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Coronavirus Diligence Briefing

Our briefing for Thursday November 19, 2020:

Nov 19, 2020 3:42:18 PM

  • In the United States the country is one week away from celebrating its Thanksgiving holiday and the Centers for Disease Control and Prevention (CDC) is urging Americans to stay home this year. “CDC is recommending against travel during the Thanksgiving period,” said Dr. Henry Walke during a conference call with reporters. “For Americans who decide to travel, CDC recommends doing so as safely as possible by following the same recommendations for everyday living.” The CDC is concerned about transportation hubs such as airports and bus depots and the ability to maintain social distancing in those locations. On Wednesday, the United States recorded 1,869 deaths due to the coronavirus, the largest single day increase since May 7th. 
  • In Canada, the country’s most populous province has three regions that are “staring down the barrel of another lockdown.” The statement was made by Ontario Premier Doug Ford who is growing increasingly frustrated with the Toronto, Peel and York regions. Those three areas accounted for close to 75% of Ontario’s 1,422 cases on Wednesday. Premier Ford added that his cabinet will be discussing new public health measures with those announcements coming as early as Friday. Elsewhere in the country, British Columbia Premier John Horgan has called on the federal government to implement a “pan Canadian approach” to non-essential travel during the COVID-19 pandemic. “I am asking the federal government to work with us and other provinces to get the message out that if you do not need to travel between jurisdictions, you shouldn’t do that,” said Horgan.
  • In the United Kingdom, Chancellor Rishi Sunak is busy making headlines when it comes to the coronavirus pandemic. The Guardian is reporting Sunak is refusing to disclose whether he will profit from a surge in the share price of COVID-19 vaccine manufacturer Moderna. The company was of one of the latest biotech firms to make news earlier in the week, declaring a 94.5 efficiency rate in trials. Sunak was a founding partner of hedge fund Theleme Partners, which was a major investor in Moderna. Sunak left the firm in 2013 to pursue his political career, but it’s not known if the chancellor retained any investment in the Theleme fund after leaving. The hedge fund is registered in the Cayman Islands, a noted tax haven which does not make company records public. 
  • In France, the government is hoping to get cooperation from online shopping giant Amazon to delay the country’s Black Friday shopping promotions until high-street shops can reopen from its latest coronavirus lockdown. French business representatives said the current plan, which hasn’t been finalized, was for non-essential shops (not restaurants or bars) to reopen on Saturday November 28, one day after the originally planned date for the start of Black Friday shopping. France’s government has come under pressure to allow brick and mortar shops to reopen to take advantage of Christmas holiday sales. Politicians on the left and environmentalists have called for a boycott of Amazon over Christmas as the company has reaped the benefits of business closures with a sales increase of 40-50% in France during its latest lockdown. 
  • According to the Organisation for Economic Co-operation and Development (OECD), countries such as South Korea, Finland, Norway and Estonia were among the best performers at containing COVID-19 to the benefit of its people and economy. The OECD said those countries were helped either by past experience of infectious disease control, population structure and relatively low cross -border flows of people. The OECD report also highlighted the success of Japan, Australia and New Zealand, which quickly introduced effective testing, tracing and isolation practices, along with trust and compliance with social distancing and other key guidelines.
  • China has inoculated almost one million of its citizens with an experimental COVID-19 vaccine developed by state-owned Sinopharm under the government’s emergency use scheme. China is just one of two countries (Russia is the other) who are known to use so called vaccine candidates that are still undergoing clinical trials to test their efficacy and safety. China justified the authorization of an unproven vaccine stating that the products use has been restricted to high-risk individuals such as frontline health workers, but also included school, supermarket and public transport workers. In an interview with a Chinese based media company, the Chairman of Sinopharm said there has not been a single case of a serious adverse event from the nearly one million people who took the shot and people have experienced only mild symptoms.

Covid-19 – Due Diligence And Asset Management

World’s Biggest Companies Chose Men to Lead in the Pandemic

Brief: The world’s biggest companies seem to have decided that leadership in a global pandemic is men's work. Since March 11, when the World Health Organization designated Covid-19 as a pandemic, only 3% of the chief executive officers picked by the world's largest companies have been women, according an analysis to be released Thursday by executive recruiter Heidrick & Struggles. In the six months before that, women were winning four times as many of the jobs at the 965 largest companies around world. The study didn’t consider race or ethnicity. Women and other underrepresented groups have been at greater risk of career setbacks and unemployment during the pandemic because they hold a larger share of the jobs hurt by lockdowns and other restrictions. Women also were more likely to quit their jobs to care for children because of school shutdowns or lack of child care. Some economists are calling the economic downturn the first female recession, reversing much of the workplace progress women have made during the past decade. A big reason that more men were picked for the top job is that companies now are more likely to pick a new leader who has already served as CEO, a role dominated by men. Women now hold only about 6% of the CEO jobs at S&P 500 companies. The number of new CEOs appointed also fell since the pandemic began, with 30 new leaders among the largest companies in 20 global markets from March to the end of June, compared with 45 in the same period a year ago. Companies also were more likely to pick men to fill the CEO job after the global financial crisis in 2008, but the shift was less pronounced, Heidrick found. 

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Fixed Income Managers Less Risk-Averse Despite Covid-19 Concerns, says Russell Investments

Brief: Russell Investments’ latest survey of fixed income managers found 50 per cent expect the global economy to revert to pre-pandemic levels by year-end 2021, while 48 per cent don’t expect it to revert before 2022The 64 bond and currency managers who responded to the firm’s Q4 survey also indicated more appetite for riskier assets.  The percentage of managers selecting investment-grade credit from among 10 options as the most attractive asset class for risk-adjusted returns dropped from 40 per cent in the previous survey to 20 per cent. In contrast, preference for emerging market debt increased 10 percentage points to 15 per cent and high-yield credit increased eight percentage points to 23 per cent. In addition, fixed income managers expressed more balanced views on regional preferences in the Q4 survey, with 48 per cent selecting the U.S. as offering the best risk-adjusted return potential, versus 71 per cent in the previous survey. The US was followed by Asia (20 per cent), Latin America (15 per cent) and Europe (13 per cent). “While a second wave of Covid-19 infections and the speed of global economic recovery remain top concerns for the fourth quarter, fixed income managers seem to be less worried about the depth of the global recession,” said Adam Smears, Senior Director, Investment Research - Fixed Income at Russell Investments. “Instead, they appear more focused on the pandemic’s financial impact on specific companies.”

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Traders’ Vaccine-Stock Giddiness Fades Amid Doubts on Road Ahead

Brief: The initial blast of enthusiasm for stocks linked to Covid-19 vaccines triggered by key milestones in their development is quickly fading as investors assess the challenges they still face in becoming commercially successful. Wall Street analysts can’t quite gauge when or how sales will peak because it’s unknown how long vaccines will be effective, whether they’ll be needed more than once or even if those who have been vaccinated will continue to spread the virus. Forecasts on when the U.S. might reach herd immunity, potentially obliviating the need for inoculations, also run the gamut, though Anthony Fauci, the nation’s top U.S. infectious disease doctor, says things could be “approaching normal” by late next year. That’s prompted a retreat among many of the retail investors who had piled in to biotech stocks. All the unanswered questions have led to a slow leak in a biotech bubble. BioNTech SE dropped back below its summer highs in the three days following positive late-stage results with partner Pfizer Inc. Moderna Inc.’s run was even shorter. It fell below July’s record the day after its data. Companies playing catch-up with the vaccine front-runners including Inovio Pharmaceuticals Inc., Novavax Inc, Arcturus Therapeutics Holdings Inc. and CureVac NV have similarly lost momentum.

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Struggling Retailers Rack Up $52 Billion in Missed Rent

Brief: Eight months into the pandemic, clothing stores, restaurants, gyms and other businesses find themselves in a $52 billion hole. That’s the total amount of retail rent that’s been missed since April, according to CoStar Group Inc. While some of the overhang has since been paid back, the remainder will be a drag on merchants as they try to rebuild and landlords demand their money. In some cases, the unpaid balances could drive them into bankruptcy. “You’re going to have big bubbles that are going to be hitting next year or even in the fourth quarter,” said Andy Graiser, co-president of A&G Real Estate Partners, an advisory firm. “I’m not sure if they are going to be able to make those payments in addition to their existing rent.” Overdue rent compounds the problems these companies have faced this year, including lost sales during shutdowns, consumers’ reluctance to return to stores and restaurants and the long-running migration of shoppers from brick-and-mortar locations to online venues.

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COVID-19 Ushers Changes to Investor Behavior and Surfaces New Opportunities for Providers

Brief: Investors, especially those younger than age 50, express significant interest in expanding their advice relationships and in using a variety of product solutions. In response, providers must decide how to prioritize the development of their offerings, according to the latest Cerulli Edge—U.S. Retail Investor Edition. Cerulli’s findings show that 22% of respondents expect to increase their advisor reliance. Projected increases varied widely from a high of 40% among those in their 40s to only 9% among those in their 70s. Expectations regarding the use of automated online investment services and budgeting apps followed a similar pattern. In both categories, investors under age 40 expressed elevated interest that grew among those in their 40s before declining rapidly among older cohorts. “These results underscore the importance of establishing advice relationships with investors in their 40s, in many cases before substantial wealth accumulation,” says Scott Smith, director of advice relationships at Cerulli. “Prospective clients in this segment are desperate for help in sorting out their competing financial priorities but draw little interest from traditional advisors unless they accumulate substantial assets,” he adds.

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AQR to Liquidate Some Funds After ‘Persistent Outflows’

Brief: AQR Capital Management is slimming down, this time in the mutual fund world. Next month, the alternative investment firm plans to shut down several liquid alternative mutual funds, including a multi-strategy alternative fund, high- and low-volatility funds, and a volatility risk premium strategy, and according to Securities and Exchange Commission filings. “We remain fully committed to the mutual fund business as well as the advisor market, and we believe that the updates we are making to our mutual fund platform will bring greater clarity across products and better assist investors and advisors with making investment decisions,” the firm said in an emailed statement.  It’s no secret that AQR has been struggling with performance and investor redemptions. The firm, like many of its quantitative peers that use systematic value factors in its funds, has been hurt as value has underperformed for a record number of years. Value did bounce back beginning in October, but it’s too early to say whether there will be long-term relief for the style. Sources say AQR is shutting down funds because there hasn’t been enough demand from investors to justify the products. Indeed, the funds are small. According to Morningstar, the multi-strategy alternative fund, similar in strategy to AQR’s Delta hedge fund, had $33 million in assets.

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Contact Castle Hall to discuss due diligence

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.

Topics:Coronaviruscovid-19