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Our briefing for Thursday May 27, 2021:
May 27, 2021 2:49:12 PM
- In the United States, Treasury Secretary Janet Yellen has urged congressional leaders to step up their spending, claiming the government is operating on a budget more than a decade behind the times. Yellen was speaking to a House panel that has a large say over spending and noted the aggressive programs the Treasury has already implemented to help the economy through the COVID-19 pandemic. Yellen’s comments of course are strategic in nature as they come just one day before President Joe Biden releases his first budget, an expected $6 trillion spending plan to be financed by tax increases and deficit spending in the range of $1.3 trillion annually.
- In Canada, the federal government is urging provinces not to waste thousands of doses of AstraZeneca vaccine that are set to expire in a matter of days. Federal Health Minister Patty Hajdu sent a letter to her provincial and territorial counterparts that called on provinces that weren’t going to use their AstraZeneca doses by the end of May to give them to provinces that can. Hajdu stated in the letter the federal government would help to ensure doses don’t get wasted. Elsewhere on the AstraZeneca vaccine front, Quebec has confirmed citizens can get their second shot eight weeks after they have received their first. The province initially planned on providing the second dose 12 weeks after the first dose and the change was based on a recommendation from Quebec’s immunization committee.
- The United Kingdom government – most notably Health Secretary Matt Hancock – was busy Thursday trying to defend himself against the bombshell accusations made by former senior official Dominic Cummings and their handling of the coronavirus pandemic. Addressing the House of Commons on Thursday morning, Hancock responded: “These unsubstantiated allegations around honesty are not true. What we have done to handle this coronavirus pandemic has been unprecedented in modern times.” At a press conference, Hancock repeatedly dodged questions such as if Prime Minister Boris Johnson still had confidence in him as secretary. The Prime Minister also faced his share of questions. When asked if the deaths due to the coronavirus were because of his “action or inaction”, Prime Minister Johnson replied: “No, I don’t think so.”
- In Germany, a team of scientists believe they have worked out why some people who have received AstraZeneca and Johnson & Johnson COVID-19 vaccines develop blood clots and what the manufactures can do to improve their vaccines to avoid it. Rolf Marschalek, a professor at Goethe University in Frankfurt, along with his colleagues, say the key is in the adenovirus – the common cold virus that is used to deliver the spike protein of the coronavirus into the body. The Pfizer and Moderna vaccines, which are mRNA, don’t use this delivery system and therefore have had no known blood clotting cases linked to them.
- Brazil’s latest COVID-19 wave has left the country with its highest unemployment rate ever recorded. As noted by Bloomberg, the data series only goes back to 2012, but joblessness hit 14.7% in the first three months in 2021. Brazil’s unemployed population has risen to 14.8 million people and the government has pared back emergency aid to the poor. President Jair Bolsonaro and his government injected billions worth of aid into the economy last year but is running out of room for emergency spending while the virus still rages in Latin America’s most populous country.
- One day after the United States said they would have their intelligence team do a deeper dive into COVID-19 origins; it should come as no surprise China isn’t happy. The Chinese embassy in Washington said politicizing the origins of the coronavirus pandemic would hamper further investigations and undermine global efforts to curb the pandemic. The Chinese embassy said it supports “a comprehensive study of all early cases of COVID-19 found worldwide and a thorough investigation into some secretive bases and biological laboratories all over the world.” The United States though is singularly focused on a Wuhan, China lab after once was thought as a fringe theory on the start of the pandemic, has gained more steam in the last week after a Wall Street Journal report over the weekend. The news outlet reported three Wuhan researchers at the Institute of Virology became sick enough in November 2019 to seek out hospital care.
Covid-19 – Due Diligence And Asset Management
Yellen says Economic Recovery Likely to be ‘Bumpy’
Brief : Treasury Secretary Janet Yellen says that the economic recovery is going to be “bumpy” with high inflation readings likely to last through the end of this year. But Yellen insisted that the inflation pressures will be temporary and if they do threaten to become embedded in the economy, the government has the tools to address that threat. In testimony before a House Appropriations subcommittee Thursday, Yellen was asked about a big jump in prices reported last week, which showed consumer price index rising by 4.2% over the past year, the largest 12-month gain since 2008. Yellen said that the April price increase was the result of a number of special factors related to the economy opening back up. She said as she has in the past that the price jump would be temporary but she indicated it would be more than a one-time gain. “I expect it to last, however, for several more months and to see high annual rates of inflation through the end of this year,” Yellen told lawmakers.
Canadian Banks Signal a COVID-19 All-Clear Earlier than Expected
Brief: Canada’s biggest banks are signaling that financial issues from the COVID-19 crisis are largely in the rear-view mirror in North America -- and earlier than analysts had expected. After a year of stockpiling record amounts of capital to protect against a wave of loan defaults, Royal Bank of Canada and Toronto-Dominion Bank -- the country’s two largest banks -- reversed course last quarter. Toronto-Dominion on Thursday reported a surprise $377 million (US$312 million) release of provisions for credit losses for its fiscal second quarter, while Royal Bank released $96 million. Analysts had projected both lenders would continue setting aside capital to absorb potentially soured loans. With vaccination campaigns putting economic reopenings in reach in Canada and the U.S., strong housing markets fueling mortgage lending, and surging equity markets supporting capital-markets and wealth-management businesses, Toronto-Dominion and Royal Bank are asserting they have more than enough capital to handle any bumps along the road to recovery. Even after reporting smaller set-asides than analysts expected in the fiscal first quarter, bank executives still struck a cautious tone on their preparations for potential credit losses, leading many analysts to expect reserve releases wouldn’t begin until the second half of the year.
Private Equity Backed Companies Create Over 250,000 Jobs, Growing Six Times Faster than European Average
Brief: Invest Europe, an association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, has published its ‘Private Equity at Work’ report which shows that the PE sector is supporting over 10 million workers across the continent and creating over a quarter of a million jobs in sectors that will help feed the recovery from the Covid-19 crisis. A total of 10.2 million people were employed at 23,009 portfolio companies at the end of 2019, ranging from start-ups and SMEs to large multinationals, according to the second edition of Invest Europe’s ground-breaking employment study. That equates to 4.3 per cent of Europe’s active workforce and is on a par with the entire population of Sweden. Private Equity at Work demonstrates private equity’s outsized contribution to European job creation. Companies backed by private equity added 254,157 net new jobs in 2019, about the same as the working population of Tallinn. The figure represents growth of 5.5 per cent on the previous year and far outstrips the average job growth of 0.9 per cent for Europe as a whole. Around half a million people in Europe found new work with private equity backed companies in 2018 and 2019 combined.
Cerberus Quadruples Money After Unusual Exit from Hospital Giant
Brief: Cerberus Capital Management, demonstrating the rewards of Wall Street’s rush into health care, made a roughly $800 million profit on its investment in struggling Catholic hospitals, records show. The New York private equity firm quadrupled its money over a decade, according to internal documents and a federal filing this month. Co-founded by billionaire Stephen Feinberg, Cerberus executed an unusual exit. It offloaded its remaining interest to doctors who work in its hospital company, rather than pursue an initial public offering or sale to a rival. Cerberus bought Caritas Christi Health Care in 2010, paying $246 million in cash for Massachusetts hospitals that included flagship St. Elizabeth’s Medical Center in Boston. The company that Cerberus created, Steward Health Care, expanded into a major hospital chain as it also became saddled with a heavy debt load. Private equity firms, saying they are bringing corporate efficiency to an outdated industry, struck $288 billion worth of health care deals over the past five years, according to a report by consultant Bain & Co. Such investments have drawn scrutiny from members of Congress, consumer groups and academics, who say the firms’ use of debt puts pressure on medical providers to cut costs and hurts quality.
Investors Bet Billions That Health Care’s Long Overdue Digital Shift is Finally Here
Brief: Investors are pouring a record amount of money into young companies trying to transform U.S. health care at an accelerating pace. Spurred by the pandemic, private funding for health-care companies has reached new highs every quarter since Covid-19 emerged. Investors steered a record $6.7 billion to U.S. digital health startups in the first three months of 2021, according to venture firm and researcher Rock Health. In 2011, Rock Health tracked $1.1 billion invested in digital health for the entire year. The flood of money is getting attention from new corners. JPMorgan Chase & Co. last week announced a new business with a $250 million investment arm to transform employer health coverage. Young startups have closed giant deals like the $500 million that online pharmacy Ro, founded in 2017, raised in March. And venture-backed health companies are reaching the public markets: Upstart insurer Bright Health Group, founded in 2015, filed for an initial public offering last week. Sustained low interest rates have investors searching for returns in new arenas, pushing money into assets from junk bonds to Dogecoin. Venture capital is no exception -- with funds raising $32.7 billion in the first quarter, on pace to exceed last year’s record, according to data from the PitchBook-NVCA Venture Monitor. All that money has to go somewhere. As the pandemic eases in the U.S., a growing chunk of venture capital has decided that the upheaval spurred by Covid-19 is accelerating shifts already underway in the notoriously inefficient $4 trillion U.S. health-care sector.
Investors Lean into Early-Stage Venture Capital Deals in Pandemic Recovery
Brief: Venture capital is back, better, and younger than ever. Start-ups that survived the pandemic are raising venture financing rounds at valuations well above the period before the coronavirus shut down global economies. At the same time, investors are increasingly placing capital in early-stage deals, according to a new PitchBook report. Although there's a bump in interest in younger companies, venture capital activity is strong for deals in all stages. According to the report, both early- and late-stage venture capital deals experienced growth in pre-money valuations – the value before companies go public or get other kinds of financing. The median and average pre-money valuations for early stage companies hit $40 million and $96.3 million, respectively, in the first quarter. Both are records. For later stage companies, a number of huge deals increased the median and average pre-money valuations to $122.5 million and $1.03 billion, respectively. These were also peaks. Venture capital has had a good run recently, according to multiple third parties looking at different data sets. Returns reached an all-time high in 2020, even as global economies were decimated by the coronavirus pandemic.
