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Coronavirus Diligence Briefing

Our briefing for Thursday February 11, 2021:

Feb 11, 2021 5:09:51 PM

  • With the United States Senate firmly entrenched in the impeachment trial of former President Donald Trump, current President Joe Biden is left fighting the coronavirus pandemic shorthanded. Currently, the White House administration is only operating with two senior health officials in place: CDC Director Rochelle Walensky and Dr. Anthony Fauci serving as the president’s top medical adviser. For instance, Xavier Becerra, President Biden’s pick for health secretary won’t have his Senate committee hearing until February 22nd and likely won’t be confirmed until March. While the logjam rests in large part with the Senate, a Bloomberg article notes the Biden administration should also shoulder some of the blame. The White House hasn’t said why President Biden has yet to name a permanent Food & Drug Administration (FDA) or a Center for Medicare and Medicaid Services (CMS) chief.
  • In Canada, Manitoba became the first province to skip the federal government and go on their own – signing a deal to buy two million doses of a made-in-Canada COVID-19 vaccine. The firm is Providence Therapeutics and their vaccine is currently under clinical trial with human testing only starting in late January. With positive results, Providence Therapeutics has said it expects commercialization of the vaccine to begin by the end of 2021 or early 2022. Elsewhere in the country, due to a recent outbreak in St. John’s Newfoundland and Labrador, the province has delayed its upcoming election voting in some areas. In a release on Thursday, Elections NL said in-person voting will be postponed until a later date in 18 districts, while mail-in voting options have been extended. The election was set to go on February 13th, but results will now not be released until all voting in the province has concluded.
  • In the United Kingdom, the head of the country’s genetic surveillance programme has said the coronavirus variant first found in the Kent region, and known as the UK variant, has the potential “to sweep the world in all probability”. Sharon Peacock, director of the COVID-19 Genomics UK consortium, was interviewed by the BBC and said the concern is the variant keeps mutating and by doing so, could potentially undermine the protection given by the current vaccines. Prime Minister Boris Johnson said on Wednesday that Britons should be prepared to receive repeated vaccinations against COVID-19 in the future to keep pace with mutations of the virus.
  • Germany’s Chancellor Angela Merkel was busy defending her coronavirus strategy after announcing on Wednesday that the country’s lockdown will be extended to March 7th at the earliest. Speaking to lawmakers in Germany’s lower house of parliament on Thursday, Merkel said, “as a democracy, it is up to us to keep these restrictions only as long as necessary – not one day longer – and to lift them when possible. This is exactly the objective of this government.” Chancellor Merkel said she is aware of how difficult the lockdown has been on citizens of the country, but Germany is dealing with three aggressive mutations of the coronavirus and curbs are needed to reduce the risk.
  • The Philippines is set to receive 600,000 doses of China’s Sinovac Biotech COVID-19 vaccine, a presidential spokesperson said on Thursday. The vaccine is expected to arrive on February 23rd with 100,000 already confirmed to be going to the military. Upon arrival, the shots will be stored until they are cleared for use by the Philippines’ Food and Drug Administration. The country plans to buy 148 million coronavirus doses this year and inoculate 70 million people to achieve herd immunity.
  • China has banned the UK’s BBC World News from airing in the country, according to a statement from the nation’s radio and television governing body. In the statement, China’s NTRA claimed that BBC World News reports on China “infringed the principles of truthfulness and impartiality in journalism”. Earlier in the month China’s Foreign Ministry criticized BBC for its coverage of the country’s response to the COVID-19 pandemic, calling it “fake news”. It is unclear how much of an impact this will have on Chinese citizens as the BBC has never been allowed to broadcast in mainland China and was only available via international hotels. The move is also seen as a tit-for-tat as British media regulator, Ofcom, said last week it had withdrawn a license for China Global Television Network, or CGTN.

Covid-19 – Due Diligence And Asset Management

Goldman, Other Financial Firms Add China Staff, Eyeing Growth

Brief : Global financial firms including Goldman Sachs, BlackRock and Fidelity International are poised to add hundreds of staff in China this year as they look to take advantage of the opening up of its $40 trillion financial sector. Beijing in the last one-and-a-half years stepped up the pace of liberalisation mainly as part of a trade deal with the United States, and allowed foreigners to fully own their local ventures in areas including investment banking and asset management. After having won regulatory approval to raise holdings and dealt with the disruptions caused by the COVID-19 pandemic, Western firms are now readying plans to boost their onshore presence, representatives and headhunters said. Foreign financial firms have long coveted a bigger presence in China, and their expansion comes against the backdrop of a revival in its economy, increased onshore deal activities, and a rapid pace of wealth creation.  Goldman is leading the charge of the Wall Street banks operating in China - the first to move towards taking full ownership of its securities business after it was fully opened up to foreigners last April.

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Famed Hedge Fund Firm CQS IS Surviving – But Not Because of its Hedge Funds

Brief: For a man whose flagship hedge fund was down more than 50 percent at one point last year, Michael Hintze sounds surprisingly upbeat. On a chilly winter afternoon, Hintze, 67, phones from London to talk about his firm’s reckoning this past spring, a time when the flagship fund’s structured credit instruments went terribly wrong and the firm’s positioning amid market turmoil sent that and one other fund plummeting to their worst-ever losses — wiping out billions of assets in mere weeks. It was an exceedingly rare stumble for CQS, a London-based hedge fund that had reliably minted money for investors more or less uninterrupted since its founding in 1999. Its flagship Directional Opportunities Fund had averaged gains of nearly 14 percent per year since its inception in 2005.  That changed drastically in 2020, as the coronavirus ravaged global economies worldwide and bond markets gyrated wildly amid fears over liquidity. The fallout hit the assets CQS primarily invests in — structured and complex credits — particularly hard, as Hintze noted in a letter to investors in November. CQS’s Directional Opportunities, which accounts for 10 percent of the firm’s assets, lost 33 percent in March and a further 17 percent in April. The wretched performance, paired with upheaval in the executive ranks, took a toll on the firm, which cut some 50 jobs, scrapped a planned expansion into equities, and saw assets shrink by $3 billion in the short term, according to a June 2020 Bloomberg report.

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BlackRock Sees ‘Powerful’ Drivers for Emerging Europe Stocks

Brief: BlackRock Inc., the world’s biggest asset manager, sees a “powerful mix” of drivers for stocks in Europe’s emerging markets, including Covid-19 shot roll outs, stimulus measures and easy financial conditions. Valuations and investor presence in emerging European stocks remain “extremely low” and it’s time investors pay more attention to this equity class, Chris Colunga, co-manager of BlackRock’s 617 million euro ($748 million) Emerging Europe fund said in emailed comments. The provision of vaccines and continuing stimulus are likely to fuel earnings growth in the region, he said. European Union spending on sustainable infrastructure is set to feed liquidity into eastern Europe, he added. “As we enter 2021, the combination of strong liquidity, easy financial conditions and high levels of disposable income are a very powerful mix for earnings growth at a time the vaccine is offering hope of some demand normalization,” said Colunga. The BlackRock fund manager said he favors exposure to Greek stocks on bets tourism will recover and financial conditions as well as investments will improve. The stock fund has also turned “more constructive” on Turkey after the market’s underperformance and as the new economic leadership team pledges more traditional policies, Colunga said. As of the end of December, the fund had a 9.6% exposure to Greece, its third-biggest, and a 5.5% exposure to Turkey, its fifth-highest.

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Pandemic Leads to Rise in Financial Vulnerability, says FCA

Brief: The Covid-19 pandemic has left over a quarter of UK adults financially vulnerable with too much debt or low levels of savings, a survey by watchdog the Financial Conduct Authority (FCA) has found. Nearly 28 million adults in the UK were showing characteristics of vulnerability such as poor health, low financial resilience or negative life events by October last year. Having any one of these characteristics means that these consumers are at greater risk of harm, the FCA said. This figure was up 15% from February 2020, before the first lockdown kicked in and businesses closed. The FCA also found that the number of consumers with low financial resilience, such as over-indebtedness or with low levels of savings or low or erratic earnings, has grown. Over the course of last year, the number of UK adults with low financial resilience increased from 10.7 million to 14.2 million, the report shows, while different demographics are being affected more than others. Highlighting the threat to people’s incomes from the pandemic, in October one in three adults said they expect their household income to fall during the next six months, while 25% expected to struggle to make ends meet.

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KPMG Chair Steps Aside After Telling Staff to ‘Stop Moaning’ about Pandemic

Brief: KPMG has confirmed that its chairman is stepping aside after the accounting giant launched an investigation into controversial comments he made to staff in a virtual meeting this week. Bill Michael, who took over as chairman in 2017, told staff on Monday to “stop moaning” about the pandemic and the impact of lockdown on people’s lives, adding that they should stop “playing the victim card”. The online meeting was attended by around a third of the financial services consulting team’s 1,500 staff. Michael, who was in hospital with Covid-19 in March last year, later rejoined the call and apologised to staff who had criticised his choice of words in the comment section of the app used to run the event, according to the Financial Times which first reported the story. He also apologised in a separate email to all members of the consulting team. The chairman also reportedly told staff he was still holding client meetings despite Covid lockdown restrictions, and claimed unconscious bias was “complete crap”.  The big four accounting firm has now launched an investigation into Michael’s comments, prompting him to step aside – at least temporarily – until KPMG completes its inquiry.

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Where VC Funding is Surging

Brief: Health and wellness technology has received a big boost from venture capital. “VC deal activity within this space has spiked significantly,” with $8.3 billion worth of venture capital deals in 2020, PitchBook analysts said in a newresearch report. That’s 70 percent more than enterprise-oriented companies within enterprise health and wellness received in 2019 — and the most venture funding they’ve obtained in at least a decade, according to the report.  The most active venture capital firms in enterprise health and wellness tech since 2018 include Oak HC/FT, F-Prime Capital, and Echo Health Ventures, while the top private equity firms in the area since 2008 include Warburg Pincus, Francisco Partners, and Blackstone Group, the report shows. PitchBook, which tracks private-market data, projects the valuation of the sector will double to $1.3 trillion by 2025, from $640 billion at the end of June. “In the wake of the Covid-19 pandemic, we expect governments and NGOs will prioritize technologies that can help mitigate the health impacts of future pandemics,” the firm’s analysts said. “This will likely accelerate investment into technologies in the realm of disease tracking, public health tools, and pharmaceutical technology.”

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Contact Castle Hall to discuss due diligence

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