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Our briefing for Thursday January 7, 2021:
Jan 7, 2021 2:43:57 PM
- In the United States, the fallout from a deadly riot on Capitol Hill overshadowed what was America’s deadliest day yet from the coronavirus, according to Reuters. More than 4,000 citizens succumbed to the disease and COVID-19 hospitalizations were at 132,051 as of Wednesday – a new record for the fourth day in a row. The Centers for Disease Control and Prevention (CDC) are projecting anywhere between 405,000-438,000 deaths by the end of the month. According to data from Johns Hopkins University, the overall death toll from COVID-19 currently sits at approximately 361,000.
- Canada’s most populous province set a record for daily COVID-19 cases and had its deadliest day so far. Ontario reported 3,519 cases on Thursday and 89 deaths. The concerning part is while the cases are still the highest in Toronto and Peel Regions, which have been in some form of a lockdown for over a month now, eight more regions experienced triple digits in new cases. Elsewhere in the country, Quebec became the first province in the country to institute a curfew as starting Saturday, anyone caught outside between 8 PM and 5 AM without a valid reason could face a fine of up to $6,000. The move aimed at slowing the spread of the virus has already been questioned both for its effectiveness and legality. The province’s health director admitted on Wednesday that there is no study that proves curfews stop transmission and a Quebec civil liberties group says the government should not be placing the weight of the pandemic on the backs of Quebecers.
- Speaking during a Thursday evening briefing, United Kingdom Prime Minister Boris Johnson said the country’s vaccination effort is going to require an “unprecedented national effort.” The prime minister insisted the most vulnerable Britons will be inoculated by the middle of February and vaccination sites will be made available within 10 miles of all Britons’ homes. Prime Minister Johnson’s pledge comes as its capital city London is on the verge of having its hospitals overcrowded. National Health Service (NHS) Chief Executive Sir Simon Stevens said London’s Nightingale hospital is set to open next week in response to the surging infections.
- A survey from pollster Pulse Asia has said almost half of Philippine citizens may not be willing to take the COVID-19 vaccine when it becomes available. Nearly 2,400 Filipino adults were polled and only around one-third said they are willing to be vaccinated while 21% are on the fence and can’t say yet if they want to be inoculated. Of those that outright said they didn’t want the vaccine, 84% of them said it was due to safety concerns. As noted in Castle Hall’s COVID-19 Diligence Briefing on Wednesday, the government was targeting to vaccinate more than half of its population in 2021, using 148 million doses from at least seven vaccine makers. This latest poll might make the task a little more complicated.
- In China, the city of Shijiazhuang with a population of 11 million people is heading into lockdown. The city located about three hours south of the capital, Beijing has recorded 200 cases, the worst reported outbreak in at least two months in the country. Chinese state TV reported Thursday authorities in Shijiazhuang banned people and vehicles from leaving the city and five hospitals have been emptied out to treat COVID-19 patients.
- Japanese Prime Minster Yoshihide Suga declared a state of emergency Thursday for Tokyo and adjacent areas. The Japanese capital city recorded 2,447 new COVID-19 cases, which was a new record. The state of emergency will go into effect as of Friday and last until February 7th. The government will press for a return to remote work – aiming to cut the number of commuters by 70% and residents will be requested to avoid going out after 8 PM and having bars and restaurants close at that time. Authorities can’t enforce compliance for now, but Prime Minister Suga is seeking to amend the law to add penalties for businesses that don’t comply and add incentives for those that do.
Covid-19 – Due Diligence And Asset Management
FCA Warns 4,000 Firms at Risk of Failing Amid Crisis
Brief: The financial regulator has warned 4,000 firms in the financial services sector are at "heightened risk" of failing as a result of the coronavirus crisis. In its most detailed financial snapshot of the market published since the pandemic began the Financial Conduct Authority said almost a third of these firms could potentially cause harm to consumers should they collapse. Within the retail investment market, which includes advisers, self-invested personal pension operators and platforms, 3,414 firms predicted the crisis would have a negative impact on income. The advice sector had one of the highest proportion of firms expecting a drop in income, equating to 66 per cent of the 5,159 firms which responded to the FCA's data request. But the impact on income was largely predicted to be minimal, with 2,973 of the firms in the retail investment market which predicted a drop estimating the reduction would sit between 1 and 25 per cent and only 26 firms saying income might plummet by more than 76 per cent. The FCA sent its financial resilience survey to 13,000 firms in the wider financial services in June and to a further 10,000 firms in August.
Brevan Howard’s Main Hedge Fund Gains 27% in Best-Ever Year
Brief: Brevan Howard Asset Management has recorded its best year since the hedge fund firm began investing nearly two decades ago. The main fund at billionaire Alan Howard’s firm was up 27.4% last year, the most since 2003, according to an investor letter seen by Bloomberg. That compares with a 3.4% average return for macro hedge funds through November, according to data compiled by Bloomberg. The Brevan Howard Master Fund managed $4.3 billion at the end of November. The biggest boost came in March thanks to gains from interest-rate bets, option trading in equity and credit indexes and from oil, according to an investor letter seen by Bloomberg. A spokesman for the Jersey-based investment firm declined to comment. Brevan Howard is making up lost ground after years of mediocre returns shrunk its assets by more than 80% from a 2013 peak to about $6.4 billion two years ago. Clients are now returning, lured by improved performance and as rising volatility creates money-making opportunities for macro hedge funds. Its assets rose to about $11.4 billion at the end of November. The firm’s rebound was also fueled by a more than 100% gain in a hedge fund earlier last year that Howard personally manages. Full-year returns for the AH Master Fund, which invests money for the main hedge fund, the billionaire’s own cash and for a few external investors, are not known.
Marathon Asset Management Closes $2.5 Billion Distressed Fund
Brief: Marathon Asset Management ("Marathon"), a leading global credit investment manager, today announced the final close for its Marathon Distressed Credit Fund, which was oversubscribed with approximately $2.5 billion in commitments. The fund will invest in a wide range of situations by providing capital solutions that allow companies to grow or reposition their businesses, including stressed and distressed companies in transition. The opportunities it will pursue include restructurings, debtor in possession financings, and exit financings where Marathon can bring to bear its differentiated expertise, experience and resources. "While the broader market has recovered, the K-shaped recovery has resulted in a disparate impact that requires tailored capital solutions to help companies across industries recover from the 2020 cyclical decline," said Bruce Richards, Chairman & Chief Executive Officer of Marathon. "Companies that are well positioned for future growth may need a thoughtful and sophisticated capital partner to navigate the downturn, even in the event it may require a consensual restructuring." Louis Hanover, Chief Investment Officer of Marathon, said: "Following a prolonged economic expansion marked by mispriced risk and heavily levered capital structures with weak documentation we are presented with an optimal investment environment to prudently and opportunistically deploy capital."
Manulife Sees Markets, Economy Diverging Through 2nd Virus Wave
Brief: Canada’s economy and financial markets are moving in opposite directions as investors drive up asset prices in response to cheap-money policies. That trend will continue in the months ahead, according to Manulife’s Frances Donald. The country is grappling with a fresh set of lockdowns as governments try to quell a wave of Covid-19 infections. Quebec, the second-largest provincial economy, is likely to unveil new restrictions Wednesday that will shut down the construction sector. Less than 1% of the population has been vaccinated so far, putting Canada behind the U.S. and U.K. Meanwhile, the S&P/TSX Composite Index is near a record after rising about 8% in three months. Economically-sensitive energy and industrial stocks have surged, while bank shares are up 14% since Oct 5.While vaccines have arrived, “the economic benefits are probably not solved before the second half of the year,” Donald, global chief economist and head of macro strategy at Manulife Investment Management, said by phone. “In 2021, my suspicion is the disconnect between the economy and markets continues.” Economists are still predicting a strong recovery in the second half of the year, as vaccines allow for a rebound in travel, entertainment and other sectors that have been crushed by the pandemic. Even so, Donald doesn’t see a full recovery until 2022. That’s because there will be structural scarring to the economy from business closures, job losses and new ways of working.
Covid-19: Family Offices Warned Portfolio Response May be too Little
Brief: The majority of family offices will not significantly alter their asset allocation strategies in 2021 despite the likely market turbulence and challenging economic conditions that lie ahead. This is the chief finding from a survey of family offices conducted by BlackRock. Of the 185 offices that were canvassed, only 23% said that they plan to make material changes to their asset allocations. BlackRock ascribes this to the long-term investment outlook adopted by most family offices. However, the asset manager also warned against viewing the events of 2020 as simply short-term volatility and ignoring the likely long-term impacts. “While we recognise Family Offices have a long-term investment horizon, we believe that the nature of the crisis will have a long lasting impact on economic growth, interest rates and corporate fundamentals leading to structural shifts across asset classes,” said Sheryl Needham, managing director, head of Emea family offices at BlackRock. “It’s important that even long-term investors consider the resilience of their portfolios by reviewing their strategic asset allocation, to ensure they are positioned to navigate current markets, protect wealth and to harness opportunities through the recovery.”
Prominent Activist Investors Post Record 2020 Returns Despite Pandemic-Muted Activity
Brief: Some investors including William Ackman and Glenn Welling, who push corporations to perform better, posted record-breaking returns in 2020 when activist investors generally backed off demands during a year marked by wild and unexpected business conditions. Ackman’s publicly traded Pershing Square Holdings fund rose 70.2%, marking the best-ever return at his 16-year-old firm Pershing Square Capital Management and one of the best in the hedge fund industry. In 2019, the fund rose 58%, also a record. Welling’s Engaged Capital, founded in 2012 and known for pushing companies like Medifast Inc and Hain Celestial Group Inc to make changes, returned 51%. That tops the firm’s previous record return set in 2019 with a 34% gain. And Andrew Left, who has targeted companies he thinks are over-valued through his work at Citron Research, told investors that his hedge fund returned 155% in 2020, after gaining 43% in 2019, the fund’s first year in business. The gains reflect a late-year rebound among activists - fueled partly by strong stock market gains - with the average fund up 6.7% in the first 11 months of 2020 after a 27% drop in the first quarter, Hedge Fund Research data shows. Activist campaigns were down 20% in 2020 from the previous year, Lazard data shows.
