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Our briefing for Thursday August 27, 2020:
Aug 27, 2020 4:02:37 PM
- United States House Speaker Nancy Pelosi and White House Chief of Staff Mark Meadows are expected to hold a call on Thursday to discuss coronavirus relief legislation. The two sides haven’t spoken since talks broke down two weeks ago without a deal. This is just the first step though as both sides don’t think a deal will be made before lawmakers return to Washington in September. In any new government stimulus deal, the Democrats have pushed for a topline of above $2 trillion, which includes nearly half being treated as aid to state and local governments. The White House has firmly opposed the $2 trillion price tag and reject any new substantial aid for states and municipalities.
- In Canada, CBC is reporting a collaboration between a Chinese company and Halifax research team working on a potential COVID-19 vaccine has been put on ice amid tensions between the two countries. A partnership between the National Research Council of Canada and CanSino Biologics was announced in May. After promising human trials in China, the Canadian trials were set to begin in Halifax within the next few weeks. However, late last month, the Canada-China partnership was reported to be on shaky ground when China held up shipments to send to Halifax, which were supposed to arrive at the end of May. It is not sure if subsequent tensions between the two countries over the handling of a Huawei executive facing extradition to the United States and two Canadians being held in a Chinese prison played any role in this development.
- Similar to other European nations, the United Kingdom is now experiencing its highest number of new coronavirus cases in months. The UK recorded 1,522 new cases over the last 24 hours, their highest number since June 12th. The country is also struggling to keep up in their test and trace program. According to the Scientific Advisory Group for Emergencies, Sage at least 80% of close contacts of anyone infected with COVID-19 must be traced and isolated within 72 hours for the system to be effective. Data from the government’s test and trace system has shown between 71.6%-75.5% of infected people’s contacts were being reached and asked to self-isolate within 48-72 hours over the last two weeks.
- In Germany, Chancellor Angela Merkel has urged citizens to stop travelling to countries where there is a high risk of coronavirus infection. Germany has designated large parts of Africa, Asia, the United States, as well as some regions of Europe as some of those high-risk areas. Those returning from risky areas will have to go into a quarantine and wait until the fifth day at the earliest to take a COVID-19 test. If the test result comes back negative, the person can end their quarantine. Government officials are also looking to change a law for people making an avoidable trip to a high-risk area so they can no longer claim loss of income compensation due to a post trip quarantine.
- France is trying to avoid another mass shutdown by declaring areas as “red zones”. The country’s Prime Minister Jean Castex has declared 21 areas (20% of France’s regions) in the country as a “red zone”. Doing so allows authorities in those areas to make masks compulsory outdoors and close bars and restaurants in order to curb the spread of the virus. For instance, Marseille one of France’s largest cities has already taken this measure.
- The World Health Organization (WHO) is coming under fire again from countries such as the United States and Australia after returning from a three-week COVID-19 fact-finding mission in China. The WHO’s two party team spent three weeks in Beijing but didn’t visit the location deemed to be ground zero of the epidemic, Wuhan. This has fueled concern from western governments over Beijing’s commitment to finding legitimate answers to the cause of the pandemic. The WHO said the team was merely laying groundwork in advance of a full international mission. However, Dave Sharma, an Australian government MP said: “The international community is right to have serious concerns about the rigour and independence of the WHO’s early response to the pandemic, and its seeming wish to avoid offending China.”
Covid-19 – Due Diligence And Asset Management
Millennium Returning at Least $5 Billion to Investors This Year
Brief: Izzy Englander’s Millennium Management plans to return at least $5 billion to investors at year-end as part of an effort to create a more stable capital base. The money will come from a share class that can be redeemed in full after a year, people familiar with the matter said. The share class represents about $37 billion of the firm’s $45.4 billion in assets. In a new twist, any additional money raised will now be deemed committed capital, with the firm having three years to call the pledged money from investors, who learned of the change in a letter Wednesday. Once that happens, clients will be able to withdraw only 5% each quarter, meaning it would take five years to cash out completely. A spokesman for New York-based Millennium declined to comment. Englander’s firm has sought to lock up capital for longer ever since the 2008 financial crisis, when investors in need of cash pulled money, cutting Millennium’s assets in half. Other hedge funds had halted redemptions. Millennium, which climbed 12% this year through July, has produced steady returns over its three-decade history, making the new structure an easier sell. Two years ago, the firm started a 5%-a-quarter share class that now accounts for about $8.5 billion of assets.
Blackstone Gets Back into Rental Houses with Tricon Deal
Brief: Blackstone Group Inc., which led Wall Street’s initial foray into the single-family rental business, is making a new investment in suburban houses at a time when the Covid-19 pandemic is pressuring traditional commercial real estate. The private equity giant, which exited its stake in landlord Invitation Homes Inc. last year, is leading a group of investors in a $300 million minority investment in Tricon Residential Inc., which owns and manages more than 30,000 single-family rental homes and multifamily units in North America… The suburbs are in high demand as city-dwellers seek quarantine comforts such as backyards and room for home offices. At the same time, with more than 16 million Americans out of work, many renters have said they lack confidence in their ability to pay for housing, and experts are warning that the country is headed for a massive wave of evictions. Shares of single-family landlords have been rewarded during the pandemic as their rent collections have held up better than those of multifamily landlords. Tricon’s stock has surged 91% since March 23, compared with a 24% gain for a Bloomberg index of apartment REITs.
Emerging Markets Hedge Funds Surge as Equities Gain Through Global Pandemic
Brief: Emerging Markets and Asian hedge funds surged in Q2 2020, recovering from steep losses experienced in late 1Q, with many indices posting gains for YTD 2020 through July. The HFRI China Index gained 6.8 per cent in July, which followed a 14.5 per cent gain in Q2, the best quarterly performance since Q1 2019, to bring YTD performance to +13.1 per cent, as reported in the HFR Asian Hedge Fund Industry Report and the HFR Emerging Markets Hedge Fund Industry Report. Hedge fund capital invested in Emerging Markets also surged concurrent with the record performance gains, ending Q2 at USD244.4 billion (CNY1.55 trillion, BRL1.24 trillion, INR16.6 trillion, RUB16.9 trillion, SAR842 billion), an increase of nearly USD13 billion from the prior quarter. Hedge fund capital invested in Asian markets also increased to USD115.5 billion (CNY798 billion, INR8.57 trillion, JPY12.28 trillion, KRW1.09 trillion).
The Fed is Expected to Use a New Pandemic-Era Tool to Fight a Long-Running Battle Against Low Inflation
Brief: Even before Covid-19 crushed the economy, the Fed was worried about low inflation and was working on ways to let it run slightly hotter temporarily in order avoid the trap of long-term sluggish growth and weak pricing power. Chairman Jerome Powell, in a much-anticipated speech Thursday, is expected to discuss the Fed’s policy framework and specifically how it will alter its posture on inflation. The Fed has had a 2% inflation target, but in the decade since the financial crisis it has more often than not seen inflation fall below its target… The Fed has taken extraordinary actions to fight the impact of the coronavirus. It has vowed to keep rates at zero for a long time; it also has provided more liquidity, purchased assets and inserted itself in different markets to assure they run smoothly. The Fed already had been reviewing its policy framework, and inflation was part of it. Even before the virus, Fed officials had said they would allow inflation to overshoot their 2% target but they didn’t formalize it. “This is longer running than just Covid. If they had wrapped this up last year, Powell would have to signal this policy shift with rates above zero, ” said Jon Hill, senior fixed income strategist at BMO. “Since we’re already at zero, it means we’ll be at zero even longer and the central bank is going to be even more aggressive about trying to meet its inflation mandate. In the past they pre-emptively hiked to get ahead of inflation pressures. What they’ve shifted to is actually waiting until they get sustained inflation.”
Bridgewater is Having a Bad Year. David McCormick has a Plan
Brief: The email, formal and foreboding, landed at 9:38 a.m. on Monday, March 2. “Can you please call me when you have a second to talk?” the Bridgewater Associates employee asked. The call, the email’s recipient knew, would not be good: Karen Karniol-Tambour, the hedge fund’s head of investment research, was scheduled to be a lunchtime speaker at an investment conference at Washington, D.C.’s Watergate Hotel just over 24 hours later. But at that moment, on March 2, a man in Westchester County — a mere 30 miles from Bridgewater’s two main campuses in Westport, Connecticut — was undergoing treatment as the first Eastern Seaboard case of Covid-19 with an unknown origin. Karniol-Tambour wasn’t going to make it, the conference organizer feared. Bridgewater had been on high alert all weekend. The firm’s health security “posture” was the subject of ongoing discussions. Already, anyone who had traveled to certain areas — including the West Coast of the U.S., where Covid-19 had already killed individuals in Washington state — or lived with someone who had traveled, was barred from the offices.
Most Alternatives Managers Predict No Investment Changes due to COVID-19
Brief: Sixty-three percent of investors in alternatives do not anticipate changes to their investment plans in response to the COVID-19 crisis, the results of a Preqin survey show. And 29% expect to invest more in alternative investments in the long term than they would have prior to the pandemic, the survey indicated. Meanwhile, 72% of private equity investors surveyed indicated that returns have met their expectations. Seventy-four percent of private debt investors, 72% of infrastructure investors and 66% of real estate investors said that returns have met their expectations. Forty-seven percent of hedge fund and 58% of natural resources investors said that returns are below expectations, according to the survey. However, 42% expect returns to decline due to the COVID-19 crisis, the survey indicated.
