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Our briefing for Thursday May 14, 2020:
May 14, 2020 4:04:01 PM
- In the United States, Republican Senator Richard Burr will be stepping down as chairman of the Senate Intelligence Committee while he’s under investigation for stock trades he made ahead of the market downturn in March. President Donald Trump publicly took Dr. Anthony Fauci to task for comments he made while in front of senate members earlier in the week. President Trump accused Dr. Fauci, one of his top medical aides in the White House coronavirus task force of wanting “to play all sides of the equation”. Trump particularly didn’t like Fauci’s suggestion of caution around reopening schools too quickly, calling his assessment, “not an acceptable answer”.
- In Canada as promised Ontario Premier Doug Ford laid out his government’s plan on the next stage in reopening the province. Starting May 19th, retail stores outside of shopping malls can begin reopening with physical distancing measures. Construction projects, seasonal activities such as golf courses and healthcare settings will also be allowed to resume, some as early as Saturday May 16th. During a Thursday news briefing, Quebec Premier Francois Legault announced the delayed reopening of greater Montreal area schools until September. Retail stores in the Montreal area are still set to reopen on May 25th and Premier Legault believes this could still happen if more people start wearing masks, although he won’t make the use of face coverings in public mandatory.
- The United Kingdom hit a new record for the number of coronavirus tests performed in one day. Over 126,000 tests were deployed on Wednesday and Prime Minister Boris Johnson says the government’s goal was to hit 200,000 tests a day by the end of the month. The government’s transport secretary, Grant Shapps has also urged Britons who are travelling to work again to avoid public transport. Shapps even went as far to say it was citizens “civic duty” to walk, cycle or drive instead.
- France’s President Emmanuel Macron has summoned a Paris based drug maker for a meeting. Sanofi CEO Paul Hudson was interviewed by Bloomberg News and said the United States would be given priority to a vaccine if discovered by the drug company due to their funding of vaccine development and production. Hudson quickly walked back those comments on Thursday promising if Sanofi did discover a vaccine, it would be made available in all countries. President Macron has been vocal that any vaccine found as treatment for COVID-19 should be treated as “public good for the world and not subject to the laws of the market.”
- Italian Prime Minister Giuseppe Conte has threatened to leave the European Union after criticizing the EU’s proposed tourism plan that could allow so-called green corridors between countries within the block. These green corridors would allow fellow EU nations making side deals for tourism paths, based on countries having low coronavirus outbreaks. Italy, being one of the hardest hit countries in the world due to the virus, would obviously be on the outside looking in on these green corridor deals. Tourism represents 13% of Italy’s GDP.
- Japanese Prime Minister Shinzo Abe lifted the state of emergency ahead of schedule for 39 of the country’s 47 prefectures. The state of emergency remains in effect for Tokyo, Osaka, Kyoto, Hokkaido and three other prefectures. The state of emergency was supposed to be in place until May 31st. Prime Minister Abe said he and experts will meet next week to decide if the emergency measures can be lifted in the remaining eight prefectures. Japan has more than 16,000 confirmed cases and about 680 deaths due to the coronavirus.
Covid-19 – Due Diligence And Asset Management
Ray Dalio on Covid-19 Effect: We’ll Reconsider How ‘To Divide the Pie’ and ‘There are Reasons it won’t be good for Capitalists’
Brief: PresidentDonald Trump and his administration are confident that the U.S. economy will quickly rebound after the coronavirus pandemic is contained — but some experts are not so sure. Count hedge fund billionaire Ray Dalio among the skeptics. “We’re not going to go back to normal,” Dalio tellsCNBC Make It. But he also has hope. “Soon we are going to reconsider how we are going to divide the pie and there are reasons that it won’t be good for capitalists,” Dalio says. Dalio sees the closest parallel to the world’s current economic situation as the Great Depression, which lasted from 1929 well into the 1930s, and is regarded as the worst economic crisis in American history. Much like with the Great Depression, Dalio predicts that the impending downturn will require a recovery period that could last several years, even as long as five years, he says.
Jefferies to Spin out Quant Hedge Fund with Some Staff Leaving
Brief: Jefferies Financial Group Inc. is spinning out its systematic hedge fund Quantport, with some staff leaving the firm. Jefferies may retain an interest in the new venture, and the shakeup was in the works before the pandemic, according to a person familiar with the matter. The New York-based fund, which had regulatory assets under management of $3.7 billion as of January, started as part of Jefferies’ proprietary trading desk, before overseeing external money from 2010. Led by Vlad Portnoy, it trades market-neutral strategies in equities and futures. The news was reported earlier by eFinancial Careers. The past few years have seen a number of systematic funds shut as growing competition and muted market swings eroded gains from their strategies. This year’s historic volatility has also been challenging, as the fallout from the coronavirus upended the price patterns underpinning many quant models.
Brookfield is Sitting on $60 Billion to Help it Weather the Pandemic
Brief: Cash is king in times of crisis, according to Brookfield Asset Management Inc.’s chief executive officer, and the alternative-asset manager has more than US$60 billion to weather the coronavirus pandemic. If a business isn’t prepared for situations like the COVID-19 outbreak that’s rattled markets, it’s often too late once such a crisis hits, Bruce Flatt said in a letter to shareholders Thursday. “In reflecting on what really matters to our business, it is liquidity, liquidity and liquidity, in that order,” he wrote in the letter. “The most damaging thing for any business owner is to find yourself out of business and unable to participate in the recovery, or in a position of needing to issue shares which dilute the owners, and therefore make it impossible to ever recover from undue dilution at the wrong time.”
CQS Spins off Equity Hedge-Fund Arm as Hintze goes back to Roots
Brief: Billionaire Michael Hintze’s CQS is spinning off its nascent equities hedge-fund business into a stand-alone firm as it focuses on core credit strategies that have been hammered by the pandemic. Paul Graham, the firm’s head of equities, will leave CQS to lead the spinoff as chief executive officer, according to people with knowledge of the matter. CQS will take an equity stake in the business and allocate some capital to it, said the people, asking not to be identified because the information is private. The abrupt move comes after sharp losses at the firm’s main hedge funds in March amid the virus-fueled sell-off. Its long-short equities business hasn’t yet started a fund and the firm was recently looking to build out its share-trading offerings under plans initiated by former CEO Xavier Rolet.
Private Equity Firms Have a ‘Fair Amount of Dry Powder,’ Carlyle Group Co-Founder says
Brief: The co-founder of one of the biggest players in private equity said the industry is in “reasonably good shape” and there will be opportunities to buy companies in the coming months. David Rubenstein, a co-founder of the Carlyle Group, said on CNBC’s “Closing Bell” that his firm and other private equity companies are waiting on the right opportunities as the economic impact of the pandemic puts stress on companies around the world. “We have a fair amount dry powder, as do the other large private equity firms. We see a lot of opportunities,” Rubenstein said. “But we don’t think that, if you don’t move in a week or two or three or a month, that you’re going to miss the best opportunities.”
How Far will Asset Management Pay Fall?
Brief: Johnson’s latest projections have 2020 incentive compensation at traditional asset management declining by 20 to 25 percent. The pay cuts come as assets under management have fallen across the board, with investors fleeing stocks and bonds and rushing into money market funds or cash. Hedge funds, whose average performance is down less than the overall markets, have also suffered asset declines. Their incentive compensation is expected to be down between 15 and 20 percent this year from 2019. Johnson noted that while macro and event-driven funds have been able to capitalize on the market impact of the pandemic, most strategies have taken a hit. Assets are at a multi-year low, according to the firm. Private equity, which has the highest paid professionals in asset management following rapid growth in recent years, will also undergo pay cuts. Johnson Associates expects large private equity firms to cut incentive compensation by 5 to 10 percent, compared to 2019.
