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Coronavirus Diligence Briefing

Our briefing for Thursday July 30, 2020:

Jul 30, 2020 4:03:37 PM

  • In the United States, where more than 150,000 people have died from the novel coronavirus, the White House COVID-19 task force is urging governors in the midwestern states to get ahead of the curve by issuing mandatory mask protocols and closing non-essential services. Ohio, Indiana, Kentucky and Tennessee are all seeing increases of positive tests as the virus ravages states in the west and south of the country. Dr. Anthony Fauci says that if governors don’t get protocols in place soon it will be harder to cope with new cases when they arrive. "Before you know it, two to three weeks down the pike, you're in trouble," he said.

  • In an informal survey issued by CBC Montreal, most medical experts in Canada believe that a second wave of COVID-19 is inevitable. Out of the 170 people polled, 114 of believe a second wave of the virus is “very likely” and another 40 believe that it is “somewhat likely.” Mark Goldberg, an environmental epidemiologist at McGill University says that as cases rise in Quebec, a second wave may be imminent. "If it starts increasing and not coming down over the next two weeks, I would say we'd be into a second wave," he said. Experts have said that the second wave of the pandemic may, however, be less severe than the first as more is known about the virus and the precautions that need to be taken to stop the spread.

  • U.K. Prime Minister Boris Johnson has told Britons not to “delude themselves” into thinking that the pandemic is over and acknowledged that the virus is “bubbling up” in roughly 30 areas. The U.K. has had the most excessive deaths from coronavirus in the world, meaning that the death rate has exceeded the level of previous years by the highest margin. At 7.5 per cent more deaths than the yearly average, the U.K. has surpassed Spain at 6.7 per cent and Scotland at 5.1 per cent. The Prime Minister added that the country has "to continue our work in driving the virus down.”

  • Despite being the first European nation to be hit with the virus, Italy has proven that strict contact-tracing and elaborate social measures can contain new outbreaks of COVID-19. After being hit hard in March and April, Italy began to ease lockdown restrictions in May, while new cases of the virus were still numbering in the thousands. Paling in comparison to the previous months, the average new cases in the country remains around 300 daily. Italy’s prime minister Giuseppe Conte has extended the state of emergency until October and intends to keep most restrictions in place while neighboring countries experience a strong uptick in cases.
  • The Philippines have reached a new record for daily infections for the fourth time this month, as many hospitals in the capital of Manilla have intensive care units reaching capacity. On Thursday, the country confirmed nearly 4000 new cases as President Rodrigo Duterte announced a major shift in his governments approach to the virus. Duterte intends increase tests to 10 million by next year, so far, the country has tested just over a tenth of that number. The government is now planning to build multiple quarantine facilities to house patients with mild or no symptoms while they recover in order to avoid widespread infections in the community.

Covid-19 – Due Diligence And Asset Management

BNP Paribas Personal Finance, Experian, Aryza help customers through the Covid-19 pandemic

Brief: BNP Paribas Personal Finance has announced that it will use Experian’s Open Banking technology and Aryza’s Debtsense digital platform to provide online account reviews to customers who have been affected by the Covid-19 pandemic. Debtsense from Aryza uses Experian’s Open Banking service to allow people to share their account and transaction data, giving a clear and detailed picture of affordability, financial circumstances and commitments. The insights will enable BNP Paribas Personal Finance to assess people whose finances have been affected by the pandemic and who may now be vulnerable. They can then be offered a payment break or an affordable payment plan based on their specific circumstances. The app uses the lender’s credit decision policy rules to create a personalised payment plan. More than 200 organisations are currently using Experian’s Open Banking service, many to help resolve financial hardship as a result of Covid-19 pandemic. Charities including Citizens Advice Liverpool and Mental Health & Money Advice are using the service to support clients through the pandemic, tailoring advice based on the individual’s situation.


Macquarie CEO warns COVID turmoil to hit asset sales

Brief: Macquarie Group chief executive Shemara Wikramanayake says the turmoil unleashed by the coronavirus will make it tougher for the company to reap the benefits of asset sales, as profits dipped and it warned of extreme uncertainty. The financial group on Thursday highlighted challenging conditions across all of its businesses, with the banking division hit by rising provisions for bad loans and the global recession hampering deal-making. As the company faced shareholders for a virtual annual meeting, chairman Peter Warne also said there was a possibility it would resume dividend payments to the group from the banking division, which had been paused, but this was not certain. Macquarie is a major investor in infrastructure projects and part of its business model involves selling assets to realise the gains from these investments.


‘The War On Covid Is Almost Over,’ Says Former Hedge Fund Manager

Brief: The evolution of media has led to a “disconnect” between the reality of coronavirus and public perception of the pandemic, according to Enrique Abeyta of Empire Financial Research. The reality: The coronavirus crisis is in the “seventh inning,” Abeyta said on the Contrarian Investor Podcast. In six weeks, or by mid-September, there will be “maybe less than 50” daily fatalities from COVID-19, corresponding to about one 10th current levels, he says. “I think the war on COVID is almost over.” This clashes with the perception reported by media, that the U.S. doesn’t have COVID-19 under control. Cases and deaths are growing, states are forced to shut down, and the situation is spiraling out of control. So goes the narrative. This narrative misses several key facts, according to Abeyta. In the U.S., the virus has hit different regions at different times: first New York, where mortality rates were “awful,” and more recently states like Florida, Arizona, California, and Texas (the FACT states).


Bitcoin's Hedge Fund Sharks Are Swimming With The Whales

Brief: Bitcoin is doing that thing again. After a 50% slump in the cryptocurrency’s price to about $4,000 in mid-March, when Covid-19 panic was gripping the financial markets, it has bounced back to trade at about $11,200. Veteran crypto-watchers have seen this rapid shift from fear to greed many times before, and know it can have painful consequences. The first time Bitcoin’s price went past five figures in 2017, it fueled a speculative frenzy that ended almost as soon as it began, leading to an 80% slump over 12 months. And when Bitcoin rose above $10,000 in February this year, any hope for a rally was snuffed out by Covid. The subsequent mad rush to trade digital coins for cash was made worse by the fact that many people were using large amounts of debt to back their trading. Several crypto hedge funds closed. Is anything different this time? Bitcoin’s wild price swings undermine its case as a reliable store of value or safe haven. It’s still 43% below its high of almost $20,000. But as a “store of fear” — Warren Buffett’s description of the short-term pessimism that pushes investors into cryptocurrency — it has its fans.


New Data Shows Private Equity Industry Overwhelmingly Focused on Portfolio Company Growth, Not Cost Cutting

Brief: Private Equity Advisor, BluWave, Finds 71% of Private Equity Resources Devoted to Portfolio Companies Was Spent on Value Creation Initiatives During the Second Quarter of 2020 BluWave, a private equity-focused advisory firm, today released new data on how private equity funds are allocating resources. The results demonstrate that in the immediate aftermath of the COVID-19 pandemic, the private equity industry was far more focused on investing in portfolio companies than slashing jobs or cutting costs. Among the most common investments at portfolio companies were human capital and digitization. “We’ve seen a clear trend toward value creation over the past two years,” says Sean Mooney, CEO of BluWave. “That trend has accelerated following the outbreak of the COVID-19 pandemic. Although many assumed the pandemic would force private equity funds to focus on operational efficiency, cost cutting and layoffs, what we’ve actually seen is agility and a focus on valuation creation that has spurred new investment in human capital, IT and software strategy, and data-driven decision making.”


Hedge fund giant Man Group sees assets fall 8 per cent in first half, as coronavirus crisis creates performance challenges

Brief: Man Group has seen its funds under management tumble 8 per cent this year, as investment performance took a hit and investor redemptions spiked during the coronavirus crisis - but CEO Luke Ellis says the London-headquartered publicly-traded hedge fund group remains well-positioned despite 2020’s ongoing challenges. Man’s funds under management fell to USD108.3 billion in the first six months of the year, down from USD117.7 billion at the start of January. The drop stemmed from investment performance losses of USD5.4 billion, together with USD1.2 billion of investor outflows. Negative FX translations and other movements wiped off another USD2.8 billion. Man CEO Luke Ellis conceded the first half of 2020 was a “challenging time” for the group. Man, which runs a wide assortment of discretionary and systematic investment funds across hedge fund and long-only strategies, is often considered a barometer for the UK’s broader alternative asset management industry.


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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.


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