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Our briefing for Thursday July 16, 2020:
Jul 16, 2020 3:46:40 PM
- In the United States, it was announced earlier in the week that the government was rerouting coronavirus information such as hospital data directly to them instead of first going to the Centers for Disease Control and Prevention (CDC). Some of the information no longer available on the CDC website includes the current inpatient and intensive care unit bed occupancy, health care worker staffing and personal protective equipment supply status and availability. The government’s Department of Health and Human Services (HHS) says the CDC’s way of gathering hospital information is out of date and inadequate in today’s day and age. Critics of the Trump administration point out having the data go directly through a government filter first threatens to undermine medical data as being presented free of political bias.
- In Canada, rumours of Atlantic Canada extending their travel bubble to the rest of the country are indeed just that: rumours. The Atlantic travel bubble of Nova Scotia, New Brunswick, Prince Edward Island and Newfoundland and Labrador has been operating since July 3rd and fairly successful with no major outbreaks. Newfoundland’s Premier had floated the idea of opening the borders to rest of the country as of this Friday, but now admits that was just a rough estimate. The farthest any of the four provincial leaders are willing to go is New Brunswick Premier Blaine Higgs who is considering loosening the restrictions to Quebec residents who live close to their border.
- In the United Kingdom, the first clinical trials from Oxford’s University COVID-19 vaccine are set to be published in a medical journal on Monday. According to a report from the Financial Times, a senior Oxford scientist said the vaccine gave a double boost to the immune system of 1,000 trial volunteers, without significant side-effects. The full research backed by pharmaceutical company AstraZeneca is set to appear in The Lancet.
- After seeing signs of an increase in coronavirus infections in Paris and some other regions, France will be moving up their mask-wearing order to begin next week. During France’s Bastille Day holiday, President Emmanuel Macron announced face masks in public indoor spaces were set to be enforced starting August 1st. Up until now, France had only required people to wear face coverings on public transport, or in public spaces where social distancing wasn’t possible.
- A Russia-backed hacker group has been accused of trying to steal COVID-19 related vaccine research from Canada, the United Kingdom and the United States. All three country’s intelligence agencies said the group, APT29 – also known as Cozy Bear and the Dukes are behind the activity. The same group was accused of hacking the Democratic National Committee before the 2016 U.S. election. A Russian Kremlin spokesperson said Russia “has nothing to do” with the hacking attacks.
- India reported a new daily record of 32,695 coronavirus cases as the national count inches closer to one million. The Indian Medical Association said 99 doctors have died, while another 1,302 are infected with COVID-19. The association is calling for shorter work hours for health care workers following safety concerns as the fatality rate for doctors (7.6%) is three times higher than the national average of 2.5%.
- In Japan, Tokyo has raised its coronavirus level to the highest “red” level as the Governor describes the situation in the country’s capital as “rather severe”. Health experts have noted infections among young people and asymptomatic cases are rising in Tokyo. Fearing a second wave in the country, rural municipalities are asking the central government to suspend a major “Go To” travel aid campaign, aimed to boost domestic tourism. The government though plans to move forward, citing caution and fear that the world’s number three economy is set to shrink at its fastest pace in decades.
Covid-19 – Due Diligence And Asset Management
Private Equity Titans Turn to Europe for Mega-Deals
Brief: The U.S. is no longer the center of the private equity universe. Firms announced $143 billion of deals outside the U.S. in the first half, or almost 60% of the world total, according to data compiled by Bloomberg. That’s on track for the highest full-year proportion in almost two decades. And for the first time since 2003, no U.S. targets were among the five largest deals. As the U.S. grapples with a pandemic that’s still infecting thousands by the day, private equity firms are taking longer to do business, with dealmakers unable to meet in person and companies in hibernation. Meanwhile, a relative winner is emerging from the crisis: About half of this year’s non-U.S. activity came from Europe. “This points to the long-term trend for larger deals outside the U.S. as international markets mature,” said Scott Moeller, director of the M&A Research Centre at City, University of London. “It also appears Covid-19 is hitting the U.S. more strongly, which is impacting the ability to do deals despite the large amounts of unspent money available to PE funds.” Private equity started 2020 with more cash on hand than ever, according to data provider Preqin, and dry powder rose to nearly $1.5 trillion as of June 30 as dealmaking slowed. Capital-raising also dropped in the second quarter as lockdowns kept investors at home.
Morgan Stanley Posts Record Profit on Trading Boom
Brief: Morgan Stanley posted a record quarterly profit on Thursday that blew past analysts’ expectations as another of Wall Street’s big investment banks gained from huge swings in financial markets due to the coronavirus crisis. The bank wrapped up second-quarter results for the big U.S. lenders that shook out along expected lines. Trading powerhouses Morgan Stanley and Goldman Sachs performed better than Main Street rivals JPMorgan Chase, Bank of America and Citigroup, which had to build massive reserves for loans that may go bust. A hallmark of Gorman’s tenure as CEO has been the bank’s decade-long expansion into wealth and asset management, businesses that diversified the bank’s revenue streams and provide balance against the unpredictability of its trading business. Gorman said the decision to keep the bank’s consumer loan business small also helped this quarter. Credit cards and small business loans are expected to be badly hit by the COVID-19 pandemic, and rival bank Goldman Sachs had to set aside $1.6 billion for loans that could go bad.
Ray Dalio’s Bridgewater Flagship Fund Tanks 21% as Quants Resume Slump
Brief: Machines are continuing to feel the pain. Morgan Stanley’s latest Quant Trends report lays bare that quantitative hedge funds — systematic macro and commodity trading advisers, which trade futures, securities and currencies — are still lagging after failing to capitalise on the volatility caused by the Covid-19 induced market turmoil. Quant Trends, a 69-page report seen by Financial News, found that Bridgewater Associates, the world’s biggest hedge fund, also continues to struggle in 2020. Bridgewater’s Pure Alpha strategy was down 20.6% this year to the end of May. But according to a source close to the situation, Bridgewater's All Weather fund – its risk parity strategy – is faring relatively better, down only 2.8% in the year to date. The report also found Quant hedge fund heavyweight Renaissance Technologies’ Renaissance Institutional Equities Fund is down 10.9% in 2020 until the end of May. AHL Dimension, the multi-strategy hedge fund run by listed hedge fund Man Group, fell 5.6% for the year ending May 2020. Man Group’s AHL Alpha quant fund is up 2.9% over the same period, a person familiar with the matter told FN. Quant firms were hit badly by the March market meltdown, particularly caught off guard by a spike in fixed-income volatility. Data from Morgan Stanley shows many leading quants have failed to improve their performance subsequently.
Some Managers See Return to the Office; Others Aren’t so Sure
Brief: Abrupt shelter-in-place mandates in March aimed at slowing the spread of COVID-19 sent millions of office workers home to work remotely. Now, more than three months later, many plan to eventually be back in the office — but more than a few are still uncertain of when (or if) their offices will reopen .A Callan survey of investment managers, published in late June, found 57% of those polled planned to be back in the office in the months before October, with one-quarter expecting a return in September and 17% expecting a July return. But 41% were noncommittal and didn't have a set return date.Some saw a few positions permanently working remotely, with 79% seeing up to a quarter of their workforce staying home full time. At the time of the survey, 87% of managers surveyed said at least 90% of their employees were working remotely. Since the survey's publication, however, there has been a surge in COVID-19 cases as the summer weather coaxed more people outdoors. Should a second wave of cases arise in the fall, the number of firms opting to have their employees work remotely will likely increase.
World’s Wealthiest Lower Their Private Equity Expectations
Brief: As the pandemic was unfolding earlier this year, the world’s wealthiest families began doubting that private equity investments could beat gains from stocks, according to a new report from UBS Group.The Swiss bank probed global family offices worth an average $1.6 billion during the three weeks from February 19 to March 13 as stocks were plummeting on Covid-19 fears— and again in May as they were rebounding in the pandemic. Fifty-one percent of wealthy families said in May that they expected private equity to outperform public investments, down from 73 percent in early March.“At the height of the crisis when liquidity was everything, family offices’ immediate reaction was to view private equity with greater caution,” UBS said in the report. “After economies locked down, family offices’ expectations for returns declined.”Private equity has been a favored alternative investment of family offices, with a majority viewing it as an important driver of returns, according to the survey. Institutional investors such as pensions also have been targeting the asset class, expecting a premium for the illiquidity risk they’re taking in locking up capital for years in private equity funds.
Blackstone to Shutter Real Estate Fund That Held CMBS
Brief: Blackstone Group Inc. is closing a real estate fund that used leverage to load up on commercial mortgage backed securities, investments that have slumped during the Covid-19 pandemic. The Blackstone Real Estate Income Master Fund, with about $1.1 billion of total investments at year-end, including those purchased with leverage, will sell the assets and distribute the proceeds to shareholders, the company said in a regulatory filing this week. Its net assets have declined from almost $773 million at year-end to $553 million as of May 31. The fund suffered a 24% decline in March as markets swooned. It had generated an average annual return of 5.52% over five years through 2019.CMBS delinquencies in the U.S. surged to 3.59% in June from 1.46% in May, the largest month-over-month increase on record, according to Fitch Ratings. With consumers staying home and shopping online, hotels and mall-based retailers are missing mortgage and rent payments. “An orderly wind down” would provide shareholders with the “best path to maximize portfolio recovery” while also getting them some cash, Blackstone said in the filing late Monday. The funds recently built a strong cash position “and have begun to see a recovery in pricing since the recent trough related to the outbreak of Covid-19,” the firm said. As of May 31, almost 10% of the fund’s net assets were in cash, according to company documents. At year-end, the master fund held about $687 million of CMBS and an additional $227 million of residential mortgage backed securities, with both categories including debt bundled by government sponsored agencies as well as private issuers.
