Sign In
sign up
Sign In
sign up

Coronavirus Diligence Briefing

Our briefing for Tuesday April 21, 2020:

Apr 21, 2020 4:36:30 PM

  • In the United States, President Donald Trump’s latest late-night tweet left his government officials scrambling. President Trump announced via social media on Monday night he plans to sign an executive order temporarily suspending legal immigration into the United States as the country fights the health and economic effects of the coronavirus pandemic. Media reports have the order ready for the President to sign in the coming days with the temporary ban lasting roughly four months.

  • As Canada closes in on 40,000 confirmed coronavirus cases, the province of Quebec became the first province in the country with over 1,000 deaths due to the pandemic. The province’s Premier notes approximately 850 of those deaths are linked to long-term care homes that spread across 80 institutions.

  • As England recorded an 82% rise in COVID-19 related patient deaths in hospitals in the latest 24-hour period, the death rate is actually much higher than being reported. A CNN article notes data from the United Kingdom’s Office of National Statistics (ONS) on April 10th, the true death toll was actually 41% higher than the government’s daily update. This is because the government’s numbers don’t take into account people dying from the virus in hospices, care homes, or private residences. They also can’t account for the lag in reporting cases. The government’s death total currently sits over 15,600.

  • On the outskirts of Paris, police were met by rioters as crowds of French citizens responded with fireworks and torching of garbage bins in protest of the heavy police presence in their area due to the coronavirus lockdown. It’s the third straight night of public unrest in France as the lockdown permits people to leave home only for groceries, to go to work, seek medical care or exercise. President Emmanuel Macron said schools and shops will gradually reopen starting May 11th, but restaurants, hotels, cafes and cinemas would remain closed for longer.

  • Spain’s Prime Minster is coming under fire for his restrictions on children’s movement once they are allowed outside of their homes come April 27th. On Tuesday, Prime Minister Pedro Sanchez clarified children under 14 would only be allowed out of their homes next Monday if they are accompanying adults such as shopping or going to the bank. That decision has drawn protest from the public and opposing politicians who say there is greater risk of obtaining and spreading the coronavirus by being in shops as opposed to open spaces. Spain has been in lockdown since March 15th.

  • Italy will announce by the end of the week its plans for a gradual reopening of their country as they emerge from their lockdown on May 4th.

  • In Japan, Prime Minster Shinzo Abe said his people haven’t practiced social distancing as much as is needed since the government issued a state of emergency two weeks ago. Prime Minister Abe has asked people to reduce their social interactions by as much as 80% to stop the virus from spreading. Surveys are showing Japanese citizens are still moving around too much such as making out-of-town trips and congregating in downtown areas where restaurants and grocery stores are still operating.

Covid-19 – Due Diligence And Asset Management

‘Reopen the Economy’ – Barry Sternlicht Worries About ‘Financial Suicide’ From Coronavirus Closures

Brief: The possible destruction of the U.S. economy must be weighed against the diminishing health risks from the coronavirus, real estate mogul Barry Sternlicht told CNBC on Tuesday. “I actually think we have to reopen the economy. We have to do it ZIP code by ZIP code,” said Sternlicht, whose $60 billion Starwood Capital Group has interests in luxury hotels and malls among its many other businesses. “We have to get going. The cost is too great. The government can’t carry a $23 trillion economy.” Sternlicht’s call to action comes as more states run by Republican governors are announcing plans to reopen parts of their economies as new daily virus cases in the U.S. continue to slow. Georgia’s timetable — one of the most aggressive in the nation — would allow gyms, hair salons, bowling alleys and tattoo parlors to reopen Friday. Elective medical procedures would also resume. By Monday, movie theaters and restaurants could start up again.


AMP Capital Shutters Global Equities Fund for Platform Investors

Brief: Dwindling assets under management have forced AMP Capital to close a global equities fund for wholesale investors on platforms. AMP Capital's wholesale global equity - growth fund for platform investors (Class M) was closed last Friday. The decision was taken by the fund's responsible entity, National Mutual Funds Management Limited. "A reduction in the fund's size over time combined with certain fixed costs associated with operating the fund will have the result of increasing management costs for investors, and may compromise the ability to efficiently manage the fund and deliver cost-effective returns in line with the funds' objectives," it said in a notice to investors. "Therefore, we believe it is in the best interests of the fund's investors to terminate the fund."


Big Investors Warn Hedge Funds on Tapping Small-Business Loans

Brief: Institutional investors in Pennsylvania and Alaska are taking a dim view of hedge funds and other asset managers seeking to tap emergency U.S. government money designed for struggling small businesses. Pennsylvania’s Public School Employees’ Retirement System is monitoring its managers -- as well as potential new ones -- to see if they took advantage of the rescue program. The Alaska Permanent Fund Corp. said it would view any manager taking assistance “quite negatively.” Some funds have already applied, Bloomberg earlier reported. “It is ethically questionable and likely not in the best interest of the industry as a whole, long term,” said Marcus Frampton, chief investment officer at Alaska’s $60 billion sovereign wealth fund. “Alternatives managers, from a fiduciary standpoint, should be exploring federal assistance for portfolio companies where it is needed to preserve value and help employees.”


Hedge Fund Star Who Won Big in Last Crisis Slumps to 26% Loss

Brief: Hedge fund manager Ali Lumsden gained 73% the last time the mortgage-bond market went into meltdown. This time around, the veteran investor is on the wrong side of the crisis. East Lodge Capital, the firm Lumsden set up in 2013, saw its main hedge fund plunge 26% in March, according to people with knowledge of its performance. Another East Lodge fund fell 16%, said the people, who asked not to be identified because the information is private. London-based East Lodge specializes in securitized credit, which has taken a hammering in recent weeks as the near-shutdown of the global economy threatens a surge of delinquencies among borrowers. Lumsden, who has spent over 30 years in the structured-credit markets, made his name as chief investment officer of an asset-backed securities fund at Michael Hintze’s CQS. He averaged gains of 28% annually at the firm’s ABS fund from October 2006 through November 2012, highlighted by the big gain in 2008 when he bet against subprime mortgages and the banks that had loaded up on them.


KKR Resurrects Credit Fund with New Name, Strategy for Virus Era

Brief: KKR & Co. is rebooting an unsuccessful credit fund with a new name for the coronavirus era. The firm has rebranded the Special Situations Fund III as the Dislocation Opportunities Fund, refocused its strategy and swapped managers in the hope of raising new money to scoop up bonds and loans battered by the Covid-19 pandemic. Instead of just seeking out distressed situations, the fund has a wide mandate to buy corporate and asset-backed debt, according to a marketing document seen by Bloomberg. KKR is marketing the vehicle to potential investors and plans to close the current round of fundraising on May 15. The firm is contributing $400 million of its own capital and seeking approval from clients to repurpose at least $217 million that was committed to the special situations fund, said a person familiar with the effort, asking not to be identified because the information is private.


Hasenstab’s Global Bond Fund Posts a $4.3 Billion Drop in Assets

Brief: The main bond fund run by Franklin Templeton’s Michael Hasenstab posted a $4.3 billion decline in assets in the first three months of the year, its worst quarter since 2016. Total net assets in the Templeton Global Bond Fund slumped to $22.6 billion as of March 31, public filings show, down from $26.9 billion at the end of 2019. It was the fourth consecutive quarter of declines and takes the drop in holdings in the past year to $11 billion. Hasenstab has famously been caught on the wrong side of a huge bet against Treasuries and was forced to pare that back last year after yields plunged. Stimulus measures to fight the fallout from coronavirus have pushed yields even lower since.


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.