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Coronavirus Diligence Briefing

Our briefing for Tuesday December 1, 2020:

Dec 1, 2020 4:10:40 PM

  • In the United States, a report from the Centers for Disease Prevention and Control (CDC) is lending fuel to the fire that the coronavirus could have been circulating unknown before what was originally thought. The study revealed 106 infections collected from donors in nine U.S. states between December 13th, 2019 and January 17th, 2020. “The findings of this report suggest that SARS-CoV-2 infections may have been present in the U.S. in December 2019, earlier than previously recognized,” said the report. Reports of a mysterious pneumonia spreading in Wuhan, China first emerged in December 2019 and was later recognized as ground zero for the coronavirus pandemic. The first case in America was recorded on January 19th, 2020. As mentioned in Castle Hall’s COVID-19 Diligence Briefing on Monday, China has been pushing hard through their state media that the coronavirus didn’t originate in Wuhan.
     
  • In a mini budget (in name only), Canada’s federal government unveiled close to $40 billion USD of new spending over the next two years in order to deal with the coronavirus pandemic. From the outset of the pandemic, the Canadian government has preached a “whatever it takes” mantra when dealing with the economic fallout and according to Bloomberg - delivering the biggest COVID-19 fiscal response in the industrialized world. Finance Minister Chrystia Freeland also announced $70-100 billion CAD in additional stimulus over three years to spur the recovery but failed to give much detail in what that money would go towards. The Conservative opposition government dismissed the fall economic statement from the government saying a three-year plan is pointless without first revealing how Canadians will be vaccinated against COVID-19. 

  • Trying to avoid a revolt within his own party, United Kingdom Prime Minister Boris Johnson made a few moves on Tuesday. The prime minister and his government will offer a £1,000 one-off payment to pubs affected by the toughest curbs of the new tiered system to be re-introduced this week as England emerges from a national lockdown. The prime minister also noted there will be a review of the coronavirus restrictions on December 16th, which suggests that districts with low infection rates might be able to move to a less restrictive tier. The government’s new tier of regulations is likely to pass even with some unhappy Conservative MPs as the Labour party has decided to abstain.

  • The European Medicines Agency (EMA) have pushed back the formal assessments of the Pfizer/BioNTech and Moderna vaccines, delaying inoculations in European Union countries to early 2021. Both vaccines were originally supposed to be assessed by the EMA on December 22nd, according to documents obtained by the Financial Times. However, the date for the EMA to give their opinion on the Pfizer/BioNTech vaccine will be December 29th while Moderna’s will be on January 12th. EU member state approval would likely come three-four days after those meetings. Some EU countries, such as Germany, hinted that their citizens could start receiving vaccinations as early as this month, but have changed their tune now – shifting the focus to 2021. 

  • In a bid to boost their pandemic-stricken tourism industry, the Philippines are looking at subsidizing coronavirus tests for tourists. The government is considering covering as much as 50% of the cost for COVID-19 swab tests but failed to elaborate who would qualify. The Philippines will also move to a set of uniform requirements for entry to tourist destinations, as the current protocol is deemed to be too confusing due to local governments setting mandates. The tourism sector accounted for 12.7% of the Philippines’ economic output last year.

  • Singapore and Hong Kong have delayed their travel bubble for the second time in a matter of weeks due to local cases in Hong Kong still being too high. The bubble was originally planned to begin operating in November, but now won’t start until at least 2021. The travel bubble was to allow travellers to move between the two regions without having to quarantine but subjected to coronavirus testing before and after flying. The two governments plan to review the start date in late December.

Covid-19 – Due Diligence And Asset Management

Lloyd Blankfein Touts New York City Recovery at UJA Wall Street

Brief: There were no cocktail franks or elbows to bump into at Monday night’s Wall Street Dinner. “That was so 2019,” Lloyd Blankfein said as he kicked off a virtual version of the annual benefit for the UJA-Federation of New York, a Jewish philanthropy. For decades, the event has been a power gathering of major figures on Wall Street, their colleagues and juniors. It has long been one of the biggest fundraisers in the country, with this year’s tally at $31 million so far. That’s a lot of cocktail franks, and while they’re the most popular item at any party, Blankfein made fun of the guests who might be missing them, or the platters of sushi, egg rolls and carved meats that are menu staples of the event at its usual midtown hotel venue… Addressing about 1,500 guests, Blankfein talked about what Covid has wrought, how we’ll recover and the important role UJA has to play. “The pandemic and ensuing economic crisis have made so many ordinarily vulnerable people even more so and for those on the edge, pushed them over,” Blankfein said. “Hundreds of thousands of people in our city can’t put food on the table, they’ve lost their jobs, they’re struggling to survive.” During the pandemic, UJA has distributed $52 million in emergency aid. It’s opening hubs for social services in Queens, Brooklyn, the Lower East Side, Long Island and Westchester County.

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Demand for Second Passports and Citizenship Soars

Brief : National lockdowns, closed borders and travel restrictions have helped drive up enquiries for second passports, citizenships and overseas residencies by more than 50% year-on-year. International finance advisory firm deVere Group, which has more than 100,000 clients globally, reports that this highly unusual year has seen demand for its residency and citizen service "skyrocket." The majority of enquiries are from high-net-worth individuals from the US, India, South Africa, Russia, the Middle East and East Asia who are seeking alternative options in Europe and the Commonwealth. Nigel Green, the founder and CEO of deVere Group, said: "Previously, a second passport, citizenship or residency were regarded by many as the ultimate luxury item; a status symbol like yachts, supercars and original artwork. "While this still remains the case, there's also been a shift due to the pandemic. "Now, second citizenship or overseas residency are increasingly becoming not just a ‘nice to have accessory' but a ‘must have.' "Whether it be for personal reasons, such as to remain with loved ones overseas or be able to visit them, or for business reasons, a growing number of people are seeking ways to secure their freedom of movement as they have faced travel restrictions which are, typically, based on citizenship." He continues: "The pandemic has served as a major catalyst for demand which skyrocketed this year. It has focused minds to secure that second passport or elite residency.

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Rhenman to Shutter Global Opportunities Equity Long/Short Hedge Fund

Brief: Rhenman & Partners Asset Management says it is closing its Rhenman Global Opportunities L/S strategy and intends to return capital back to investors. The fund – a global equity-based strategy which trades long and short across all industries and sectors, with a focus on value-oriented companies – has struggled with performance throughout 2020. The strategy, which has an annual return target of 7-8 per cent - is down more than 23 per cent over the 10-month period since the start of this year. In a statement, the Stockholm-based firm – known for its healthcare-focused investments – thanked all those investors who had been invested in the Global Opportunities vehicle. “The decision to liquidate the sub-fund Rhenman Global Opportunities L/S is primarily because the value of the sub-fund’s total net assets is deemed to be the minimum level for the sub-fund to be operated in an economically efficient manner,” the firm said. “In addition, the preconditions for raising capital to the sub-fund are not deemed to be in place.” While the Stockholm-based hedge fund manager - led by founding partner and chief investment officer Henrik Rhenman - is best known for its Rhenman Healthcare Equity Long/Short flagship fund, which trades a range of pharmaceutical, biotech, and med-tech stocks, the Global Opportunities strategy has a much broader market focus.

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European Money Market Funds Push Back Against Calls For Post-Covid Reform

Brief: Calls for tighter regulation on the EUR1.4 trillion European money market funds sector have been called “misguided” by the industry, which disputes the claims that central bank intervention prevented a fund liquidity crisis in March. The coronavirus pandemic caused a “dash for cash” among investors in March, with many companies and funds that were holding illiquid assets, such as real estate and corporate debt, drawing on money market funds for short-term funding. Euro area money market funds suffered outflows of nearly 8 per cent of assets under management in one week from 13 to 20 March, according to data from the ECB. Central banks’ injection of billions of euros in bond-buying schemes and market support has been credited with allowing money markets to continue providing liquidity throughout the crisis. In November, the European Securities and Markets Authority (ESMA) said that “further reforms of money market funds are needed” in order to address shortcomings in the fund management sector’s ability to cope with shocks. “We have identified a number of priority areas that funds and supervisors should focus on to address potential liquidity risks in the fund sector,” said ESMA’s chairman Steven Maijoor. Policymakers in the US have also recently urged a review of the regulations on money market funds, while the International Monetary Fund (IMF) has said the non-bank financial sector needs a stronger regulatory framework after the pandemic.

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85% of Pension Schemes Predict W-Shaped Recovery of Financial Markets

Brief: Eighty-five per cent of pension schemes believe that the financial markets will have a W-shaped recovery, according to research by Amundi and Create-Research. The survey of 158 respondents from 17 pension markets across the public and private sectors, collectively managing €1.96trn of assets, found that pension funds value portfolio resilience above everything else. The report highlighted the “toxic” side effects that central banks’ and governments’ policy, in response to the pandemic, has had on pension schemes. This includes increased liabilities and dwindling incomes from low-interest rates. Alongside the market meltdown in March 2020, these have ravaged funding ratios worldwide, the report noted. The W-shaped, or accordion-shaped recovery, predicted by pension schemes are both volatile by nature. Most respondents felt it was likely that central banks will lose their independence from their governments (84 per cent) and inflation will follow deflation after the current crisis is over (77 per cent). Finally, the overwhelming majority of those surveyed believe asset returns will be lower this decade than the previous ones (90 per cent). Commenting, Create-Research professor Amin Rajan, said: “Assessing the macroeconomic damage of Covid-19 is akin to looking through a kaleidoscope: different images appear with each turn of the dial. However, one thing is certain: the longer the pandemic lasts, the greater the economic damage to pension plans.”

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UK Hedge Fund Argonaut Takes Aim at AstraZeneca-Oxford Vaccine and Warns Against “Silver Bullet” Recovery

Brief: The recent stock market “exuberance” sparked off by breakthroughs in Covid-19 vaccine trials may give way to disappointment next year, says Argonaut Capital CEO and CIO Barry Norris, who continues to build short positions in a number of drug companies, including AstraZeneca, amid continued uncertainty over efficacy and dosage in its trial process. Norris, who runs the UK firm’s Argonaut Absolute Return equity long/short hedge fund, has taken a negative stance on several pharmaceutical stocks this year as the hunt for an effective Covid-19 treatment heated up. He is maintaining his bearish stance on the recent Covid-19 vaccine announcements, and believes a market recovery may not be as smooth or as quick as hoped by investors. “At the risk of being obviously non-consensual, I think that the market reaction to the vaccines was a group-think reaction. It’s just totally illogical to see this as a silver bullet,” Norris told Hedgeweek on Monday. “To price in a back-to-normal for the global economy next year, which is essentially what the market did in November, to my mind is incredibly risky because most of the recovery potential is already priced in,” he continued.

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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