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Coronavirus Diligence Briefing

Our briefing for Thursday April 22, 2021:

Apr 22, 2021 3:40:07 PM

  • The United States’ Centers for Disease Control and Prevention (CDC) are “in the process of putting together further guidance” for vaccinated Americans, according to White House senior adviser for COVID-19 response, Andy Slavitt. Earlier this month, the CDC told Americans it was safe for fully vaccinated people to resume travel if they maintain social distancing and wear masks. Slavitt was not specific on a timeline for updated guidance, but when they are they will “be science-based and hopefully very practical.” 

  • In Canada, the federal government is looking into options to toughen border controls as cases continue to surge in the country and around the globe, such as India. Conservative Leader Erin O’Toole has called for the temporary suspension of certain flights, referring specially to the B1617 variant first found in India and the P1 variant, first detected in Brazil. Speaking to CTV News Wednesday evening, Public Safety Minister Bill Blair said, “I can confirm for you that we are actively considering all and any additional measures that are or will be necessary to protect Canadians and I hope that we will be able to share more that with you in the next 24 hours or so.”

  • The United Kingdom’s Department of Transport says they are working on producing coronavirus passports that will be available “as soon as possible”. The government is assuming many tourist hotspots will require visitors to have been vaccinated against COVID-19 or provide proof of a recent negative test before entering the country. Under the government’s current roadmap for easing restrictions, foreign holidays for people living in England could be allowed as early as May 17th. This news follows the Daily Telegraph report that COVID-19 passports would at first only be available for those travelling overseas, with a wider domestic scheme unlikely to be ready next month. 

  • The United Arab Emirates (UAE) will consider “strict measures” to limit the movement of people unvaccinated against the coronavirus. Earlier in the week, Saif Al Dhaheri, a spokesman for the UAE’s National Emergency Crisis and Disaster Management Authority, said the following via social media: “Strict measures are being considered to restrict the movement of unvaccinated individuals and to implement preventive measures such as restricting entry to some places and having access to some services, to ensure the health and safety of everyone.” No further details were given for the “preventative measures” beyond restrictions to access on certain places and services in the country. The UAE also made a move on Thursday to suspend all flights from India, including transit passengers, as coronavirus cases in the country spiked to global records.

  • In Japan, Prime Minister Yoshihide Suga recommended placing Tokyo, Osaka and other areas under a state of emergency to help stop the surge of coronavirus cases just three months out before the capital is supposed to host the Olympics. Prime Minister Suga said he will make a formal decision after consulting with experts, but it is already expected to be put in place fairly quickly, with media reporting the measures likely taking effect from April 25th until May 11th. When put into place, it will be the third emergency measure used by the government since the pandemic started.

  • Bloomberg is reporting for the second time in five months, the air-travel bubble between Hong Kong and Singapore has been called off. Bloomberg’s source, asking not to be identified as they’re aren’t authorized to speak publicly on the matter, said no new date has been set yet. The cancellation was initiated by the Singapore side, and is another bump in the road for the two Asian financial hubs that have been trying to revive bubble plans since previous plans in November were shelved due a virus flareup in Hong Kong.

Covid-19 – Due Diligence And Asset Management

Hedge Fund IPM Shuts Doors After Losing $4 Billion in Pandemic

Brief : Informed Portfolio Management, a Swedish hedge fund that had relied on statistical models to devise its strategies, is set to shut its doors and return investor capital after losing roughly $4 billion during the pandemic. IPM, whose main owner is Stockholm-based investment firm Catella AB, had assets under management of close to $5 billion in late 2019, before the pandemic hit. A year later, that amount had more than halved to $2 billion, with the investor exodus since then depleting assets to about $750 million. “The recent investment market for systematic macro-funds has unfortunately been very challenging and IPM has had weak returns and large capital outflows,” Catella said in a statement on Thursday. “IPM will ensure that all investors are treated fairly. This includes that all investors will be able to redeem their capital in the coming months according to each fund’s specific liquidity rules.” IPM had used quantitative strategies, which rely on mathematical models instead of on-the-ground analysis of portfolio assets. But the historical statistical models the fund built proved unequal to the task of predicting how markets would move during the volatility brought on by the coronavirus pandemic. IPM joins a growing list of hedge funds shutting down in recent years as investors rethink their allocations to the industry. More hedge funds have closed than started in the last six years, with 770 of them shuttering in 2020, according to data compiled by Hedge Fund Research Inc.


Dimon: The Post-Lockdown Economic Boom has ‘Absolutely’ Begun

Brief: JPMorgan Chase (JPM) CEO Jamie Dimon says the post-lockdown economic boom has "absolutely" begun. On a client webcast on Wednesday, the long-time bank CEO echoed his upbeat views on the U.S. economy that he recently outlined in his annual letter to JPMorgan shareholders in which he predicted an economic boom that "could easily run into 2023." Pointing to the vaccine rollout, Dimon said on the webcast we are "lucky to have it" and people "should be happy to go back to work," both factors that are "critical" to a stronger economy. Dimon, who has been vocal about raising the minimum wage, acknowledged that many have lost their jobs and are suffering from the pandemic, but he believes that the economy today is "very different" from 2009. "For the rest of Americans, their savings accounts are up $2 trillion," Dimon said. "Home prices are up. Asset prices are up. They're anxious to get back to work. There's a little bit of euphoria in places that have opened up. Even driving in today, to New York, driving down the streets, you have a lot more mothers and schools are open. Companies are in very good shape." Dimon added that JPMorgan sees higher spend in cities that have opened up and that spending on travel and leisure is higher than pre-COVID.


Hedge Fund Assets Soar to All-Time High, Fuelled by Record Gains and Booming Investor Confidence

Brief: Global hedge fund industry assets swelled to a new record high of USD3.8 trillion in the first three months of 2021, as managers recorded their strongest quarter since 2000 and investors duly poured more capital into a broad selection of strategy types, with the biggest hedge funds still taking the largest slice of client money.  Hedge Fund Research estimates that net asset inflows from allocators reached about USD6.1 billion between the start of January and the end of March. That brought total net new inflows since Q3 2020 to USD22.1 billion. Overall, hedge funds added a total of USD201 billion during the three-month period, as HFR’s main Fund Weighted Composite Index spiked 6 per cent in Q1 – its strongest quarter since 2000. Assets managed by event driven hedge funds have now topped more than USD1 trillion for the first time ever, only the second hedge fund strategy type to hit the USD1 trillion mark after equity-focused funds surpassed that milestone in Q4 last year. Total event driven capital grew by USD85.4 billion in Q1, bringing this sector’s assets to USD1.05 trillion. Event driven sub-strategy capital increases were led by special situations, which saw USD46 billion of performance-based capital gains in the quarter, bringing sub-strategy assets to USD483.3 billion. Overall, HFR’s Event Driven index surged 8.2 per cent in the three-month period.


A Year of Turmoil for the Private Markets, but PE Continues to Outpace Public Markets, finds McKinsey Report

Brief: McKinsey & Company today published its Global Private Markets Review 2021 – A year of disruption in the private markets – maps out a tumultuous year for global private markets, as Covid-19 wrought havoc on fundraising and deal activity, but finds that private equity rebounded vigorously in the second half of 2020, as buyout fundraising nearly doubled in Q3 and Q4 relative to the first half of the year in North America, and more than tripled in Europe. The report also concludes that, by nearly any measure, private equity has still outperformed public market equivalents – with net global returns of over 14 percent. Overall funds raised fell slightly year-on-year due primarily to an apparent short-term discontinuity in the early months of the pandemic, but, the pre-pandemic pace of fundraising returned by Q4. AUM growth and investment performance in most asset classes eased off in the spring as the industry adjusted to new working norms, then came back strong in the latter half of the year. Private equity purchase multiples kept climbing and dry powder reached another new high, standing at USD1.4 trillion (60 percent of the private markets total), having grown 16.6 per cent annually since 2015.


Blackstone Bets Billions on Reopening and Travel Revival

Brief: Blackstone Group Inc. is doubling down on a post-Covid 19 economic recovery, investing heavily in businesses that will benefit from a world that’s gradually reopening. New York-based Blackstone invested $17.7 billion in the first three months of the year, buying hotels including Extended Stay America Inc., private-jet operator Signature Aviation Plc and U.K. travel company Bourne Leisure. Investors continued to bet solidly on Blackstone, which saw its assets under management swell to a record $648.8 billion, the company said Thursday in an earnings report. Even as credit markets recovered and the stock market kept soaring, travel- and entertainment-related assets were struggling as people continued social distancing and local restrictions limited capacity at hotels and other venues. Blackstone says the firm is now seeing signs across its portfolio of companies that people’s behavior is shifting: At the Cosmopolitan hotel of Las Vegas, money going into slot machines was at record levels. Forward bookings for travel in the U.K. were also at a high. “This should be good time for the real world,” Blackstone President Jonathan Gray said in an interview.


Airlines see COVID Setback Driving Industry to $48 Billion Loss

Brief: The airline industry’s chief lobby group widened its estimate for losses this year by about a quarter, saying new COVID-19 flare-ups and mutations have pushed back the timeline for a restart of global air travel. Carriers will lose about $48 billion in 2021, the International Air Transport Association said Wednesday in an online presentation. It had earlier forecast a $38 billion deficit. “This crisis is longer and deeper than anyone could have expected,” said Willie Walsh, the former chief of British Airways owner IAG, who is now IATA’s director general. “Losses will be reduced from 2020, but the pain of the crisis increases.” The downward pivot comes as airlines contend with new travel bans and restrictions arising from outbreaks in large aviation markets such as India and Brazil. Governments of countries that have ramped up vaccinations most quickly have become cautious about restarting travel to prevent the import of new variants that could prove resistant to jabs. This week, the U.S. State Department said it would declare about 80% of the world’s nations no-go zones. In Europe, the U.K. has held off on confirming a plan to restart travel in mid-May, saying it will decide closer to the date.


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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.


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