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Our briefing for Monday August 31, 2020:
Aug 31, 2020 4:06:48 PM
- The United States have now surpassed six million coronavirus cases. It took 22 days for America to jump from 5 million to 6 million cases. The batches of one million total cases has slowed down slightly as it took 17 days to reach five million and 15 days to reach to four million. Elsewhere in the country, the head of the US Food and Drug Administration (FDA) said over the weekend that he is willing to bypass normal approval process for a COVID-19 vaccine. In an interview, Stephen Hahn said his agency would bypass the usual phase three trials as long as officials believe the benefits outweigh the risks. Hahn defended his organization against the accusations that the only reason they are considering this decision is to boost President Donald Trump’s re-election prospects. China and Russia have both approved vaccines without waiting for the end of phase three trials, usually the largest and most thorough of all tests for a potential new drug.
- In Canada, the federal government has signed agreements with two U.S. drug companies to secure up to 114 million doses of potential COVID-19 vaccines under development. The first deal announced was with Novavax for 76 million doses, while shortly later another deal was announced with Johnson & Johnson to secure up to 38 million doses of their potential vaccine. Prime Minister Justin Trudeau though announced he has no plans to rush a potential vaccine treatment, noting it will likely be the Spring of 2021, at the earliest, before a vaccine is made available to Canadians.
- The United Kingdom government have awarded over 100 contracts worth £109 million for advice on its response to the coronavirus pandemic. Since March, various consulting firms such as PwC, Deloitte and McKinsey have signed contracts with 10 Downing Street, some of which remained private for as long as three months. Government procurement rules state a contract award notice must be published within 30 days. The Financial Times are also reporting a number of consulting contracts have come with ridicule over the services they provided. For instance, Deloitte was appointed to manage personal protective equipment for hospitals and support testing sites but were criticized for a series of administrative errors and delays in providing support.
- German police clashed with far-right protestors over the weekend in Berlin due to the coronavirus restrictions put in place by the government. Close to 40,000 people took to the streets of Germany’s capital city with some going as far as wanting Chancellor Angela Merkel and her government to resign. Most of the rally was peaceful, but police did have to make about 200 arrests. City officials tried to shut down the planned protest last week, but were unsuccessful after a court ruled the rally could go on as scheduled.
- Spain’s Prime Minister Pedro Sanchez is pointing the finger at provincial politicians for the second wave of coronavirus infections after lockdown restrictions were lifted a few months ago. During the spring, Spain’s central government, led by Sanchez, invoked emergency powers to maintain lockdowns and override regional governments. However, the prime minister says it is now up to individual regions to ask the central government to grant them emergency powers to reduce the amount of spread. Prime Minister Sanchez’s political opponents accuse him of pretending the second wave of the virus is like a game of tag and he’s not “it” – opposition are arguing leadership during the pandemic must be centralized like it was during the first wave.
- Australia and New Zealand seem to be turning the corner on their latest coronavirus outbreaks. Over the weekend, Australia’s Victoria state reported a one-day tally of 94 new cases, their lowest in nearly two months. The state’s largest city – Melbourne – is in week four of a six-week lockdown and authorities say they may ease restrictions, albeit gradually. In New Zealand the country reported only two new cases on Sunday and its largest city – Auckland exited their lockdown on Monday. Schools and customer-facing businesses were allowed to reopen, and a ban for travelling outside the city has been lifted as well. However, social distancing requirements remain in place, and anyone over the age of 12 must wear a facial covering on public transport.
Covid-19 – Due Diligence And Asset Management
Buffett Hunts Abroad with $6 Billion Wager on Japanese Firms
Brief: Warren Buffett, with more than $146 billion of cash on hand, has been struggling to find attractively priced assets at home in the U.S. Now, he’s looking abroad. The announcement late Sunday by Buffett’s Berkshire Hathaway Inc. that it bought stakes in five of Japan’s biggest trading companies marks one of his largest-ever forays into Asia’s second-largest economy. The wagers show that Berkshire’s chief executive officer, who turned 90 over the weekend, is willing to expand the company’s horizons in his search for ways to supercharge the Omaha, Nebraska-based conglomerate’s growth. “I think this is a definite signal that Berkshire is more likely to examine and pursue potential investments internationally,” David Kass, a professor of finance at the University of Maryland’s Robert H. Smith School of Business, said. “This could be the beginning of the tip of an iceberg. There could be many more investments such as this.” The investments into commodity-centric Japanese conglomerates known as “sogo shosha,” disclosed in a statement from Berkshire, underscore Buffett’s willingness to bet on economically sensitive companies despite the pandemic. The five Japanese companies also have interests in businesses ranging from home-shopping networks to convenience-store chains, offering Berkshire exposure to a wide swath of the Japanese economy.
Women-Managed Funds are Outperforming as Tech Exposure Pays off, Goldman Finds
Brief: Mutual funds managed by women are outperforming those managed by men this year as higher relative exposure to technology names drives performance, according to new research from Goldman Sachs. The firm found that 43% of women-managed funds — as defined by those with at least one third of portfolio manager positions held by women — have outperformed their benchmark this year, compared with just 41% of those managed by men. Adjusting for volatility, the median fund with all women portfolio managers has returned more than double that of the typical all-male managed fund. “Female-managed funds withstood many of the market swings, with the median fund outperforming its benchmark by 50 [basis points] from the start of the year to March 23rd. On the other hand, the typical fund with no women managers lagged its benchmark by 20 [basis points] during that period,” Goldman strategists led by David Kostin wrote in a note to clients. “Since the market trough, 48% of female-managed funds have generated alpha, compared with only 37% of all-male funds.”
‘I Can’t Believe I’m Saying This, But I’m Passing on Seth Klarman’
Brief: Exclusivity is like fiat currency: It only works if everyone believes it’s real. For decades that wasn’t a problem for Seth Klarman’s $29.5 billion Baupost Group. The only way to get money into its famed hedge funds was to already have some invested, and everyone knew it. Even for that coterie, Klarman would periodically slide some of their capital back, a potent reminder that Baupost didn’t need more — or your — money. But doubts have begun to percolate within the elite investor class, an investigation by Institutional Investor reveals. “We’re walking away,” says one capital allocator. It’s not clear whether or not Baupost knows this yet. The firm declined to comment for the story. “Seth is running Baupost more like a wealthy person might run their personal money than like the aggressive hedge fund manager that he’s been over the years,” the investor says. “He has pretty considerable net worth and all of his money invested in that firm. Other people’s fees are paying for him to run his personal money. If you want to come along, come along.” But that allocator won’t. “Even though we have terribly high regard for Seth,” the investor went on, “this isn’t what we want. Performance is slipping; the strategy changed. It’s not the consistent, thoughtful type of process and results that they had for a couple of decades.” Baupost’s best days have passed — at least for the firm’s clients, the investor asserts.
Institutional Crypto Interest Hasn’t Been Affected by COVID-19
Brief: The coronavirus pandemic has truly been a watershed event — not just for the financial industry but for the world at large. Many had plans and goals that they wanted to achieve before the year ran out but had to stop. Companies had to file for bankruptcy, and people lost their jobs. Like every sector of the global economy, the financial sector has also suffered significantly from the effect of the pandemic. Countries have been scrambling to keep their economies afloat, while people have been looking for means to stay solvent. It goes without saying that stock markets and financial institutions across the world are uniquely vulnerable at this point. This is a level of danger that the world has never seen before. Even the global financial crisis of 2008 wasn’t able to prepare us for the impact COVID-19 would have on the world economy. However, one aspect that has so far managed to weather the storm has been the crypto market. While Bitcoin (BTC) dropped to $3,800 in March, the top cryptocurrency’s value managed to surge and consolidate faster than any other investment vehicle in the world. The stock market has just begun to rebound, and alternative assets are still in their everlasting state of volatility. Cryptocurrencies, however, have been going strong.
GTCR Raising $6.75 Billion for New Buyout Fund
Brief: GTCR is seeking to raise $6.75 billion for a buyout fund that would be its biggest yet, according to a person with knowledge of the matter. The firm has begun preliminary discussions with prospective investors, said the person, who requested anonymity because the talks are private. A spokeswoman for GTCR declined to comment. The Chicago-based firm raised $5.25 billion for its 12th buyout fund, which closed in October 2017 and marked GTCR's largest fundraising to date. "We have the organizational capacity to pursue more and potentially larger-scale investment opportunities," Craig Bondy, a managing director, said at the time. The firm has traditionally focused on five sectors: technology, business services, media and telecommunications, health care and financial services and technology. It announced this month an agreement to acquire Xermelo, an oral therapy for carcinoid syndrome diarrhea. In July, GTCR agreed to sell Optimal Blue, a digital marketplace for mortgages, and in June announced the purchase of software maker Citra Health Solutions.
Warburg Pincus Seeks $2.5 Billion for New Financial Sector Fund
Brief: Warburg Pincus is seeking to raise $2.5 billion for its second fund dedicated to financial sector deals, according to a person with knowledge of the matter. The private equity firm has begun preliminary discussions with investors about the WP Financial Sector II fund, which will invest alongside its flagship vehicle in areas such as payments and financial technology, said the person, who asked not to be named because the information isn’t public. It plans to formally launch capital-raising efforts in November, with a first close targeted for mid-2021, the person said. Former Treasury Secretary Tim Geithner, Warburg Pincus’s president, will oversee the fund, the person said. The firm gathered $2.3 billion for its first financial sector fund, which closed in December 2017. A spokeswoman for New York-based Warburg Pincus declined to comment. Warburg Pincus, which has more than $53 billion in assets under management, made a $400 million investment in financial technology service provider Wex Inc. in June, and last year acquired an 80% equity stake in Indian education finance company Avanse Financial Services Ltd.
