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Our briefing for Tuesday June 30, 2020:
Jun 30, 2020 3:16:36 PM
- In the United States as coronavirus cases spike in multiple states, lockdowns are now either on hold, or tightening for about 40% of the American population. A Financial Times article notes more than 25% of states have begun tightening restrictions, while at least 16 other states have postponed their further reopening indefinitely. During a Senate health committee meeting on Tuesday, CDC Director Robert Redfield called on Americans to start adopting and embracing the use of face coverings as a sign of personal responsibility, and to help slow the spread of COVID-19.
- In Canada, the mayor of the country’s most populous city wants to make mask wearing mandatory in all indoor spaces. During a news briefing on Tuesday, Toronto Mayor John Tory, along with the medical officer of health want city council to adopt a temporary by-law. If the by-law is passed, mandatory face coverings in indoor spaces could go into effect as early as July 7th and remain in place until September where city council could extend the order if necessary. The Toronto mayor’s move is in contrast to Premier Doug Ford who earlier rejected a mandatory mask policy for the entire province when prompted by mayors throughout the Greater Toronto and Hamilton areas. These densely populated areas have been some of the hardest hit by the coronavirus in Canada.
- United Kingdom Prime Minister Boris Johnson followed through on his promise of a plan to “build back better and to build back bolder” from the coronavirus pandemic. Prime Minister Johnson outlined the government’s most radical planning changes since World War II, which will include investments in road and rail projects, new homes and invest in towns that felt left behind with green buses and broadband internet. “We cannot continue simply to be prisoners of this crisis,” said Johnson. The announcement is juxtaposed with the mayor of Leicester urging residents to stay home and demanding government help due to a revived COVID-19 outbreak.
- The European Union announced their list of 14 countries that will be allowed into the EU’s 27 member states, along with four other nations as of July 1st. Those allowed entry include Canada, Australia, Japan, New Zealand and South Korea. Not making the first cut as noted on Monday, the United States, along with Russia, Brazil and India. Countries considered for the EU’s safe list are also expected to lift any bans those countries might have on European travellers. However, CBC is reporting Canada won’t be one of those countries; keeping their borders closed to foreign nationals for at least another month. The new list of permitted nations is to be updated every 14 days with either countries being added or dropped depending on how nations cope with their coronavirus cases.
- India will begin administering a locally made COVID-19 vaccine starting in July. Hyderabad-based firm Bharat Biotech will have an unspecified number of people taking the vaccine after tests in animals suggested the drug named Covaxin was safe and triggered an effective immune response. Covaxin was developed from a strain of the virus that was isolated locally and weakened under laboratory conditions.
- In Australia, Victoria State Premier Daniel Andrews has subjected more than 30 Melbourne neighbourhoods to a lockdown that will last until Wednesday July 29th. The areas locked down are home to 300,000 of the city’s five million residents. Residents in the restricted areas will be allowed to leave their homes only for work, school, exercise and to buy food, or other essential items. People from other locations will be prevented from entering the hardest hit areas with police on patrol conducting random checks. The southern state of Victoria has seen 233 recorded COVID-19 cases since Thursday, most of those in Melbourne.
Covid-19 – Due Diligence And Asset Management
Quarterly Hedge Fund Liquidations Rise to Highest Since 2015
Brief: Hedge fund liquidations in the first quarter jumped to the highest level in more than four years as the coronavirus pandemic triggered sharp losses across global markets. About 304 funds shuttered in the first three months of the year, the most since the fourth quarter of 2015, according to a Hedge Fund Research Inc. report released Tuesday. That represents an increase of more than 50% from the 198 liquidations in the last quarter of 2019. Meanwhile, about 84 hedge funds opened in the three-month period, the lowest quarterly estimate since the financial crisis, when startups totaled 56 in the fourth quarter of 2008. Closures have exceeded launches for seven consecutive quarters, according to HFR. Hedge funds have faced a tough money-raising environment for much of the last decade as investors revolted over high fees and lackluster returns. Now startups are dealing with the turmoil caused by lockdown restrictions and social distancing efforts designed to combat the Covid-19 crisis. But things may be turning around as institutional investors gear up for a return to choppy markets. A Credit Suisse Group AG report issued this week found that net demand for hedge funds was at its highest in at least five years going into the second half of 2020.
Goldman Sachs Says a National Mask Mandate Could Slash Infections and Save Economy from a 5% Hit
Brief: A federal face mask mandate would not only cut the daily growth rate of new confirmed cases of Covid-19, but could also save the U.S. economy from taking a 5% GDP hit in lieu of additional lockdowns, according to Goldman Sachs. Jan Hatzius, Goldman’s chief economist, said his team investigated the link between face masks and Covid-19 health and economic outcomes and found that facial coverings are associated with sizable and statistically significant results. “We find that face masks are associated with significantly better coronavirus outcomes,” Hatzius wrote in a note to clients. “Our baseline estimate is that a national mandate could raise the percentage of people who wear masks by 15 [percentage points] and cut the daily growth rate of confirmed cases by 1.0 [percentage point] to 0.6%... He first focused on to what extent, if at all, the actual use of face masks reduces the infection rate of Covid-19 by looking at differences in population behavior by state. For example, Hatizus found only about 40% of respondents in Arizona say they “always” wear face masks in public, compared with nearly 80% in Massachusetts.
Investors Pick Hedge Funds to Lead Them Through Choppy Markets
Brief: Hedge funds are back in demand as institutional investors including pensions and endowments gear up for a return to choppy markets. Investors are favoring hedge funds heading into the second half of the year, with the industry garnering the most interest among 10 major asset classes, according to a Credit Suisse Group AG report released this week. Net demand, or the percentage of respondents increasing allocations minus the proportion decreasing them, is the highest in at least five years at 32%, the data show. “Given manager performance and the wider return dispersion we’re seeing, this is an environment where hedge funds can shine and separate themselves from the pack,” Joseph Gasparro, who helps hedge funds build capital as head of Americas capital services content at Credit Suisse, said in a telephone interview. “The incredible run-up in equities from late March to early June, the ‘easy money’ if you will, is likely not going to repeat. The environment going forward will include more uncertainties, with investors relying on hedge funds to help navigate.” Hedge funds have largely held their own as the spread of the coronavirus pandemic halted the global economy, ending Wall Street’s longest-ever bull market and seizing up credit markets…
Jefferies CEO Says ‘No One is Under Pressure to Come Back’
Brief: Jefferies Financial Group Inc. Chief Executive Officer Richard Handler, fresh off the firm’s record quarterly revenue from trading bonds despite the challenges of working remotely, is taking pressure off his traders and bankers to return to the office anytime soon. “I am in awe of how our people became a virtual firm within days of learning about Covid,” Handler said in a phone interview Monday after posting results for the fiscal second quarter. “Our people will work from home until they feel safe coming back.” Handler is emphasizing flexibility a week after larger rivals including JPMorgan Chase & Co. and Goldman Sachs Group Inc. began recalling the first waves of employees to their towers. His New York-based investment bank lost its longtime chief financial officer, Peg Broadbent, from coronavirus complications in the early weeks of shutdown that forced much of the industry to work at home. “While we all want to come back,” Handler said, “no one is under pressure to come back immediately.” The firm’s fixed-income and equity traders brought in $730 million in the three months ended May 31, almost double the amount a year earlier.
Pandemic Puts Direct Lending in Danger Zone
Brief: Players in the direct lending market are sharpening their focus on portfolios, as companies battered by the coronavirus pandemic call on their creditors for help and concerns over deal structures intensify. The pandemic hit following years of growth in the direct lending asset class. A May report by Preqin said the asset class has been "the success story of the decade" in North America, with assets growing to $222 billion as of June 2019, compared with $85 billion at the end of 2007. The COVID-19 pandemic, however, could lead to the asset class falling "out of favor," with opportunities set to be focused on distressed debt and other strategies. "Direct lending is likely to become more attractive during a recovery period, as companies seek financing to get back on their feet," the report said. In Europe, direct lending deal volumes are expected to be less healthy than last year, Deloitte LLP said in its Deloitte Alternative Lender Deal Tracker Spring 2020 report. Deals totaled 484 in 2019, a 13.1% increase on 2018 numbers. European direct lenders raised the equivalent of $32.8 billion in capital to deploy, topping the previous record of $27 billion in 2017.
Wall Street Theories on Billions Sloshing Through Schwab Funds
Brief: More than $8 billion is on the move in Charles Schwab Corp.’s exchange-traded funds, stirring speculation the firm could be adjusting the packaged strategies it offers clients as markets gyrate amid the pandemic. Over the past seven trading days, $4.6 billion has exited from a group of four ETFs including Schwab’s fundamental equity and intermediate-maturity Treasury funds. The firm’s emerging-market equity and inflation-focused bond offerings were among four products to rake in $3.9 billion at the same time. Schwab is the biggest holder of all of the funds, according to the latest available filings. The size of the flows -- more than half of the funds posted at least one record daily flow in the period -- and the broad range of ETFs involved is stirring speculation that Schwab is shifting exposure in its model portfolios. Such prefabricated packages of ETFs offer a one-stop solution to a client’s investment needs. Instead of spending time selecting individual funds, investors can pick a portfolio aligned with their goals and risk tolerance. It’s unclear how much cash follows such models, but it’s thought that when one makes a strategic shift, billions of dollars can move between ETFs.
