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Coronavirus Diligence Briefing

Our briefing for Monday August 24, 2020:

Aug 24, 2020 4:08:59 PM

  • In the United States, the Financial Times reported the Trump administration is considering bypassing normal regulatory standards to fast-track an experimental coronavirus vaccine from the United Kingdom. The drug in question is a vaccine being produced in partnership by AstraZeneca and Oxford university. The article states one option being explored is to have the US Food and Drug Administration award the UK vaccine, “emergency use authorization”, which would speed up the process. The AstraZeneca study has enrolled 10,000 volunteers, but American government scientific agencies require studies of 30,000 people to pass authorization protocols.

  • Research from a Canadian university is setting off red flags to the numbers we are currently seeing for confirmed COVID-19 cases. The study from Brock University surveyed over 450 Americans ranging in age from 20 to 82. What they found was that 34% of people with the virus had denied symptoms when asked and 55% said they concealed their symptoms on some level. Also found in the study: 25% lied about how much they followed government health protocols and those with COVID-19 were even more likely to lie about it. Doctoral student Alison O’Connor who worked on the study noted, “one of the consequences is the potential difficulty in accurately tracking the pandemic. It reminds us that these numbers and the data are dependent on people telling the truth.”

  • United Kingdom Prime Minister Boris Johnson is calling on parents to allow their children to return to school next week. The resumption of school is seen as critical to the government’s plan of boosting the economy. With children back in school, parents can return to work. The prime minister also seems to have the support of the country’s chief medical officer as Chris Whitty stated over the weekend that children were more likely to be harmed by not returning to school than if they were to catch the virus.

  • As badly as the UK wants children to return to school, a look south towards Germany might show them what lies ahead. The country reported over 2,000 new cases in a 24-hour period over the weekend and over 40 schools in Berlin have recorded infections since reopening after the summer break two weeks ago. Due to the situation, Chancellor Angela Merkel has ruled out any further limiting of coronavirus restrictions, noting that the country is still in the middle of a pandemic.

  • Italy, one of Europe’s hardest hit nations by COVID-19, is launching human trials of its COVID-19 vaccine on Monday. Rome’s Lazzaro Spallanzani institute, a hospital specializing in infection diseases, will conduct the study on 90 volunteers over the coming weeks. If all goes well, the country hopes to have a domestically made vaccine by next spring. Earlier trials on animals had delivered positive results.

  • After seeing a streak of triple digit coronavirus cases for over a week now, South Korea has ordered masks to be in worn in both indoor and outdoor public places in its capital city of Seoul for the first time. The government reported 397 new virus cases on Sunday, the highest since March 7th and are warning that the country is at a risk of a “massive nationwide outbreak”.

Covid-19 – Due Diligence And Asset Management

Real Estate Investors Skip Paying Loans While Raising Billions

Brief: Some of the largest real estate investors are walking away from debt on bad property deals, even as they raise billions of dollars for new opportunities borne of the pandemic. The willingness of Brookfield Property Partners LP, Starwood Capital Group, Colony Capital Inc. and Blackstone Group Inc. to skip payments on commercial mortgage-backed securities backed by hotels and malls illustrates how the economic fallout from the coronavirus has devalued some real estate while also creating new targets for these cash-loaded investors. “Just because a prior investment didn’t work out doesn’t necessarily mean that should tarnish the reputation for future endeavors,” said Alan Todd, head of U.S. CMBS research for Bank of America Securities. “It’s not like something was done in bad faith.” While cutting losers to buy winners is an age-old investment proposition, the Covid-19 pandemic may create even more openings than the past crises that became bonanzas for real estate investors. The mass exodus of Americans from public spaces has hammered already-weak retailers and their landlords, crippled business travel, crushed restaurants unable to fill all of their tables, and sown chaos for office towers whose tenants may never need as much space again.

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Asset Managers Are Still Hurting From the Covid-19 Crash – Even if Stocks Aren’t

Brief: Stocks may be back up, but revenue is down at publicly traded asset managers, according to analysis by Casey Quirk. The Deloitte-owned asset management consultant reported that median revenue fell 6.4 percent in the second quarter among listed traditional asset management firms. Compared with this time last year, median revenue slid 7.1 percent. According to Casey Quirk, this decline was driven in part by investors moving assets to cheaper bond and cash funds amid continued uncertainty about how the Covid-19 pandemic would impact the economy. Fee discounting also contributed, with average realized fees declining 2.2 percent in the second quarter and 3.7 percent year-over-year. “Capital markets are mostly returning to pre-pandemic crisis levels, yet asset manager financials are still feeling the impact from the brief and severe slump earlier in 2020,” the consulting firm said in a statement Monday. Operating margins also continued a “a mostly downward trend” for listed asset managers, according to Casey Quirk. The consultant reported that median margins in the second quarter were 27 percent, compared with 29 percent in 2019.

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FCA Investigates Over 150 Covid-19 Related Scams

Brief: The Financial Conduct Authority (FCA) is investigating more than 150 Coronavirus-related scams since the outbreak began, according to official figures. The data, obtained under the Freedom of Information (FOI) Act by the Parliament Street think tank’s cyber research team, reveals the extent to which financial services organisations and banks have been targeted by financial criminals during the pandemic. The total number of suspected scams reported to the FCA over the last five months is 165. The types of scams that have been circulated during this time include email, phone calls, text messages, letters, and social media.  In one of the scams, fraudsters pretended to be from HM Revenue and Customs (HMRC) and targeted company owners seeking Covid-19 relief grants to help manage their finances throughout the crisis. Other scams included a targeted effort to steal the log-in credentials of HSBC customers with business accounts, and seeking to obtain the passport details of financial services workers. Experts have warned that the rise in sophisticated Covid-19 related scams could leave financial services firms open to the risk of financial crime, especially with increasingly stringent Anti-Money Laundering (AML) legislation in the pipeline.

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MUFG Plans to Offer Covid-19 Bonds to Individual Investors

Brief: Japan’s biggest lender is planning to raise funds from individual investors to help smaller companies and hospitals tackle the Covid-19 pandemic. Mitsubishi UFJ Financial Group Inc. intends to issue sustainability bonds totaling as much as 150 billion yen ($1.42 billion) in September, after receiving requests from retail investors, according to Isamu Murofushi, a spokesman. The pandemic is boosting global sales of notes that aim to help governments, companies and other institutions get through the pandemic. Proceeds of MUFG’s debt sale will be used to help small-to-mid sized companies and hospitals fight the virus impact, as well as drugmakers developing vaccines and medicines, Murofushi said.

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Goldman Says Almost a Quarter of Temporary Virus Layoffs in U.S. to be Permanent

Brief: The rehiring of temporarily laid-off workers will continue to bolster the U.S. labor market’s recovery in the months ahead, but Goldman Sachs Group Inc. expects almost a quarter of those layoffs to become permanent. In the early months of the pandemic, employers shed more than 22 million people from their payrolls. The staggering figure had a small silver lining: the majority of those layoffs were billed as temporary. More than 18 million people were classified as temporarily unemployed in April, the most on record. When state economies began to reopen, the rehiring of many of those workers helped drive the labor market’s rebound in May, June and July. And with more than 9.2 million unemployed still on temporary layoff, “the labor market seems poised for additional large job gains later this year,” Joseph Briggs, an economist at Goldman Sachs, wrote in a research note on Friday. In some ways, the staggering number of temporarily laid off workers could be a tailwind for the recovery. These workers tend to face better hiring prospects, and transitions to permanent unemployment remain relatively low. In fact, Goldman expects rehires to account for most of the 5.6 million net job gains they anticipate later this year.

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An Extremely Niche Column on Asset Management Sales

Brief: Last week, Institutional Investor held a virtual roundtable for healthcare funds. As always, we polled the audience on business practices, portfolio moves, and their expectations for the future. One question focused on the article of dogma that I’ve encountered nearly every day since the East Coast locked down March 12: Allocators will not place capital with managers they had not physically met. Here’s what we asked: “In terms of allocating assets to new managers, what best describes your expectations for an extended Covid-19 travel lockdown?... Contrary to conventional wisdom — and, the data show, the pre-Covid reality — nearly 60 percent of healthcare investors believe that we are about to enter a time where mandates will flow to managers that allocators and consultants have not met in person.

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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.

Topics:Coronaviruscovid-19