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Our briefing for Tuesday June 23, 2020:
Jun 23, 2020 4:11:13 PM
- Dr. Anthony Fauci appeared before United States law makers on Tuesday and said the country is “seeing a disturbing surge of infections.” A key member of the White House coronavirus task force, Dr. Fauci said the way you need to address the recent surge is testing to identify, isolate and contact trace in an effective way. Dr. Fauci’s views though are seemingly in direct conflict with United States President Donald Trump. After stating at a political rally over the weekend, he wanted to see less testing, White House officials tried to say the President was only joking. President Trump’s response on Tuesday: “I don’t kid. By having more tests, we find more cases. It sounds bad, but actually we’re finding people, many of those people aren’t sick or very little – maybe young people.”
- The Canadian federal government has extended the time period for temporary layoffs, by up to six months, giving employers more time to rehire employees who were laid off due to COVID-19. Employees who were laid off, prior to March 31st have six months or December 30th for employers to bring them back to work, whichever comes first. Prior to this extension, a worker would deem to be terminated if their temporary layoff notice expired before the employer brought them back to work, which was normally three months.
- United Kingdom Prime Minister Boris Johnson announced as of July 4th, the government will replace the two-metre social distancing rule with “one metre plus” guidance. The July 4th date is significant as this is when pubs, restaurants, hotels and hairdressers will be given approval to reopen their establishments. Prime Minister Johnson told the House of Commons on Tuesday: “From the outset we have trusted in the common sense and perseverance of the British people. We have been clear that our cautious relaxation of the guidance is entirely conditional on our continued defeat of the virus.”
- Germany has reimposed a lockdown for the first time since releasing restrictions last month. The western city of Gutersloh, home of the processing plant where 1,550 employees have tested positive for the coronavirus, and the surrounding area have been shut down by the prime minister of the state. Prime Minister Armin Laschet said the current lockdown will last initially for one week in hopes it will become clearer to what extent the virus has spread among people outside of the meat processing plant.
- Saudi Arabia state media have reported the nation has banned international visitors making the Islamic pilgrimage, or Hajj this year in order to stop the spread of the coronavirus. Only a very limited number of people who are residents of Saudi Arabia will partake in the Hajj this year. Pre pandemic, the pilgrimage would have attracted an estimated two million people to Mecca for one of the most significant moments in the Muslim religious calendar.
- On the other hand, one of India’s most celebrated religious processions is expected to go ahead with limited capacity after the country’s highest court ruled it could do so. The Rath Yatra, a Hindu festival, takes place in various cities around the country with the most famous in the coastal city of Puri, where more than a million people normally attend. The Supreme Court had previously ruled against the celebration, citing the risk of the coronavirus, but overturned its own decision when the Odisha state government (where Puri is located) promised to conduct the festival in a “limited way”. The religious festival started today and runs for a week. Meanwhile India recorded close to 15,000 cases on Tuesday, marking the sixth straight day of more than 12,000 new daily cases.
- The Philippines set a new daily record of 1,150 new coronavirus cases on Tuesday, surpassing its previous record of 1,046 on May 29th. The country is struggling with a sudden spike in coronavirus cases in Cebu City, which led President Rodrigo Duterte to assign his Environment Secretary and former military general to lead a task force to try and contain the region’s outbreak. Meanwhile, a Presidential spokesperson said Metro Manila remains the epicenter of the coronavirus pandemic in the Philippines.
Covid-19 – Due Diligence And Asset Management
Fink Cautions Virus Impact on Small Business Still Unknown
Brief: BlackRock Inc. Chief Executive Officer Larry Fink said the full extent of the coronavirus pandemic on the U.S. economy’s smaller companies remains unclear, even as cities begin reopening. “We still have not witnessed the full impact on small and medium businesses,” Fink said in an interview Tuesday on Bloomberg Television. The virus’s spread forced a shutdown across the country, upending sectors from energy to consumer. Signs of acute pain for small businesses are already showing: about 14% of companies that received support from the Paycheck Protection Program, a key pillar of the U.S. government’s aid to small businesses, expect they’ll need to reduce their workforce after using the loans, according to a new survey from the National Federation of Independent Business. Last week, 13 U.S. companies sought bankruptcy protection, matching the peak of the global financial crisis, data compiled by Bloomberg show. While larger corporations have stabilized, the fate of other parts of the economy will be determined by how Covid-19 is handled in the coming months, he said. Fink’s remarks come as the world’s largest asset manager navigates a year of turmoil that includes the pandemic and a wave of protests over racial inequality that began in the U.S. He said he expects market uncertainty, which spiked in mid-March, to remain elevated for months to come.
Pimco’s Roman Sees U.S. Inflation Remaining Low for Years
Inflation in the U.S. is likely to come back slowly, keeping the Federal Reserve from raising interest rates for an extended period, according to the chief executive officer of Pacific Investment Management Co. Over the next couple of years, prices are likely to increase to the 2.3% to 2.4% level, Emmanuel “Manny” Roman said Tuesday at the Bloomberg Invest Global virtual event. The central bank has learned its lesson from past interest rate increases and will be determined to avoid another “temper tantrum,” he said. “The days of inflation we remember are gone,” Roman said. “We don’t think the Fed is going to raise rates for a very long time.” Led by the Fed, central banks have been cutting interest rates and buying securities to combat the effects of the coronavirus pandemic, an intervention that helped stabilize global markets. Even as U.S. unemployment soared to its highest level in decades, stock markets have recovered most of their post-pandemic losses and corporate debt investors have poured money into junk bonds. U.S. equities rose to a two-week high Tuesday amid a report that President Donald Trump supports sending another round of checks to Americans and data that showed manufacturing nearing expansion. Pimco, with about $1.8 trillion in mostly fixed-income assets under management, is raising at least $6 billion for distressed credit and other corporate debt opportunities to take advantage of dislocations driven by the coronavirus pandemic.
April Hedge Fund Redemptions Totalled USD38.1 bn, says Backstop BarclayHedge
Brief: The Covid-19 pandemic’s impact on hedge fund redemptions continued in April as the industry experienced USD38.1 billion in outflows. While a sizeable sum, the net redemption total was less than half of March’s USD85.6 billion redemption total. April’s redemptions represented 1.3 per cent of industry assets, according to the Barclay Fund Flow Indicator published by BarclayHedge, a division of Backstop Solutions. A positive note was a USD101.2 billion monthly trading profit fuelled by an April stock market rally, bringing total hedge fund industry assets to more than USD2.99 trillion as April ended, up from USD2.86 trillion at the end of March. Data from 6,000 funds (excluding CTAs) in the BarclayHedge database showed the greatest volume of April redemptions coming from hedge funds in the US and its offshore islands where investors pulled out USD21.7 billion during the month. Investors redeemed nearly USD13.1 billion from funds in the UK and its offshore islands during the month, while funds in Continental Europe experienced nearly USD2.6 billion in outflows.
Manager Due Diligence in Times of Covid-19
Brief: A lively debate is currently taking place amongst allocators as to whether onsite due diligence and face-to-face meetings are still necessary given the current environment. The simple answer must be a resounding: yes, absolutely. Due diligence, both investment and operational, has always been an integral part of a well-structured investment process. Those of us who have been around since pre-2008 can certainly attest to the fact that a lot has changed since, and the days are long gone when it was possible for managers to simply refer to their stellar track records and assume that investments would be forthcoming without any other questions being asked. Investors have learnt that having a detailed understanding of a strategy is just the beginning and that the operational framework in which a strategy is implemented is also of great importance. The question, of course, is how to best ascertain all of this during the current period, whether process adjustments can and should be made and, critically, whether there are additional risks that necessitate closer scrutiny at present.
Dyal Capital to Borrow Against Fund Investments to Pay Out Windfall, Source Says
Brief: Dyal Capital Partners is nearing a $1 billion loan against the fee revenue of private equity firms in which it has acquired stakes and will use the proceeds to return cash to its investors, a person familiar with the matter said on Monday. The loan pertains to investments made out of the firm’s $5.3 billion Dyal Capital Partners III fund, the source said. While private equity firms often borrow against companies they own to fund dividends to their investors, such borrowing at fund level is less common. The loan has an “A-“ credit rating, according to the source, underscoring the confidence of lenders that it will be paid back in the face of economic uncertainty brought about by the COVID-19 pandemic. Dyal, a subsidiary of asset manager Neuberger Berman Holdings, owns stakes in major private equity firms such as Silver Lake and Vista Equity Partners. It had initially looked to raise $500 million, but increased the size of the loan due to strong investor interest, primarily from large insurers, the source said. The loan carries a 4.4% fixed coupon and is expected to close on Tuesday. A spokesman for Neuberger Berman declined to comment.
How One Strategy Delivered During the Covid-19 Crisis
Brief: Trend-following strategies have earned a reputation for outperforming during periods of crisis. That theory was borne out during the height of the Covid-19 crisis — up to a point. In a new paper entitled “The Coronavirus Crisis: What is the same? What’s different?,” Katy Kaminski, chief research strategist and portfolio manager at quantitative investment firm AlphaSimplex, analyzed nine substantial drawdowns in equity markets since 1998. The paper classified drawdowns into two categories: corrections, for losses of 15 percent over periods of two months or less, and crises, for more sustained, deeper losses. Kaminski and AlphaSimplex junior research scientist Ying Yang concluded that the Covid-19 market crisis was “one of the fastest crisis periods in history.” They found that short-term, pure trend-following strategies proved better than other strategies — including other styles of trend-following strategies — at navigating the turmoil.
