.png?width=200&height=78&name=CH%20Diligence%20(thicker%20line).png "CH Diligence (thicker line).png")
Our briefing for Tuesday February 16, 2021:
Feb 16, 2021 4:06:34 PM
- In the United States, Dr. Anthony Fauci, the top adviser to President Joe Biden on the coronavirus pandemic, said the timeline for when vaccines will be available to the general public has been pushed back. In an interview with CNN on Tuesday, Dr. Fauci said vaccines won’t be available to the general public before mid-to-late May or early June. Dr. Fauci admitted previous estimates had vaccine availability for nonessential workers under the age of 65 with no health conditions closer to the end of April. The change in timeline is due to Johnson & Johnson COVID-19 vaccine still not being cleared for emergency use and once it does, having fewer doses available than originally suspected.
- In Canada, the leading federal Liberal Party and lead opposition Conservative Party are bickering on who is to blame for the slowdown in the latest COVID-19 relief bill. In a letter provided to The Canadian Press, Deputy Prime Minster Chrystia Freeland accuses the Conservative government of dragging their feet for no good reason and to the detriment of Canadians. Conservative leader Erin O’Toole fired back during a news conference on Tuesday stating part of the delay was the Liberal’s own doing. “Minister Freeland knows that this legislation is intended to fix problems for their last rush exercise,” said O’Toole. Members of Parliament are back in session on Tuesday after a weeklong break.
- United Kingdom Prime Minister Boris Johnson is fighting back against demands from his Conversative MPs to speed up the end of the country’s lockdown – saying the way out will be “cautious but irreversible”. The Evening Standard quoted one UK scientist saying it appears the ministers “have been really listening to advice” from Sage experts after the prime minister said he wanted to see “really low” case numbers before lockdown curbs were lifted. Prime Minister Johnson will publish his road map out of lockdown next week after analysing the latest data on case numbers, hospital admissions, deaths and the impact of the vaccine rollout. The Evening Standard reported 303 of the 315 local areas in England (96%) have seen a fall in COVID-19 cases.
- The Netherlands court ordered the government on Tuesday to end its curfew it imposed last month to help stop the spread of the coronavirus. The court determined the ruling coalition was not entitled to use emergency powers to enforce the restrictive measure. The government of Netherlands immediately appealed and asked the court to suspend the order prohibiting the curfew. The full appeal won’t be heard until Friday after a member of the group that sought to overturn the curfew accused the presiding judge of bias. In the meantime, Prime Minister Mark Rutte has urged the public to remain at home during the hours of 9 PM to 4:30 AM, pending the result of the appeal.
- The European Union’s Systemic Risk Board (ESRB) released a report on Tuesday noting that EU bloc governments must find the right moment to wean the economy off its unprecedented crisis support, so they don’t harm growth in the long run. According to the report from the ESRB, as of September 2020, governments had put 2.4 trillion euros on the table for loan guarantees, public lending, grants and tax relief. “If fiscal support is withdrawn prematurely, economic recovery and financial stability might be at risk, but if it is maintained for too long beyond the emergency, fiscal sustainability and longer-term growth may be jeopardized,” the ESRB said.
- Japan will begin its inoculation plan on Wednesday when a group of health workers will be provided the Pfizer COVID-19 vaccine. Taro Kono, the Cabinet administrative minister who is tasked with the vaccine rollout, said the progress will depend on the availability of vaccine supplies from Europe. Kono is also looking at procuring special syringes that can get six doses from a Pfizer vial instead of the standard five. Over the weekend, Japan approved the Pfizer vaccine, which has already been used in other countries since December. The country fell behind after it asked Pfizer to conduct clinical tests with Japanese people, in addition to the company’s earlier tests in six other nations as Japanese citizens are known for having low vaccine confidence.
Covid-19 – Due Diligence And Asset Management
Democrats Target Private Equity, Hedge Fund Tax Break in Bill
Brief : Three House Democrats are pushing legislation that would repeal the carried-interest tax break used by fund managers to reduce the levies they owe to the Internal Revenue Service. The bill would close the carried-interest tax break and require many hedge fund and private-equity managers to pay higher ordinary income-tax rates, rather than the lower rates on capital gains. Representatives Bill Pascrell of New Jersey, Andy Levin of Michigan and Katie Porter of California are sponsoring the legislation, which could become part of broader talks on taxes in Congress in the coming months. “The ability of private-equity and hedge fund financiers to use the loophole impacts income inequality, as this tiny subset of executives make up some of the wealthiest citizens in the world,” the lawmakers said in a statement on Tuesday. The legislation would mean that investment fund managers could pay significantly higher tax rates, because they wouldn’t be able to classify some of their income, called carried interest, as capital-gains earnings. Ordinary tax rates max out at 37% and long-term capital gains rates are 20%, plus an additional 3.8% surcharge to fund the Affordable Care Act. Carried interest is the portion of an investment fund’s returns that are paid to hedge fund and private equity managers, venture capitalists and certain real-estate investors eligible for lower tax rates. Money managers who put their own money at risk, such as private-equity partners who invest money in their funds, could still qualify for the break under the House bill. However, all the income earned from managing a firm’s assets would be taxed at ordinary rates, according to the lawmakers.
Going All-In? Investors’ Cash Levels Dip to 2013 Pre-Taper-Tantrum Levels
Brief: Cash levels in investment portfolios have hit the lowest since just before the so-called taper tantrum of 2013, according to Bank of America’s February fund manager survey, which also showed investors to be overwhelmingly bullish on the economic outlook. World stocks have been notching successive record highs in 2021, with central banks remaining supportive and governments injecting money into the system to get economies up to speed after the damage caused by COVID-19. “The only reason to be bearish is ... there is no reason to be bearish,” Michael Hartnett, BofA’s chief investment strategist, told clients, who have the highest equity and commodity allocations in a decade. A net 91% of them expect a stronger economy, the best ever reading in BofA’s survey published on Tuesday, which covered 225 fund managers with $645 billion in assets under management. Investors showed they had the capacity to increase risk, taking their cash levels down to 3.8%, the lowest since March 2013, just before the U.S. Federal Reserve sparked a market tantrum by signalling its intent to wind down, or taper, the bond-buying programme it launched during the 2008 crisis. However, investors hear echoes of the 2013 situation, and see another taper tantrum as the second biggest “tail risk” after delays in the rollout of coronavirus vaccines.
Emerging Markets Funds Likely to be at the Vanguard of ESG Investing over the Next Five Years, says RWC Partners
Brief: Emerging markets funds must use the next five years to ensure ESG is at the centre of investment philosophies, with the biggest environmental and social challenges located in the countries they invest in, RWC Partners’ John Malloy has said. Coming off the back of a strong end to 2020, which was boosted by factors including the US’ announcement of a further USD1.9 trillion of Covid-19 related stimulus, the challenge for emerging markets investors now is to focus on five years of real change across economies. Malloy, co-head of Emerging and Frontier Markets at RWC Partners, says a focus on ESG across emerging markets is paramount: there is significant scope in these markets to effect long-lasting change. “On a global scale, emerging and frontier markets account for the largest share of the world’s population, land and mineral resources. They are the drivers of global growth and consumption. Sustainability is a function of their development, and it is therefore essential to promote responsible business practices, enforce human rights and environmental protection,” Malloy says. “These are also high impact markets where a minor change can have major global consequences. Stopping deforestation in Brazil, reducing emissions in China, eliminating poverty in India, or finding a solution to water scarcity in Africa, for example, could change the entire planet. ESG considerations are vital when investing in developing countries, and if the next five years are to be the years of emerging and frontier markets, they will also be the years of ESG.”
Swiss Wealth Tax Rakes in Cash as Covid Revives Global Debate
Brief: Switzerland’s wealth tax offers a rare real-world example of how a levy on assets can work, just as such ideas gain traction elsewhere in the wake of the coronavirus crisis. The measure forces residents in one of the world’s richest nations to tally the value of their investments, real estate, cars, fine art, Bitcoin, and even beehives and cows. A percentage is then skimmed off by cantonal governments. Switzerland, among only a handful of countries with the levy, can make a claim that it has the most effective one. With the Covid-19 fallout causing government debt to swell, and hurting poorer people most, wealth taxes are being debated from California to the U.K. as a tool both to pay down debt and address inequality. U.S. Senator Elizabeth Warren, Nobel laureate Joseph Stiglitz and economist Thomas Piketty are among proponents. Criticisms range from the view that it’s wrong to target assets accumulated through income that is already taxed, to more practical questions of how to fairly operate such a levy. The Swiss don’t seem to be very bothered by all of that. “It works for us,” said Stefan Kaufmann, a farmer from Wetzikon in the canton of Zurich, who describes the policy as a good Swiss compromise.
The Pandemic has Dramatically Complicated Issues of Tax Residency
Brief: We all know that the residency status and the domicile of an individual can have a dramatic impact on their tax position, so it is important to understand what impacts both. As a result of the covid-19 pandemic many people have been caught the wrong side of borders and for some this could be expensive. Neil Jones explains the added complexities affecting residency status, and outlines how to stay on the right track. In the normal course of events the ability, or inability, to travel to and from the UK would have consequences, however fortunately HMRC issued guidance. This deals with the exceptional circumstances presented by covid designed to help advisers and individuals understand the impact on both residency and domicile. Before looking at the impact of the guidance, we need to understand how residency and domicile work. This test starts with conditions to establish if an individual is non-UK resident. If they were resident in the UK for at least one of the last three tax years and present for fewer than 16 days in the UK in the current tax year, or were not resident in the UK in the three previous tax years and present in the UK for fewer than 46 days in the current tax year, then they would be classed as non-resident. This would also be the case if they worked overseas full-time and are present in the UK for fewer than 91 days, and work fewer than 31 days in the UK.
Free-Spending Private Equity Firms Set a Record Pace in Europe
Brief: A year of pandemic prudence is giving way to jumbo dealmaking in Europe for deep-pocketed private equity houses. Buyout firms have announced $29 billion of takeovers involving European companies this year, up 60% year-on-year and the most for this period on record, according to data compiled by Bloomberg. That’s after months in which many large buyers, including Blackstone Group Inc. and CVC Capital Partners, stayed on the sidelines or focused on funneling much-needed capital to their existing portfolio companies. Now, opportunities stemming from the coronavirus crisis, an abundance of cheap credit and willing sellers looking to clean up their balance sheets are creating ripe conditions for bigger deals. Soaring equity markets, meanwhile, are driving up prices. “It‘s hard to overstate it,” said Anthony Diamandakis, co-head of global asset managers at Citigroup Inc. “Chances are high that we will see jumbo deployment this year.” The industry has long had the luxury of holding a record amount of unspent capital, and with the time to pick its bets. Investors continued to pour money into buyout funds last year, even as private equity firms stayed penny wise.
