavirus safety concerns, and the court sided with them granting an injunction ruling the protest illegal. Protest organizers say they will continue to march, which may lead to heated interaction with police. “We are not going to stop. We are going to march. We don't care what any acts of law tells us what to do because those acts and laws are killing us," said Letona Dungay.
- Spain’s health minister says half of the population will move into the third and final stage of the country’s easing of coronavirus restrictions next week. Salvador Illa said 52% of the country will move into the third stage, which will allow those regions to regain control of the reopening process. So far, that process has been handled by the federal government. However, Spain’s two largest cities Madrid and Barcelona are only moving from stage one to stage two of their reopening phase.
- The World Health Organization (WHO) has updated its recommendations on mask wearing and is now calling on nations to encourage the general public to wear fabric masks in areas where there continues to be an intense spread of the coronavirus. Previously, the WHO advised for people to not wear masks unless they were sick, or caring for someone who was sick, so masks could be kept available for health workers. The health organization also advised the general public to wear masks where physical distancing is difficult, such as public transport, in shops, or other confined/crowded environments.
Covid-19 – Due Diligence And Asset Management
‘Black People Are Locked Out’: $10 Billion Fund Manager On Race Inequality
Brief: John Rogers wants to be clear: corporate America is missing its moment to act on racial inequity. It’s not just rhetoric and donations that will make the difference, said the co-chief executive officer of $10 billion fund manager Ariel Investments, which focuses on value stocks. Businesses need to hire more African-Americans into senior roles -- including board seats and executive suites -- and work with other companies that have diverse leadership, he said. Rogers, 62, is one of the fund industry’s leading African-American figures after founding Ariel Investments nearly four decades ago. Its Ariel Fund has returned an average of about 10% a year since its inception in 1986, outpacing the Russell 2500 Value Index… On lasting change to prepare for post-Covid-19: “People are going to be downsizing and reconfiguring their offices. I think it’s pretty clear people are not going back to work in a normal way. There will be changes in the whole travel area, hotel companies too. A reduction in travel will go right to the bottom line. If there’s even 10% fewer people on the plane or your hotel, you’ll be hit drastically.”
Stock Day Traders Are Unleashing Most Bullish Bets in Nine Years
Brief: Exuberance in American stocks is spurring speculators to unleash bullish bets in the options market at a rate unseen in almost a decade. Trading in contracts that wager on single names to increase in value has surged to the highest since 2011, with a whopping 2.3 million calls changing hands on Thursday, according to Cboe data. The bullish action is reminiscent of the explosion of retail interest on online forums on the eve of the coronavirus crisis in sleepy companies like Virgin Galactic Holdings Inc. and Plug Power Inc. This time around, the beneficiaries are concentrated in tech and cloud computing, as well as in single names rocked by the pandemic such as United Airlines Holdings Inc., according to Chris Murphy, co-head of derivatives strategy at Susquehanna. “We are seeing a lot of bullish options speculators, and I think the ‘message board flow’ is playing a part,” he said, referring to retail speculation typified on the Reddit forum r/wallstreetbets. Even after the S&P 500’s 40% surge in little more than two months, demand for single-stock hedges is muted, with the number of put options traded for every call slumping to the lowest in six years.
Who Still Wants to Lease NYC Office Space? Russell Investments
Brief: Russell Investments’ lease on its New York office is up in September, and the firm has no new office space ready to go. But, according to the firm, it wants to find a new spot in the city. Before the Covid-19 pandemic, the investment manager’s New York staff occupied the 14th floor of 3 Bryant Park in Manhattan, the same building that houses tech giant Salesforce. Now, Russell’s employees are working from home, and the September 30 deadline is looming. Russell, in some ways, is in an enviable position as far as finance firms in New York go: a lease expiration could cut costs significantly. And it’s not unprecedented for finance firms to move amid crises. “I’ve seen a lot of different downturns and problems with New York real estate,” said Michael Colacino, president of SquareFoot, a New York-based commercial real estate company. After 9/11 and the dot com bubble burst, Colacino said, New York subleases rates doubled, increasing from about 20 percent to 40 to 45 percent. He added that something similar happened during the financial crisis of 2008.
One of Canada’s Biggest Private Lenders Looking to Sell 11% of Loan Book
Brief: One of Canada’s largest private lenders is looking to sell as much as 11 per cent of its loans to help ride out the coronavirus crisis. Bridging Finance Inc. has already sold $30 million in loans (US$22 million) and plans to offload a further $170 million to other direct lenders and institutional investors, Chief Executive Officer David Sharpe said by phone. The firm, which has $1.8 billion in assets under management, froze redemptions on its funds in April. “We are selling some loans at par value to improve liquidity,” Sharpe said. “We are doing it in a prudent fashion, as we need to keep cash on hand for the revolvers and for foreign-exchange effects, and once we are comfortable with our liquidity, we will lift the gating of the funds.” The company lends to small and mid-sized companies involved in everything from milling flour to delivering groceries. Most of its funds are invested in collateral-based bridging loans, inventory and accounts-receivables financing. The pandemic, which forced the shutdown of many smaller businesses the sector typically lends to, is a major test for the asset class. The market has swelled to about US$820 billion globally from US$200 billion before the 2008 financial crisis.
Encap Goes Back to the Office
Brief: As Texas goes back to work, Houston-based EnCap Investments provides an early glimpse of what office re-integration may look like for many private equity firms. The firm, ranked 21 in the PEI 300, began its office re-integration on May 18 after Texas became one of the first states to begin reopening its economy. Craig Friou, deputy CFO and CCO at EnCap, told Private Funds CFO the firm began ‘phase one’ of its office re-integration by dividing staff up into ‘red’, ‘white’ and ‘blue’ teams. The red and blue teams alternate days in the office, with the white team, which includes some administrative staff, not returning at all for the time-being. Splitting the firm’s workforce into different teams not only designates which days staff are allowed to be in the office, but also groups individual teams together (ie, finance team is red, deal team is blue, etc.), causing employees to only work in close proximity with their immediate teams. The color-coded teams apply to all staff except for those at the partner level, who are free to come into the office on whichever days they like.
Citi Says Wealthy Clients Are Holding Too Much Cash, Time to Buy
Brief: Wealthy clients of Citigroup Inc.’s private bank hold way too much cash, according to chief investment officer David Bailin, and he and his colleagues have big plans to help put an end to that. The private bank’s mid-year outlook, “From Fear to Prosperity: Investing in a New Economic Cycle,” released Thursday, recommends major changes to portfolios to reflect what Bailin called “the complexities and new realities of our time.” “There are plenty of things to buy,” Bailin said in a phone interview. “The more study that we did for the report, the more excited we got. The data is compelling.” The report’s big-picture outlook is for a “brief, extremely deep, rolling global recession” followed by a sharp snapback in global economic activity and “a partial, uneven recovery.” Underpinning recommendations for major changes to client portfolios is a projected five-year period of low interest rates. With fixed income no longer a natural hedge for equities, achieving diversification now includes greater long-term exposure to small- and medium-sized companies, as well as emerging market debt and equity, according to the report.
