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Coronavirus Diligence Briefing

Our briefing for Tuesday July 28, 2020:

Jul 28, 2020 2:53:14 PM

  • Republicans in the United States have unveiled their proposed $1trillion dollar COVID-19 relief bill. The contents of the bill include lowering the weekly emergency unemployment benefit payments from $600 to $200. The bill would also authorize a second round of $1200 stimulus checks. Senate Democrats are battling against lowering the unemployment benefits and would see payments remain at $600, a vote is scheduled for the upcoming days. Furthermore, President Trump’s national security adviser, Robert C. O’Brien has tested positive for the virus marking the highest-ranking official to have contracted COVID-19 thus far.

  • For the first time, Canada has approved the use of a drug to treat patients infected with COVID-19. Remdesivir, an antiviral drug manufactured under the brand name Veklury, by Gilead Sciences Canada Inc. has been approved for treatment of patients with severe symptoms caused by the virus. Remdesivir is mainly used treat those suffering from pneumonia and require extra oxygen, or a ventilator to breath. According to a Health Canada news release, the drug has been in the trial stages for six weeks and determined the “benefits outweigh its risks.” The treatment can only be applied to patients aged 12 and older, while under strict supervision from health professionals.

  • Prime Minister Boris Johnson is once again on the defensive as the U.K. reported 119 new deaths from COVID-19 on Tuesday. He warns that although the number of new cases has dipped in Britain, the rest of Europe may be seeing signs of a resurgence. Speaking to reporters in Nottinghamshire the Prime Minister said, “amongst some of our European friends, I'm afraid you are starting to see in some places the signs of a second wave of the pandemic." The United Kingdom continues to require anyone returning from travel outside of the country to quarantine for 14 days, although he added, “we are always looking at ways in which we can mitigate the impact of the quarantine.”

  • In Japan, thousands of companies are still waiting for their coronavirus stimulus payments to come through, forcing many business owners and their employees to find part-time work. Prime Minister Shinzo Abe's ruling Liberal Democratic Party promised more than $20 billion in relief payments, however, some Japanese citizens are skeptical and believe that funds are being mishandled. Dentsu Group Inc., one of Japans most influential companies with ties to Abe’s government, won the tender to distribute the relief payments but have since outsourced most of the job to smaller companies causing a delay in distributions.

  • South Africans worried about contracting the virus are avoiding hospitals even as the number of fatalities in country appear to be quite low. Just under two per cent of people who have contracted COVID-19 have died, while that stat looks impressive, authorities are saying it may be skewed. Almost every province in the country is using a different metric to track new cases and deaths, so without a uniform system of reporting “it becomes meaningless," University of Witwatersrand vaccine expert Prof Shabir Madhin says. In Port Elizabeth a new field hospital has been erected by the private sector, however, only 30 of its 1200 beds are in use.

Covid-19 – Due Diligence And Asset Management

Even Trading Floor Diehards Are Now Embracing Work From Home

Brief: For a sense of how dramatically perceptions of remote work are changing in the coronavirus era, consider Koji Motokawa. Like many traders in office-obsessed Japan, the deputy head of fixed income at Mizuho Securities Co. had never even considered working from home until the pandemic hit. Now, for the first time since he stepped onto the trading floor 25 years ago, Motokawa spends at least one day a week outside the office and plans to keep it up. “My initial thinking was that it was going to be pretty difficult given the way markets operate,” he said. “The reality is it’s actually doable.” As Covid-19 forces financial professionals around the world to re-examine the way they operate, anecdotal evidence from Japan -- ranked last among developed markets by the OECD for work-life balance -- suggests the move toward more remote work could be widespread and enduring. Tokyo-based brokerage employees from Goldman Sachs Group Inc. to CLSA Ltd. report a similar shift in attitudes that they expect will outlast the pandemic. Motokawa says Mizuho has gradually beefed up its infrastructure for remote bond trading, including distributing extra screens and computers. In Tokyo, which has recorded more than 10,000 coronavirus cases, authorities have urged residents to avoid unnecessary trips outdoors but haven’t imposed blanket restrictions on working in offices.

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Invesco Earnings Falter in a Year Ravaged by the Pandemic

Brief: Invesco Ltd. is having a tough year, even by 2020 standards. Investors continued to yank money from the asset manager’s funds in the second quarter, bringing total first-half net outflows to about $31.6 billion, according to a statement Tuesday. The stock has tumbled more than 40% this year, versus a roughly 9% drop for an S&P industry index, putting it well below peers. Fee pressure and a move away from active management has hurt the Atlanta-based firm in recent years. While senior executives made a series of bets to keep pace in a changing industry, some have yet to pay off, creating concern among clients and investors. Invesco has aggressively pursued acquisitions ever since Chief Executive Officer Martin Flanagan, 60, joined from Franklin Resources Inc. in 2005. The moves helped boost assets under management to about $1.1 trillion, but two years of outflows put Invesco in a tougher position than peers, even before the crisis triggered by the Covid-19 pandemic. “They came into this downturn more vulnerable,” said Bloomberg Intelligence analyst Alison Williams. On Tuesday, the firm reported second-quarter adjusted earnings of 35 cents a share, short of the average estimate of 43 cents by analysts in a Bloomberg survey. The stock slid 2.9% at 11:34 a.m. in New York.

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Boaz Weinstein Piles Up 90% Gain in Hamptons, Bets on More Chaos

Brief: It’s a hedge-fund summer idyll: Chickens strut, tomatoes grow ripe and the Atlantic breeze floats over this Hamptons refuge like a sweet balm. Here, in socially distanced splendor, Boaz Weinstein is printing money. As the pandemic consumes the outside world, Weinstein has repaired to his gated estate in Sagaponack, replete with tennis court, pool and a Vegas-style card room. When New York shut down, he left his office in the Chrysler Building and decamped to Long Island, like others from high-caste Manhattan. Unlike much of that crowd, however, Weinstein has settled here to make money -- lots of it. He’s added to his profits every month this year, trading credit and derivatives of companies including Wirecard AG, retailers Staples Inc. and Macy’s Inc. and loading up on cheap closed-end mutual funds. That’s helped him outperform all of his hedge fund peers, generating an eye-popping 90% gain in his main fund after years of uneven returns. He’s attracting new money, pulling in $1 billion to his now $3 billion Saba Capital Management. And he sees room to profit, even as stocks and bonds rebound. “Markets are at an unstable place right now. I look out at the next five months, and there are lots of known unknowns,” he said in a phone interview, pointing to everything from the course of the pandemic to the U.S. election and relations with China.

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Hedge Funds in North America Attract Investors Seeking Haven

Brief: Hedge funds based in North America are providing a haven to investors grappling with rising U.S.-China tensions and a global economy stalled by the Covid-19 pandemic. About 32% of allocators plan to increase investments to North America-based managers, compared with 18% at the start of the year, a JPMorgan Chase & Co. survey found. Most other regions, including Asia-Pacific, saw decreased interest. “Covid has created a lot more investment opportunities,” said Michael Monforth, global head of capital advisory at JPMorgan. “In some respects, there is a safe haven element to investors wanting to invest in the U.S., but it’s also being driven by the investment opportunity.” Investors are betting on hedge funds headquartered in North America as the world deals with a pandemic that’s halted commerce and sparked turbulence across markets. Escalating Chinese-American tensions remain a concern as the two superpowers have clashed on issues ranging from trade to the early handling of the coronavirus.

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World’s largest hedge fund, based in Connecticut, cuts dozens from staff as coronavirus takes toll

Brief: Bridgewater Associates, the world’s largest hedge fund, has laid off dozens of employees as the pandemic has hit the company’s bottom line. In an emailed statement, Bridgewater, based in Westport, said employees will be working more from home “so we won’t need the same number of support people, new technologies are changing what type of people we need and how we serve our clients, and we also want to become more efficient.” As a result, the shifts “will produce more than normal attrition in terms of people leaving the firm this year,” but it won’t be “greatly more than normal,” it said. Those leaving Bridgewater will receive “generous severance and extended health coverage,” according to the statement. The statement did not detail how many employees are affected, but The Wall Street Journal, which first reported the layoffs Friday, said several dozen were involved. Those cut worked in the research, client-services and recruiting, according to the newspaper.

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Private Equity and COVID-19: Lessons From the Global Financial Crisis

Brief: As businesses seek to address both the immediate and long-term effects of COVID-19 on their operations, the reinsurance industry is at the forefront of conversations to create a forward-looking solution for pandemic risk in conjunction with policyholders, insurance markets and key policymakers. Countries across the developed and emerging world are trying to manage the severe economic short-term impacts of the COVID-19 crisis. Given the immense uncertainty, it will take much longer to even begin to assess the permanent implications for the world’s populations, companies and economies. The ultimate effects will, in large part, be dependent on the duration of the crisis, the length and depth of which is currently generating speculations and requires substantial analysis, according to William T. Charlton, Jr., PhD., CFA, Global Head of Private Markets Data Analytics and Research at Mercer. Mercer is an affiliate of Guy Carpenter. Due to the inherent lag in private market reporting, even the initial impact on private markets will take considerable time to fully evaluate. However, the behavior of private markets during the Global Financial Crisis (GFC) may provide some insight into the potential short-term and long-term expectations of private markets in the current crisis.

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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.

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