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Our briefing for Thursday January 28, 2021:
Jan 28, 2021 3:34:07 PM
- In the United States, President Joe Biden will be issuing an executive order that will re-open Obamacare for pandemic-stricken Americans. The order will create a special enrollment period for plans sold on the Healthcare.gov market from February 15th to May 15th. Through the website, Americans can find insurance coverage for either those that never had it or were living without it after losing their jobs during the pandemic. According to Bloomberg, Democrats, the health insurance industry and advocates for the Affordable Care Act had repeatedly asked the Trump administration to reopen enrollment, which is typically restricted to a few weeks in the fall, but they were refused.
- Canada’s federal regulatory health body has been asked by Pfizer to consider boosting the number of doses it extracts from each vial of the coronavirus vaccine from five to six – a move that would allow the drugmaker to send fewer vials to Canada, while still meeting their contractual obligations of 40 million doses to Canadians. General Dany Fortin, the man in charge of overseeing logistical planning for vaccine rollout was grilled by reporters on Thursday after data sent by the federal government to provinces showed the country might only receive 3.5 million instead of the 4 million doses promised by the end of March. General Fortin said there is a number of variables in play but said Pfizer certainly intends to fulfill their contractual obligations.
- United Kingdom Prime Minister Boris Johnson and Public Health England (PHE) have both defended the use of the AstraZeneca/Oxford University COVID-19 vaccine after Germany recommended that no one over the age of 65 should receive it. Dr. Mary Ramsay, head of immunizations for PHE said the following: “Both the AstraZeneca and Pfizer-BioNTech vaccines are safe and provide high levels of protection against COVID-19, particularly against severe disease.” Germany’s vaccine committee made its decision on the AstraZeneca inoculation, citing a lack of sufficient data to recommend use among older age groups. Prime Minister Johnson said he wasn’t concerned by Germany’s recommendation.
- The European Union (EU) officially plans to up the ante in the race for coronavirus vaccines as of Friday. As mentioned earlier in the week in Castle Hall’s Covid-19 Diligence Briefing, the EU plans to move ahead and tighten rules on the export of vaccines. The new rules will allow EU’s 27-member coalition to block exports if a set of pre-defined criteria haven’t been met. The main condition will be that companies have already delivered a sufficient number of doses, as set out in existing purchase agreements. What the EU members state as “sufficient” is up for debate right now and the dramatic “Europe first” move isn’t sitting well with the rest of the world.
- Japan and the International Olympic Committee (IOC) are set to roll-out their coronavirus safety strategy next week with the Summer Olympic Games just under six months out. Tokyo organizers and the IOC are pushing back against stories last week that the Games were likely to be cancelled due to the ongoing coronavirus pandemic. The partners have created four different scenarios: one where the pandemic is nearly gone, one that has travel restrictions, one that has clusters and the present scenario where the coronavirus is still among us with some countries able to contain, while some others not.
- While the rest of the world seemingly struggles with the coronavirus, Australia is enjoying summer weather and consecutive, double-digit days of no new local COVID-19 cases. The country’s most populous state – New South Wales is relaxing coronavirus restrictions after controlling a fast-spreading cluster. Victoria state – which is hosting the Australian Open tennis tournament – professional tennis’ first major next week – has gone three weeks without a local case. Despite its relative success in handling the pandemic, Australia has no real plans to open its borders to non-citizens for the rest of the year, outside of some possible travel “bubbles” with its South Pacific neighbours.
Covid-19 – Due Diligence And Asset Management
KKR Seeks $15 Billion for Flagship North America Buyout Fund
Brief : KKR & Co Inc aims to attract at least $15 billion for its flagship North America private equity fund, which would make it the second largest amount raised for a fund managed by the U.S. firm, people familiar with the matter said on Thursday. Buyout firms are seeking to tap cheap and plentiful financing for acquisitions amid rising corporate valuations, as economies start recovering from the COVID-19 pandemic. Several investors have committed to KKR’s new fund, North America XIII, the sources said, requesting anonymity as the matter was confidential, adding that the target included money KKR employees would contribute. It will be the largest pool of capital KKR has attracted since its KKR 2006 Fund raised $17.6 billion. A spokeswoman for New York-based KKR, which now has $234 billion in assets under management, declined to comment. KKR Americas XII Fund raised $13.9 billion in 2017 and delivered 20% growth by June 2020, according to the website of Oregon Public Employees Retirement Fund, one of the investors. This means the fund ranks in the top quartile of all private equity funds of that vintage based on its financial performance, according to Cambridge Associates. KKR North America Fund XI raised $9 billion in 2013 and delivered 100% growth by June 2020, the Oregon Public Employees Retirement Fund website said.
COVID-19 Savages U.S. Economy, 2020 Performance Worst in 74 Years
Brief: The U.S. economy contracted at its deepest pace since World War Two in 2020 as the COVID-19 pandemic depressed consumer spending and business investment, pushing millions of Americans out of work and into poverty. Though a recovery is underway, momentum slowed significantly as the year wound down amid a resurgence in coronavirus infections and exhaustion of nearly $3 trillion in relief money from the government. The moderation is likely to persist at least through the first three months of 2021. The economy’s prospects hinge on the distribution of vaccines to fight the virus. President Joe Biden has unveiled a recovery plan worth $1.9 trillion, but some lawmakers have balked at the price tag soon after the government provided nearly $900 billion in additional stimulus in late December. White House economic advisor Brian Deese said the report from the Commerce Department on Thursday underscored the urgency for Congress to pass Biden’s plan, warning that the cost of doing nothing was too high. “Without swift action, we risk a continued economic crisis that will make it harder for Americans to return to work and get back on their feet,” said Deese. Gross domestic product decreased 3.5% in 2020, the biggest drop since 1946. That followed 2.2% growth in 2019 and was the first annual decline in GDP since the 2007-09 Great Recession.
Bain, CD&R Start Cashing Out Weeks After Buyouts in Junk Frenzy
Brief: Two months after acquiring bathtub maker American Bath Group, Centerbridge Partners decided it was time for an early payout. Days later, Bain Capital cut itself a check from a distributor of building products it had owned for just five weeks. On Wednesday, Clayton, Dubilier & Rice got in on the action, seeking to sell $300 million of junk bonds to take a dividend out of White Cap, a construction firm it acquired three months earlier. Such early dividend payouts are rare in the private equity industry -- and have little to do with an investment charging hard out of the gate. Rather, they’re a product of a surge in demand for high-yield debt that’s pushed borrowing costs for the riskiest debtors to their lowest ever, in a market where almost anything goes. “It’s a case of fear of missing out,” said Matt Freund, co-chief investment officer at Calamos Investments. “The economic outlook has not dramatically changed, but market yields are lower, investors look ahead to the new year with more optimism and new mandates. It all leads to higher risk tolerances.” The average borrowing cost for debt rated just above default -- the kind typically used to finance leveraged buyouts -- dropped on Jan. 21 to 6.42%, its lowest level since records began, according to Bloomberg Barclays indexes. The average yield on junk bonds, in general, hasn’t topped 4.3% since the beginning of the year, and also touched an all-time low this month. That has helped fuel a flurry of new deals that have made January the busiest on record for junk-bond sales in the U.S., with almost $50 billion sold, according to data compiled by Bloomberg.
Venture Capital Performed Better Than Ever in 2020
Brief: Venture capital returns reached an all-time high in 2020, even as global economies were decimated by the coronavirus pandemic. As of the third quarter — the latest period for which returns are available — venture capital funds globally had delivered “exceptional performance” for the year, according to a report from eFront, a BlackRock-owned financial software and research company. Data from eFront show that venture capital returns reached a record-high multiple of 1.64x in the second quarter of 2020. These return multiples stayed elevated at 1.63x in the third quarter, eFront said. The company used multiples of invested capital, or TVPI, to analyze venture capital returns. “Thus far, it is difficult to find any impact of the Covid-19 pandemic on the performance of active VC funds,” eFront said in the report. It’s not just venture capital performance that hit all-time highs in 2020. U.S. venture capital funds also set new records in deal making, exits, and fundraising last year, according to a January 14 report from PitchBook and the National Venture Capital Association. The report said that deal value topped $150 billion for the first time in 2020, while exit value hit a record $290 billion after a surge of public listings in the second half of the year. In addition, new venture capital funds raised $73.6 billion in their biggest haul ever, PitchBook and the NVCA said. According to eFront, the new performance heights achieved by active venture capital funds in 2020 are part of a longer trend of increasing multiples over the last decade. “In terms of performance, active VC funds have so far gone from record to record,” the report stated. “This evolution echoes the progression of the valuation of listed tech firms.”
FCA Issues Warning After Investment Scams Cost Savers £78M in 2020
Brief: More than £78m was stolen from investors over the course of 2020 as clone investment firm scams took advantage of pandemic-induced financial worries, according to new data from Action Fraud. The increased prevalence of these scams has led the Financial Conduct Authority (FCA) to issue a warning to investors as part of its ScamSmart campaign. April 2020 saw a month-on-month increase of 29% in these types of scams as the UK entered its first full month of lockdown. Two out of five investors (42%) say they are "currently worried" about their finances due to the pandemic, while three-quarters (77%) either have or plan to make an investment over the coming six months to help improve their financial situation. The FCA warned that even experienced investors could be at risk of these clone firm scams, as despite 75% of investors saying that "felt confident" they could identify a scam, 77% admitted they did not know or were unsure what a clone investment firm was. Over the course of 2020, fraudsters imitating genuine investment firms cost consumers an average of £45,242 each. The FCA issued alerts relating to more than 1,100 firms over 2020, more than double the amount issued in 2019, according to Mark Steward, executive director of enforcement and market oversight at the FCA, who warned investors to check both the FCA Register and Warning List of firms before engaging.
Hedge Fund Titans Lose Billions to Reddit Traders Running Amok
Brief: For once, Main Street is beating Wall Street. In a matter of weeks, two hedge-fund legends -- Steve Cohen and Dan Sundheim -- have suffered bruising losses as amateur traders banded together to take on some of the world’s most sophisticated investors. In Cohen’s case, he and Ken Griffin ended up rushing to the aid of a third, Gabe Plotkin, whose firm was getting beaten down. Driven by the frenzied trading in GameStop Corp. and other stocks that hedge funds have bet against, the losses suffered over the past few days would rank among the worst in some of these money managers’ storied careers. Cohen’s Point72 Asset Management declined 10% to 15% so far this month, while Sundheim’s D1 Capital Partners, one of last year’s top-performing funds, is down about 20%. Melvin Capital, Plotkin’s firm, had lost 30% through Friday. It’s a humbling turnaround for the hedge fund titans, who in 2020 staged a comeback by pouncing on the wild markets caused by the Covid-19 pandemic. But that crisis helped push thousands if not millions of retail traders into the U.S. stock market, creating a new force that for now the professionals seem powerless to combat. And it’s not just the big names: Jack Woodruff’s $2.8 billion Candlestick Capital has fallen 10 to 15% in January on its short wagers, while the $3.5 billion Maplelane Capital lost about 33% through Tuesday in part because of a short position on GameStop, according to investors.
