shutterstock_1629512083

Coronavirus Diligence Briefing

Our briefing for Friday September 11, 2020:

Sep 11, 2020 4:44:45 PM

  • In the United States, Washington politicians continue to be in a stalemate over the next stage for coronavirus relief. Republicans in the Senate failed in their efforts to move a $500 billion stimulus package to the next level as Democrats voted to block the legislation because the package was deemed too small. In the procedural vote 52 Republicans were on board, but with 60 votes needed to move ahead and unable to secure any support across the aisle, the plan was dead on arrival. Congressional leaders and senior administration officials said they are open to negotiations, but with elections in November and federal lawmakers set to adjourn in early October to campaign for their districts, the likelihood of a deal isn’t looking good. 

  • In Canada as Ontario has seen its highest COVID-19 daily case totals in months, the premier is calling the quarantine system put in place by the federal government “broken”. Since the end of March, the Quarantine Act has been invoked which requires anyone travelling outside of Canada to quarantine for 14 days upon arrival, even if they aren’t experiencing COVID-19 symptoms. In a news conference earlier in the week, Premier Doug Ford says his province alone has uncovered 622 cases of people thumbing their nose at the quarantine rules. “The system is broken, said Ford. I need the help from the federal government to make an amendment or change it. Why have our police go around and checking to see if people are quarantining if they aren’t going to follow up with a charge?”

  • According to a survey published on Friday, the coronavirus is spreading much more quickly in England now than in previous weeks. Statistical analysis conducted by the Imperial College London and Ipsos Mori estimate the reproduction value, or the R number to be at 1.7. Government scientists have repeatedly stressed the R number needs to be kept at or below 1 in order to curb the spread of the virus. Amid these concerns, leaked documents have shown an ambitious plan by the Boris Johnson government to test up to 10 million per day by January. Dubbed “Operation Moonshot”, under the plan huge groups of the population would be regularly checked, either by using swab tests that could deliver results in 20 minutes, or self-administered saliva tests. However, the problem with “Operation Moonshot” is that the technology described for testing is still in its infant stages – existing only in prototypes and yet to be signed off anywhere in the world.

  • Even as infections surge, France announced on Friday they would be halving the time people infected with the coronavirus must self-isolate at home from two weeks to one. The change in tactics reflects the government acknowledging the isolation period may be longer than necessary and many people weren’t sticking to the two weeks anyway. French Prime Minister Jean Castex said, “it’s essential that everyone respects strictly this period of isolation, which will be monitored.” Nearly 10,000 new COVID-19 cases were reported on Thursday with over 5,000 patients currently in French hospitals with COVID-19 related illnesses.

  • Israel will be the first major country to head back into a full nationwide lockdown after ministers voted to do so on Thursday. Media reports are stating the full lockdown would be reinstituted likely by the middle of next week and lasting for two weeks. After that period, schools will remain closed for another two weeks. The reports note specifics have yet to be finalized as a full cabinet vote will likely be held on Sunday. Israel reported over 4,000 new cases in one day for the first time earlier in the week and with close to 34,000 active cases, the country’s health system is becoming overwhelmed by an influx of seriously ill patients.

  • Japan and Singapore have agreed to allow essential business between the two countries starting September 18th. This marks the first country Japan has formed such an agreement with as they have imposed strict rules on arrivals into their country in order to prevent the spread of COVID-19. Singapore has done the same when it comes to their borders but have already struck similar deals with arrivals from New Zealand and Brunei. Business travellers must undergo pre-departure and post-arrival testing as well as follow a “controlled itinerary” for the first 14 days.

Covid-19 – Due Diligence And Asset Management

Trump Praises JPMorgan for Telling Trading Staff to Return to the Office

Brief: President Trump on Friday lauded the nation's biggest bank for calling its top trading staff back to the office after months of remote work. "Congratulations to JPMorgan Chase for ordering everyone BACK TO OFFICE on September 21st," Trump tweeted. "Will always be better than working from home!" JPMorgan told senior employees of the sales and trading operation in London and New York that they and their teams must return to the office by Sept. 21, a person familiar with the matter told FOX Business. The Wall Street Journal first reported the news Thursday. Employees who have medical conditions that make them more vulnerable to COVID-19 complications, or who live with someone considered at increased risk of severe illness, can continue working from home. That exemption also applies to employees with child-care issues Companies that have permitted their employees to work virtually for the majority of the year face a challenge in calling them back. Colleges and universities that welcomed back thousands of students to their campuses are now beset by COVID-19 cases.

Read more...


BlackRock and Ares Are Selling CLOs at Prices Signaling Recovery

Brief: Money managers are selling collateralized loan obligations at yields that would have been unthinkably low just a few days ago, signaling that one of the more battered corners of the credit market may be healing amid the Federal Reserve’s unprecedented support for company debt. Ares Management Corp. is marketing a CLO that is expected to carry a risk premium, or spread, of just 1.28 percentage point more than the benchmark on its highest-rated portion, according to people with knowledge of the transaction. BlackRock Inc. sold a deal on Thursday with AAA notes yielding 1.27 percentage point more than the London interbank offered rate. Collateralized loan obligations, or bonds backed by portfolios of leveraged loans, have been one of the last areas of corporate debt market to recover after security prices broadly plunged in March. As the Covid-19 pandemic weighed on company revenues, ratings firms began downgrading leveraged loans, which in turn spooked investors in CLOs. Even as recently as earlier this week, the risk premiums on KKR & Co.’s AAA notes priced at 1.5 percentage point more than Libor. Spreads in Europe are similarly narrowing, with AAA risk premiums as much as 0.2 percentage point tighter than they were in August. For U.S. deals, the healing in recent weeks has come in part because asset managers have sold so few new CLOs, according to a Wells Fargo & Co. report dated September 9.

Read more...


Agile and Resilient – Alternative Investments Embrace the New Reality

Brief: It surely goes without saying that COVID-19 has disrupted businesses of all types. And the Alternative Investment sector has not been immune. KPMG International and AIMA (Alternative Investment Management Association) surveyed 144 hedge fund managers globally, representing an estimated US$840 billion in assets under management (AUM), more than one-quarter of the industry’s total. The research examines in detail the effects of the pandemic on the alternative investment industry. In addition, KPMG International and AIMA canvassed the views of the industry via one-to-one interviews with Hedge Funds, investors and key ecosystem players including technology companies, prime brokers, fund administrators and law firms to provide additional insights to the survey findings. Through the various discussions and survey results it highlighted that in times of market volatility and business uncertainty – alternative investments fulfil an important role in an investor’s portfolio. Throughout the pandemic, the Hedge Fund industry has proven its ability to manage risk and volatility while still producing above-market returns for investors. Significant uncertainty may remain, but in conversations with fund managers and the data suggests the industry remains agile and resilient and is taking prudent steps in order to embrace the new reality.

Read more...


73% of PE, VC Managers Expect Drop in Dealmaking Following COVID-19 Fallout

Brief: Just 27% of private equity and venture capital fund managers globally expect investment activity to remain flat or rise in the coming months, with the remaining 73% taking a more pessimistic view, as managers grapple with uncertainty following the spread of coronavirus, according to an S&P Global Market Intelligence survey. Of the 142 managers polled globally, 30% expect dealmaking to slow by between a quarter and a half, with 29% expecting a volume dip of one-quarter and 13% taking a more negative view, predicting a drop of over 50%. The largest proportion of North American and Latin American respondents expect activity to decrease by between 25% to 50% in their regions. There was more optimism from respondents in Europe, the Middle East and Africa, with the majority of respondents expecting activity to dip by less than 25%. Asia-Pacific respondents were particularly upbeat, with the largest proportion expecting investment activity to remain flat or decrease. But that does not mean managers expect their own investment pipelines to come to a halt. More than half — 58% — of respondents globally will focus on making new, selective investments over the coming months, with 23% indicating they will focus on stabilizing their portfolios.

Read more...


Ray Dalio, in Economic Club New York Address, Speaks of Threats Beyond the Pandemic

Brief: According to Ray Dalio, the coronavirus pandemic was a blow to the system. But in his view, Covid-19 isn’t the biggest game changer. Instead, the Bridgewater Associates founder said Thursday that he sees the convergence of monetary policy, social and economic gaps, and the rise of China as forces that could change the world. Dalio shared his views on these changes — and how history informs them — Thursday at a digital event held by the Economic Club of New York. “It was the shock,” Dalio said of the pandemic. He added that history has shown that these shocks — whether they’re natural disasters, pandemics, or other calamities — become stress tests for a country’s health, financial and otherwise. But when the pandemic recedes, Dalio said he believes that these issues will remain. “How do you pay the bills?” he asked. “Are we going to be at each other’s throats? And what do the five wars, the conflicts with China, look like?” According to Dalio, those conflicts could include a trade war, a technology war, a geopolitical war, a capital war, or a military war.

Read more...


This Hedge Fund Is ‘Reasonably Confident’ a Covid-19 Vaccine Will be Approved This Year

Brief: Asset manager MKP Capital Management has placed a 70 percent probability on a Covid-19 vaccine being approved in 2020, with a smaller chance of that happening before the U.S. presidential election. MKP Capital, an alternative asset manager focused on global macro and fixed-income relative value strategies, sees a 40 percent chance that a vaccine will be approved before the election on November 3, according to a report from the firm dated September 9. “It is now MKP’s strong base case that we will have at least one successful vaccine by the end of the year,” the firm said in the report. “A major question mark remains around whether a vaccine will be available ahead of this date and potentially provide a boost to President Trump’s campaign.” Stocks and bonds were initially rocked by the Covid-19 pandemic this year, tanking during the first quarter before the Federal Reserve stepped in with a series of emergency measures. While markets have rebounded as investors look beyond the economic recession prompted by the deadly disease, some companies and sectors remain battered by the downturn. While the world is beginning to “learn to live with the virus,” Covid-19 is still causing a significant break in economic activity, Michael Hume, MKP’s head of strategy and research, said Thursday in a phone interview.

Read more...


Contact Castle Hall to discuss due diligence

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

Topics:Coronaviruscovid-19

About Castle Hall Diligence

Castle Hall helps investors build comprehensive due diligence programs across hedge fund, private equity and long only portfolios More →

Subscribe to Daily Covid-19 Updates