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Coronavirus Diligence Briefing

Our briefing for Monday February 22, 2021:

Feb 22, 2021 5:31:03 PM

  • In the United States, President Joe Biden will make the solemn move and order all flags flying over federal buildings to fly at half-staff to mark 500,000 American deaths due to the coronavirus pandemic. White House Press Secretary Jen Psaki said the flags will remain at half-staff for the next five days and “will highlight the magnitude of loss that this milestone marks for the American people and so many families across the country.” Elsewhere in America, Democrats begin their final push this week for President Biden’s $1.9 trillion stimulus plan, ditching any pretense of bipartisan involvement, so it can quickly pass the package before an earlier round of benefits runs out. The House of Representatives plan to vote as soon as Friday, which will then push the bill into the Senate for next week.
  • In Canada, the country’s chief medical adviser said on Monday that the department is poised to make a decision on the AstraZeneca COVID-19 vaccine in the coming days. Dr. Supriya Sharma told the House of Commons health committee that Health Canada has received all the necessary scientific information from the company. The remaining hurdle is how the health regulator will disseminate information to medical professionals about how and when a vaccine should be administered and in what groups. Other countries such as the United Kingdom, Australia and the European Union bloc of nations have already authorized the vaccine in their jurisdictions, but under different conditions. “It’s complicated. We know that we’ve got different regulators looking at the same data for AstraZeneca and are making different decisions based on science. That’s why this is taking a little bit longer than the ones we’ve done before,” Sharma said.
  • United Kingdom Prime Minister Boris Johnson announced the government’s roadmap for gradually easing COVID-19 restrictions on Monday. According to Prime Minister Johnson, the plan will be rolled out in four phases beginning March 8th with schools reopening across England and limited outdoor social interaction. If all goes according to plan, the last stage will be implemented no sooner than June 21st, which will see most social contacting rules removed and establishments such as nightclubs being allowed to reopen. Personal life events like weddings will also have no limitations if all things go well. Prime Minister Johnson, speaking during a press conference, said Britons have a glimmer of hope, thanks to an “unparalleled” vaccination program, meaning the country was “now travelling on a one-way road to freedom.” 
  • Bloomberg is reporting German Chancellor Angela Merkel aims to develop a plan that will pave the way for a cautious reopening, but the next steps must be done “smartly” and with more testing. The person familiar with the discussion Merkel had with leadership of her Christian Democratic Party said the Chancellor has identified three key areas for easing: private gatherings, restaurants and leisure activities. Reopening stores weren’t mentioned. Even without a national strategy on schools, some students in 10 of Germany’s 16 states returned to classes on Monday.
  • The Philippines have approved China’s Sinovac Biotech coronavirus vaccine for emergency use on Monday. The Philippines’ Food and Drug Administration head Eric Domingo said the Sinovac inoculation can be used for healthy people aged 18 to 59 but isn’t recommended for health workers frequently exposed to the virus due to its 50.4% efficacy for this group. Once the first batches of the vaccine arrive in the next 3 to 5 days, it is expected those shots will be administered to soldiers and other non-health front-line workers like supermarket employees, said presidential spokesperson Harry Roque in a separate meeting.
  • The World Health Organization (WHO) has a message for the rest of the world’s higher-income countries: we don’t want your money; we want your vaccines. With higher income countries approaching vaccine makers to secure more inoculations, it is reducing the amount of vaccine supplies for the WHO’s Covax initiative. “If you cannot use money to buy vaccines, having the money doesn’t mean anything, said Director-General Tedros Adhanom Ghebreyesus during a briefing on Monday. Germany had pledged to donate $1.8 billion USD to global efforts to combat the pandemic on Friday, following similar moves made by France and the United Kingdom last week.  Many developing countries are still waiting to give their first shots after wealthier countries have inoculated millions of their residents so far.

Covid-19 – Due Diligence And Asset Management

World’s Top 10 Hedge Fund Managers Earn $20.1 Billion in 2020

Brief : Millennium Management’s Israel Englander earned $3.8 billion last year, landing him the biggest payday of any hedge fund manager in 2020, showed data from Institutional Investor. Englander more than doubled his $1.5 billion payday in 2019 and made $2 billion more than the previous year’s rich list leaders Chris Hohn and Jim Simons, while making gains of 26% for his investors. The top 10 hedge fund managers globally earned $20.1 billion in 2020, a 50.2% rise from $13.4 billion in 2019, against the backdrop of volatile markets amid the coronavirus pandemic. Hedge funds made gains of 11.7% on average in 2020 amid a huge sell-off in March and large economic shutdowns following the emergence of the novel coronavirus, according to data from Hedge Fund Research. But top 10 averaged returns of 43% in 2020, with Coatue Management making 65%, Renaissance Technologies racking up 76% and Tiger Global Management 48%, the data from Institutional Investor showed. All of the top 10 hedge fund managers made over $1 billion in 2020, compared with eight in 2019.

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Don’t Ignore “Lockdown Fatigue”, UK Watchdog Tells Finance Bosses

Brief: Staff at financial firms in Britain are suffering from “lockdown fatigue” and their bosses are not always making sure all employees can speak up freely about their problems, the Financial Conduct Authority said on Monday. Many staff at financial companies have been working from home since Britain went into its first lockdown in March last year to fight the COVID-19 pandemic. One year on, the challenges have evolved from adapting to working remotely to dealing with mental health issues, said David Blunt, the FCA’s head of conduct specialists. “During this third lockdown, there has been a greater impact on mental well-being, with many people struggling with job security, caring responsibilities, home schooling, bereavements and lockdown fatigue.” Bosses should continually revisit how they lead remote teams, he said. “The impact of COVID-19 is creating a huge workload for those considered to be high performers, while the remote environment potentially makes it much more challenging for those who were previously considered low performers to change that perception,” Blunt told a City & Financial online event.

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BlackRock Turns Bear on Credit, Treasuries, Bull on Stocks

Brief: BlackRock Inc. said it’s turned bearish on credit and government bonds, downgrading the two asset classes to underweight over the long-term because of high valuations and inflation expectations. A stronger economy on the back of the Covid-19 vaccine rollout, combined with the potential for as much as $2.8 trillion of additional fiscal stimulus and higher inflation will drive up nominal yields this year, the world’s biggest money manager said in a note Monday. The surge in public debt, and increased appetite for it, could also pose a risk over the longer-term, the firm said. “We turn underweight credit due to rich valuations and are now modestly overweight equities,” Jean Boivin, head of the BlackRock Investment Institute, and others said in the note. “Equities valuations are also closer to long-term averages after factoring in historically low interest rates and an improving earnings outlook.” The call is in line with a broader concern that’s sent the 10-year Treasury yield soaring in recent weeks: that price pressures are poised to re-emerge amid an economic boom powered by vaccines, pent-up consumer demand and another round of government stimulus. The New York-based firm said it prefers inflation-linked bonds.

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Man GLG’s Flamed Urges Market Neutral Tilt as Inflation Risk Looms Amid Equities “Euphoria”

Brief: Inflation is the next big risk facing the nascent economic recovery, and equity investors should be “exceptionally selective” in their exposures, tilting portfolios towards market neutral strategies that will help avoid excessive beta risk, says Man Group’s Pierre-Henri Flamand. Flamand – CIO emeritus and senior investment adviser at Man GLG, the discretionary hedge fund unit of London-listed investment giant Man Group – believes UK, European and Asian markets now offer attractive relative value stockpicking opportunities away from the “equity euphoria” seen Stateside. In a recent market commentary, he said the surge in government borrowing globally during the coronavirus pandemic to keep economies afloat and stave off a downturn may ultimately prove “a significant drag on growth and earnings for years to come”. As a result, investors should “look beyond the good news”, and instead construct their portfolios “with one eye on a potential inflationary future”. Specifically, this means pivoting towards certain UK, European and Asian stocks, and away from “frothy” US equities whose prices are being driven up by “all the frustrated ambitions of last year”.

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Pandemic Caused $220 Billion of Global Dividend Cuts in 2020, Research Says

Brief: Global dividends fell sharply in 2020 due to the coronavirus pandemic, with the amount of investor payouts declining 12.2% to $1.26 trillion, according to new research. As the international public health crisis spread throughout the world, prompting lockdowns and curtailing business activity, dividend cuts and cancellations totaled $220 billion between the second and fourth quarters of 2020, according to the latest Global Dividend Index from asset manager Janus Henderson. Still, the total amount of dividends paid out between April and December 2020 was $965.2 billion, noted Janus Henderson, which analyzes dividends paid by the 1,200 largest firms by market capitalization before the start of each year. Dividend cuts were most severe in the U.K. and Europe, the index found, with both together accounting for more than half the total reduction in payouts globally, “mainly owing to the forced curtailment on banking dividends by regulators,” Janus Henderson found.

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A Year After Covid Crash, Pandemic Losers are the New Winners

Brief: A year after Covid-19 reordered world markets, sparking a brutal selloff for many stocks and creating new lockdown darlings, the prospect of vaccine-led reflation is turning the tide for the pandemic’s main laggards. Rebounds in shares that were the hardest hit during the early days of the crisis have helped equity benchmarks around the world climb to near record highs. The likes of European tour operator TUI AG and U.S. mall owner Simon Property Group Inc. are among those that have rallied most strongly. “There’s broad opportunity in those laggards,” said Hani Redha, a portfolio manager at PineBridge Investments, referring to airline stocks, cruise operators and hotels. “We are on the more bullish side that there’ll be a lot more normality coming back sooner than you may think.” The increasing optimism among investors about an end to months of lockdowns and travel restrictions can also be seen in the recent underperformance of those stocks that were among the pandemic’s biggest winners. The likes of Zoom Video Communications Inc. and Germany’s Delivery Hero SE, which soared as the coronavirus took hold and changed the way we all live, are now some way off their peak valuations.

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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