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Our briefing for Thursday July 9, 2020:
Jul 9, 2020 3:08:11 PM
- In the United States, Dr. Anthony Fauci told a Wall Street Journal podcast on Wednesday that states struggling with new surges should seriously consider a second lockdown. While making the media rounds on Thursday, Dr. Fauci tried to walk back that definitive statement, saying “I would hope we don’t have to resort to shut down. I think that would be something that is obviously an extreme.” As America struggles with coronavirus cases resurging, it is clear the health experts and government aren’t on the same page. For instance, earlier in the week President Donald Trump criticized the CDC’s guidelines on reopening schools in the fall. Vice President Mike Pence suggested the health body would reissue new guidelines next week. On Thursday, the CDC stated they wouldn’t be changing their guidelines despite the push from the White House.
- In Canada, a report from a committee of senators says the country is ill-equipped to handle a second wave of COVID-19. The Senate’s social affairs committee report says the federal government needs to pay urgent attention to long-term care homes that suffered so badly during this first wave. The committee is also concerned about personal protective equipment that wasn’t managed well over the years, and now suffers from what they call “inconsistencies in international procurement.”
- In the United Kingdom, reopening of services continue to happen in phases. As of this Monday (July 13th), beauticians, tattooists, spas, tanning salons and other close-contact services will be allowed to renew their businesses. As of July 25th, indoor gyms, swimming pools and sports facilities will follow suit. Government is calling on the public to do their part to ensure these new freedoms don’t compromise the country’s coronavirus strategies.
- In her first trip to the European Union headquarters in Brussels since the pandemic began, German Chancellor Angela Merkel repeated her call for economic recovery from the coronavirus outbreak. Chancellor Merkel’s meeting took place ahead of next week’s summit involving the heads of all 27 member states of the European Union. Attention will be on what have been called the “frugal four” of the Netherlands, Sweden, Denmark and Austria who have opposed certain aspects of the €750 billion recovery package currently on the table.
- According to India’s health ministry, the country has amassed 100,000 new cases of the coronavirus in the past five days, including a record of close to 25,000 new cases on Thursday. Research from Chennai has shown India’s production rate of the virus rose to 1.19 in the first week of July. It had been steadily falling from its peak of 1.83 in March. The rate needs to be below one for new cases to start falling.
- Brazilian President Jair Bolsonaro has vetoed several points of a law aimed at protecting indigenous communities against COVID-19. President Bolsonaro vetoed points which assured access to drinking water, free distribution of hygiene products and the distribution of cleaning and disinfection materials to indigenous communities. He also vetoed a proposal ensuring mandatory emergency funds for indigenous people's healthcare. President Bolsonaro’s reasoning was the provisions were “against public interest” and “unconstitutional” by creating expenses without new sources of revenue to cover them. The president’s vetoes though are not final. The law’s text which was already approved by Brazil’s Congress and Senate will now be voted on again. If a majority in both houses vote against President Bolsonaro’s vetoes, the law will be approved in its entirety.
Covid-19 – Due Diligence And Asset Management
Private Equity’s Backdoor Path to PPP Cash Revealed in Data Dump
Brief: The private equity world’s massive push into U.S. health care is giving deep-pocketed investors a boost from taxpayer funds meant to prop up small businesses. Buyout firms were largely excluded from tapping the federal bailout money as the coronavirus pandemic prompted shutdowns. Yet a trove of data from the Paycheck Protection Program made public this week lists millions of dollars in loans to medical and dental practices that work in tandem with ventures controlled by private equity -- setting up those investments to benefit too. Abry Partners, Prospect Hill Growth Partners and Gauge Capital are among private equity firms with portfolio companies that partner with medical practices that the government says took loans. Representatives for the investment firms didn’t respond to messages and phone calls seeking comment on whether they gained from the injections. It’s particularly striking that the cash-rich world of private equity could get backdoor taxpayer support for investments in health care that have concerned lawmakers and government officials. Buyout firms have pumped more than $10 billion into bets on medical practices over the past five years, transforming the financial workings of clinics focused on specialties such as women’s health, dermatology, urology and gastroenterology.
Wells Fargo Preparing to Cut Thousands of Jobs
Brief: Wells Fargo & Co <WFC.N> is preparing to cut thousands of jobs starting later this year, Bloomberg Law reported on Thursday, citing people familiar with the matter. The company's plans will eventually result in eliminating tens of thousands of positions due to pressure to "dramatically reduce costs", the report said. Wells Fargo, the fourth-largest U.S. lender by assets, is leaning on cost cuts to stabilize its bottom line as it recovers from a raft of fines and costs relating to sales abuses first uncovered in 2016 and mounting loan loss provisions due to the coronavirus-driven economic downturn. The bank's executives have not yet adopted a specific target for shrinking its workforce of about 263,000, the report added, citing one person familiar with the matter. They are not likely to share details on the plan when they announce the bank's second-quarter results on July 14, the report added. A spokesman for Wells Fargo declined to comment on the report.
Private Equity Weathering COVID-19 Economic Slowdown
Brief: Private equity investments appear to be weathering the impact of the pandemic across multiple sectors and geographies, according to the results of a Private Equity and COVID-19 study by Willis Towers Watson (NASDAQ: WLTW), indicating that despite a subdued environment for exit deals in the first six months of the year, there has been little evidence of forced exits. The survey, which took place in April across 36 private equity funds representing 300-plus portfolio companies, was designed to better understand how businesses were coping due to the pandemic as well as setting out expectations for the coming months. The results revealed the significant turmoil in capital markets has had little effect on the capital structures of portfolio companies, with 87% of respondents saying their holdings were unlikely to breach covenants as a result. Only 13% said holdings were either close to breaching or likely to breach covenants in the next two to three months… Regarding customer demand for products or services, however, responses were far more varied with 46% of respondents reporting their holdings were feeling a medium-to-high impact from the slowdown in global economies, mostly within the consumer discretionary, industrials, energy and materials sectors. In contrast, sentiment among commercial services firms remained robust, while 20% of consumer staples firms even reported a positive impact on demand.
Hedge Funds Fell a Record 7.9% in Pandemic-Plagued First Half
Brief: Hedge funds lost a record 7.9% in the first half of the year on an asset-weighted basis, according to Hedge Fund Research Inc. None of the four major strategies made money as the industry struggled to trade with the Covid-19 pandemic convulsing global markets. Event-driven funds were the worst performers, losing 9.6%. Relative-value funds posted the smallest decline, at 5.1%. The losses for the period were the steepest ever in data going back to 2008, according to HFR data released Wednesday. In March, the industry grappled with the end of the longest bull market as the coronavirus spread worldwide. But equities bounced back by the end of June, with the S&P 500 Index surging 39% from its March 23 low. Funds broadly fell 0.4% in June, even as the S&P benchmark gained 1.8% to cap its best quarter since 1998. It was the fourth month in the red for hedge funds this year.
Britain Signals End to Daily Redemptions for Property Funds
Brief: Funds that offer daily redemptions to investors may have to restructure to better reflect the time it takes to sell illiquid assets like property, Britain’s Financial Conduct Authority said on Wednesday.Retail property funds have been suspended because of their inability to value the commercial real estate they hold after markets were disrupted by the COVID-19 pandemic.The FCA and the Bank of England have already proposed principles on how to deal with “liquidity mismatches”, or where investments in a fund cannot be sold fast enough to meet daily redemptions without incurring losses in a market crisis.Retail property funds also had to be suspended in the immediate aftermath of Britain’s vote in June 2016 in favour of leaving the European Union. FCA interim Chief Executive Chris Woolard said there has been considerable discussion about how to ensure redemption arrangements offer a fair deal to those remaining in the fund as well as those who wish to exit.
Coronavirus a ‘Once-in-a-Lifetime Opportunity’ for Debt Investors: Billionaire Marc Lasry
Brief: Household names Hertz (HTZ), J.C. Penney, and Neiman Marcus make up a fraction of the thousands ofcompaniesthat havedeclared bankruptcysince the outbreak of thenovel coronavirus. The downturn may spell misery for employees and business owners, but it offers a “once-in-a-lifetime opportunity” for debt investors, who can do “extremely well” making loans to companies that falter, says Marc Lasry, the billionaire co-founder and chief executive of hedge fund Avenue Capital, which specializes in investments in distressed businesses. “I know you're not supposed to say this, but it's a once-in-a-lifetime opportunity,” says Lasry, also the co-owner of the NBA’s Milwaukee Bucks. “You're not going to see this again: Where you've actually got an economy that's fine, and you've got a Fed pumping trillions of dollars in.” Avenue Capital, whichsays it manages about $10 billionin total assets, has invested in struggling brands like Macy’s (M) and J.C. Penney, Lasry said. The firm can issue senior debt that takes priority when a company begins to pay off its loans or cede ownership, Lasry added in the newly released interview, taped on June 29. “For us, you've got an opportunity to invest at a senior level and do extremely well,” Lasry says. “So you'll either get paid out, or you're going to end up owning the equity of this company.”
