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Our briefing for Monday February 1, 2021:
Feb 1, 2021 3:40:11 PM
- United States President Joe Biden plans to meet with a group of Republican senators on Monday to see if there is any common ground on the administration’s $1.9 trillion COVID-19 relief proposal. While President Biden is known for his ability to work across the aisle, this might be a challenge – even for him. A group of 10 Republican senators rolled out a counter proposal of $600 billion. “There is obviously a big gap between $600 billion and $1.9 trillion. I don’t believe any of us are mathematicians, but clearly the amount needs to be closer to what he (Biden) proposed than smaller,” said White House spokeswoman Jen Psaki. The Biden administration is citing urgency, noting the need for Americans to access unemployment insurance, food insecurity, funding for vaccine distributions and public schools.
- Canada’s federal government has unveiled a new loan program aimed at businesses to survive COVID-19 and its subsequent lockdowns. The program will be called the Highly Affected Sectors Credit Availability Program, or HASCAP for short, and Monday was the first day businesses could apply. Businesses can qualify for between 25,000 and $1 million if they meet the primary condition that their revenues have fallen by at least 50% at least three months out of the previous eight. The program is only for companies that have already qualified and/or are receiving a previous government wage-subsidy program or rent subsidy program.
- United Kingdom Health Secretary Matt Hancock provided an update Monday during a news briefing and said the country will protect its COVID-19 vaccine supply, but also play a part ensuring the whole world can get access to vaccines. Hancock also touched on the recent fallout with the European Union, concerning AstraZeneca vaccine supplies stating, “my attitude has always been we protect every UK citizen as fast as we can and at the same time we are generous around the world.” Elsewhere in the country, some sad news as Captain Tom Moore has been hospitalized with COVID-19. You may remember Mr. Moore’s record-breaking fundraising effort of 41 million USD for health service workers by walking 100 lengths around his garden during last year’s initial lockdown. What made the feat so impressive was Mr. Moore was approaching his 100th birthday and was even knighted by the Queen for his fundraising efforts.
- German Chancellor Angela Merkel met with the country’s 16 state leaders, along with representatives from both vaccine manufacturers and the European Commission via video conference to discuss possible improvements to Germany’s vaccination program. Chancellor Merkel said her pledge to vaccinate the population by the end of the summer remains, but her Health Minister Jens Spahn said Germany will “have to make a great effort” to do so. German firm BioNTech along with its US partner Pfizer promised to deliver up to 75 million more coronavirus doses to the European Union in the second quarter, which should help in the effort.
- In Australia, the city of Perth and surrounding area have begun a snap five-day lockdown after a security guard working at a quarantine hotel tested positive for the coronavirus. Western Australia, for which Perth is the capital of – had not reported a case of locally acquired coronavirus for 10 months. The lockdown will include the city Perth – a city of around two million – along with neighbouring regions and citizens must stay home, except for essential work, healthcare, food shopping or exercise. The lockdown will run until Friday night.
- Over the weekend, the World Health Organization (WHO) continued their research through the city of Wuhan, China with one of the stops being the wet market thought to be central to the disease’s spread. According to CNN, the WHO team members have been granted access to months of Chinese influenza data, which may contain vital clues as to the early spread of the coronavirus. The WHO’s team next visits will include the Centers for Disease Control in Hubei and the Wuhan Institute of Virology. The latter gained notoriety thanks to former United States President Donald Trump’s administration unproven claims that the laboratory was the source of the coronavirus and not the wet market that has now infected over 100 million people worldwide.
Covid-19 – Due Diligence And Asset Management
Why Hedge Funds are More Likely to Cause a Market Crisis than Robinhood’s GameStop Traders
Brief : Over the past week, many people have asked me the same question: “Will the GameStop situation lead to a market crash?” The direct answer is an emphatic NO! However, it will likely lead to increased volatility over the near-term, which is why I suggest traders use lighter than normal positions until the volatility calms down. The markets have always been dominated by the large institutions and, for the record, I absolutely love the recent surge in retail trading. Here is one side effect: When retail traders take long positions against the short positions of these big institutions, and then drive up the price of these stocks, it leads to what is called a “short squeeze.” When these institutions are forced to cover a stock, they are sometimes forced to sell their long positions (if the loss is big enough) to meet margin requirements, to reduce leverage, or to possibly raise cash for future redemptions. This forced liquidation of long positions can lead to a quick, short-term decline in stock prices, such as the one we saw on Monday, Jan. 25 between 10:45 am.-11:05 a.m. EST, (see chart) but I don’t see it leading to a market crash.
Hedge Fund Body Alarmed by Retail Investor Frenzy ‘Distortions’
Brief: Wall Street’s retail trading frenzy has distorted markets, global hedge funds industry body AIMA said on Monday, adding it was concerned that lawmakers were encouraging such moves. Retail investors gathering in social media chatrooms like Reddit have been driving up the price of stocks like GameStop shorted by hedge funds, with the focus shifting to other parts of the market on Monday, such as silver. “What is dangerous, amid this trading frenzy, is that retail investors have been chasing prices so far above any sane valuation and that many will end up nursing losses,” AIMA CEO Jack Inglis said in a letter to members, who manage $2 trillion. “The role of some supposedly responsible lawmakers, who have been cheering these events from the side-lines, with a knee-jerk reaction against short selling, is concerning to say the least.” U.S. Democratic lawmaker Alexandria Ocasio-Cortez, said last week that people felt “everyday people” were finally able to “get back” at those who had all the marbles on Wall Street and forced once hedge fund into an existential crisis.
UK PE Market Bounced Back After Covid-19 Hit
Brief: UK private equity deal activity bounced back in the second half of 2020, although a profound slump in transactions in Q2 as lockdown gripped the M&A market meant that total annual deal volumes hit their lowest levels in more than seven years. KPMG’s latest study of UK transactions involving private equity investors indicates that a total of 889 deals completed over the course of 2020, with a combined value of GBP87.2 billion. This was the fewest number of private equity transactions seen in the UK since before 2014, and a fall of 26 per cent on the previous year, which saw 1,199 deals worth GBP107.7 billion. Mid-market PE deals Transactions with an EV between GBP10m and GBP300m. were particularly impacted by the challenges brought about by the Covid-19 pandemic, with both volumes and values falling by a third on the previous year. In total, 452 mid-market transactions completed during the year, with a combined value of GBP28.45 billion. However, while total annual deal volumes were ultimately hampered by the cliff-fall seen in the second quarter, there was a clear bounce-back in activity in Q3 and Q4. Deals that had been put on hold sprung back to life, and PE investors, still sitting on substantial reserves of capital, mobilised once more, resulting in over two hundred transactions completing in each of the final two quarters. Jonathan Boyers, head of M&A for KPMG in the UK, says: “This is a tale of retreat and recovery.
Greylock Files for Bankruptcy After Losses Spur Withdrawals
Brief: Greylock Capital Associates filed for bankruptcy protection in New York as investors pulled money from the hedge fund following three consecutive years of losses. The Chapter 11 proceedings will allow Greylock to restructure its debt and terminate its Madison Avenue office lease in Manhattan, according to a Jan. 31 filing signed by Chief Financial Officer David Steltzer. Assets under management at the emerging markets hedge fund -- which more than halved since 2017 to $450 million at the end of 2020 -- will drop by $100 million by the end of March in the absence of new investments, according to the filing. Greylock has cut its staff to nine people from 21 three years ago, and is in talks with its remaining major investors, confident that the business can “successfully reorganize and continue as a going concern” after the bankruptcy, Steltzer wrote. The firm hasn’t hired any financial or business consultants. The firm has no plans to shut down, according to a message from Greylock President Ajata “AJ” Mediratta. The hedge fund opened a small office in Stamford, Connecticut last year to make it easier for the firm’s commuters, reducing the need for a large office in midtown Manhattan.
Entrepreneurs Re-Think Investment Priorities During Lockdowns
Brief: Research by regional mid-market private equity firm YFM Equity Partners (YFM) has revealed a growing focus on culture and working practices, rather than simply valuation, after almost a year of interrupted working and repeated lockdowns. The survey polled over 120 entrepreneurs, advisers and dealmakers across the UK in December, and showed that the primary consideration for boards looking for VC and growth funding was the investors’ approach to working (48 per cent), closely followed by their cultural fit with investors (45 per cent), whilst the financial terms, once the dominant consideration, came in as the third most important criteria, only selected by 38 per cent of respondents. David Hall, investment partner at YFM and managing director, says: “It is clear that entrepreneurs have different priorities after the experience of the pandemic, and the impact it has had on their organisations, their people and their own quality of life. “Our survey suggests that management teams are now placing more value on their long-term organisational health and bringing on board a supportive partner. That doesn’t mean that VCs can get better value for money, but rather they have to demonstrate the right approach and ethical standards as a prerequisite before they get through the door of the best growth businesses,” he added.
Wells Fargo CEO Scharf’s Pay Drops Nearly 12% in 2020
Brief: Wells Fargo & Co Chief Executive Officer Charles Scharf’s annual pay fell by about $3 million, or 12%, in 2020, a regulatory filing showed on Friday. Scharf will receive $20.3 million for his work during the year, compared with $23 million in 2019, the bank said. bit.ly/3ahptPv. Scharf, who served as a top lieutenant to JPMorgan Chase and Co Chief Executive Jamie Dimon during the financial crisis of 2008, took over the reins at Wells Fargo in 2019. The fall in Scharf’s pay compares with a 36% drop in Goldman Sachs Chief Executive David Solomon’s salary and a 20% jump in compensation for Morgan Stanley’s top boss James Gorman. JPMorgan held CEO Dimon’s annual pay at $31.5 million. Wells Fargo’s board cited the drop in the bank’s financial results for 2020 as one of the reasons for Scharf’s lower compensation, noting that the results were significantly impacted by the effects of the COVID-19 pandemic. The bank last year posted its first quarterly loss since 2008 and also saw its profit plunge to just 1 penny per share in the first quarter of 2020. However, Wells Fargo ended the year with a rare quarterly profit beat. The bank has operated under a dark cloud since 2016 when details emerged about millions of phony accounts employees had created in customers’ names without their permission to hit sales targets.
