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Our briefing for Monday June 29, 2020:
Jun 29, 2020 4:51:21 PM
- As the global coronavirus infection count has now surpassed 10 million worldwide, New York state governor Andrew Cuomo is calling on United States President Donald Trump to issue an executive order requiring everyone to wear masks. Once the epicenter of the coronavirus pandemic, governor Cuomo had to use a slow and steady approach to help bend the curve, while other states fast-tracked their reopening, and are now experiencing similar numbers to what New York state felt a few months ago.
- North of the border, as Canadians see what Americans are going through, Prime Minister Justin Trudeau is in no hurry to reopen the land border with the United States. Referring to the travel restrictions that are set to expire next month, Prime Minister Trudeau said he would continue working with America on what steps need to be taken into the month of August. Canada’s chief public health officer said on Monday the coronavirus is largely under control in the country but warned lifting pandemic measures too soon without a proper system of contact tracing and isolation would likely lead to relapses.
- United Kingdom Prime Minister Boris Johnson referred to the coronavirus pandemic as an outright disaster and nightmare for the country while being interviewed on Times Radio Monday. The Johnson government is set to roll out its next phase of economic response this week, which will emphasize the ability to “build, build, build” its way out of the crisis. Prime Minister Johnson said now was not the time for a full inquiry into his government’s response to the coronavirus as the 43,000 deaths suffered only trails the United States and Brazil, according to statistics from Johns Hopkins University.
- The European Union (EU) will issue a list of 15 non-EU states that will be allowed to travel into the block on Tuesday. The first phase of travel partners must show data they are handling the pandemic at least as well as the EU. That list right now includes China, where the virus first originated, as long as China reciprocates and allows EU nations to travel into their country as well. Not expected to be on the EU’s initial list of 15 countries; the United States.
- The World Health Organization (WHO) announced during a Monday news briefing they will be sending a team of officials into China to better understand how the coronavirus originated. WHO leaders hope the visit will help better prepare them for the future. Elsewhere in China, CanSino Biologics have produced a vaccine that has received approval to be used on the Chinese military. The news comes after CanSino’s vaccine had undergone successfully phase one and phase two trials in the country.
- Drug maker AstraZeneca has struck a $127M deal with Brazil for the production of its potential COVID-19 vaccine. Under the agreement, Brazil will start to locally manufacture AstraZeneca’s experimental vaccine. The country’s health official said they will look to produce 30 million doses of the vaccine with half of it being ready by December and the other half to arrive a month later. Brazil trails only the United States for coronavirus cases (1.2 million) and deaths (55,000+).
- In yet another potential sign of how easy the coronavirus travels, Australian officials have concluded the formerly innocent act of sharing a cigarette lighter may be to blame for the country’s latest outbreak. The Victoria Premier revealed over the weekend one of the cases has been traced back to a Melbourne hotel, which was also acting as a quarantine space for returning travellers. While no new cases were linked to travellers, virus spread may have occurred when hotel workers shared the cigarette lighter. Victoria state recorded its largest daily outbreak since April 11th on Monday and is seriously considering reimposing social distancing restrictions to help curb ongoing spread.
Covid-19 – Due Diligence And Asset Management
BlackRock Sees Big Risk of U.S. Easing Pandemic Support Too Soon
There is a significant risk that the policy response to the coronavirus crisis in the United States could be scaled back too soon, BlackRock Investment Institute’s global chief investment strategist Mike Pyle said on Monday. Pyle said that although there had been a strong U.S. fiscal and monetary policy response to COVID-19, there were concerns about the outlook. “There are significant risks around the U.S. retrenching (policy support) too soon,” he said during a presentation on the BlackRock Investment Institute’s mid-year outlook. Pyle said the firm was cautious on emerging markets because of a reduced capacity on the policy front to respond to the coronavirus shock compared with more developed economies, as well as a challenging public health dimension, especially in Latin America. Scott Thiel, chief fixed income strategist at the BII, said emerging markets also faced a greater risk of a policy mistake.
Hedge Fund Score Big Gains on Dividend Trades That Burned Banks
Brief:One of the largest financial market dislocations of the Covid-19 era has generated big gains for hedge funds that bet the turmoil would prove short-lived. The winning trades involved dividend futures, which derive their value from shareholder payouts by companies in benchmark stock indexes. Historically among the most stable of equity-linked investments, the securities have swung even more wildly than share prices over the past three months. One of the most heavily traded contracts in Europe tumbled almost 60% in March as a spate of dividend cuts spooked investors and banks dumped futures to hedge exposures at their structured product units. While firms including BNP Paribas SA, Societe Generale SA and Natixis SA lost money on their positions in the first quarter, the sell-off created buying opportunities for a clutch of bargain hunters. Ovata Capital Management, Oasis Management Co., York Capital Management and AM Squared Ltd. all scored double-digit returns on dividend futures as the securities snapped back from the March rout, buoyed by unprecedented government stimulus. The bets have helped the funds post year-to-date gains, bucking a 5% slump through May for the Bloomberg All Hedge Fund Index.
Asset Owners Take a Break From Virus-Ravaged Market
Brief: Real estate consultants and some investors are considering pressing pause on certain investments as the COVID-19 health-care crisis and recession batter the asset class. One Los Angeles-based pension fund has paused some real estate investments in part due to concerns around the valuation of properties. On June 23, the Los Angeles City Employees' Retirement System's board adopted a fiscal year 2021 real estate plan. Recommended by its consultant, Townsend Group, the plan said that whenever possible the $18 billion pension fund should halt new commitments to open- and closed-end funds with pre-specified portfolios as well as pause in funding recent open-end investment commitments because these assets' carrying value may not reflect current, lower market values. LACERS has a 7% target allocation to real estate and $777 million invested in that asset class. The pandemic has already rocked the real estate industry. Open-end fund redemption queues are elevated at roughly $14.4 billion, doubled since Dec. 31, the Townsend report to LACERS said.
Hedge Funds Are Rushing to Get Out of Bearish U.S. Stock Bets
Brief: Fast-money hedge funds are rushing to cover their bearish U.S. stock bets even as the equity rally threatens to break down. Speculative investors bought a net 206,227 S&P 500 Index E-mini contracts in the week to June 23, the most since 2007, according to the latest Commodity Futures Trading Commission data. Net short positions in the contracts were at their highest in almost a decade as the U.S. equity rebound pushed the benchmark back toward record territory. The surge in short-covering comes as traders wrestle with what to do after a pause in one of the most unloved rallies in recent financial history. The S&P 500 had climbed more that 40% from its late-March low to early June, despite concerns that investors were over-optimistic about the pace of the U.S. economic recovery. U.S. stocks fell almost 3% last week as the coronavirus spread showed no signs of slowing down. Other measures of trader positioning also point to an increase in short-covering activity. Short interest as a percentage of shares outstanding in the $266 billion SPDR S&P 500 ETF Trust had fallen to 4.9% Friday from 6.7% at the end of May, according to data from IHS Markit.
Knighthead, Certares Plan $1 Billion Fund for Travel Industry
Brief: Knighthead Capital Management and private equity firm Certares Management are raising $1 billion for a new fund that would seek to capitalize on a rebound in travel businesses disrupted by the Covid-19 pandemic, according to people with knowledge of the plan. Knighthead, the investment company led by co-founder Tom Wagner, will be equal partners with Certares in the venture, said the people, who asked not to be named because the plans aren’t public. The fund would take about 10 to 15 debt and equity positions over a five-year period. Representatives for Knighthead and Certares, both based in New York, declined to comment. Knighthead is one of several funds seeking to take advantage of market distortions caused by the pandemic, which caused governments worldwide to suspend travel and order residents to stay at home to fight the virus. The amount of travel-related debt trading at distressed levels swelled amid the lockdowns. For companies in the Americas alone, distressed debt issued by airlines, hotels and leisure and transportation businesses has increased more than five-fold to $28 billion since early March, data compiled by Bloomberg show. Knighthead, which has around $4.1 billion in assets under management, specializes in event-driven distressed credit and special situations across a broad array of industries.
It’s Gotten Harder to Divorce Your GP
Brief: As established managers and mega funds increasingly dominate the private capital industry, certain investor protections may be becoming less common. This includes no-fault divorce clauses, according to Preqin’s 2020 report on private capital fund terms. These provisions allow limited partners to remove and replace their general partner or terminate their limited partner agreement, even if the situation is not covered in the terms of the agreement. Such clauses are considered “critical” by many limited partners, according to a recent survey by the Institutional Limited Partners Association. “While only 25 percent of respondents have experienced a GP removal within the last five years, ILPA members consider no-fault removal provisions to be an essential investor protection worth fighting for,” the group said in a report on the findings. “Whereas for-cause removal provisions can only be triggered by an unattainably high bar, no-fault provisions are more straightforward to execute and serve as a guaranteed forcing mechanism in cases of egregious mismanagement or behavior.” According to the ILPA survey, 62 percent of group members had these provisions in place for at least half of the funds they invested with last year, while 37 percent had no-divorce clauses in more than 75 percent of the funds they allocated to.
