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Coronavirus Diligence Briefing

Our briefing for Wednesday March 25, 2020:

Mar 25, 2020 4:16:20 PM

  • In the United States, congress finally struck a deal for a $2 trillion package that hopefully brings a spark to an economy struggling with the coronavirus pandemic. The full details have yet to be released, but some elements are coming out including $250 billion in direct payments to individuals and families, and $500 billion in loans to distressed companies. The stimulus bill now must go through the Senate before it becomes official.

  • Canada has also passed a similar measure through government, opening up $82 billion in aid to the public. The House of Commons passed the bill early Wednesday morning after Members of Parliament from the Conservative and NDP parties expressed concern about the Liberal government inserting language that would have allowed the government unlimited tax-and-spend powers until the end of 2021. As it’s written right now, the Liberals only have that power until June 2020.

  • The aid package from the government includes a new Emergency Care Benefit of up to $900 bi-weekly, for up to 15 weeks, to provide income support to workers, including the self-employed, who have to stay home and don't qualify for paid sick leave or employment insurance (EI). There is also a new Emergency Support Benefit to provide up to $5 billion in support to workers who are not eligible for EI and who are facing unemployment.

  • In the United Kingdom, the country has its most high-profile case of a person infected with the coronavirus as Prince Charles, the heir to the throne has tested positive. His last public engagement was on March 12th and he is now self-isolating at home in Scotland.

  • Elsewhere in Europe, Spain has now seen more deaths than China, recording over 3,400 deaths. Officials say the peak of the outbreak has not yet been seen in the country.

  • One of those who succumbed to the coronavirus in Spain was Jose Maria Loizaga Viguri, who died at the age of 84. Loizaga is widely recognized for being one of the first private equity investors in Spain after founding Mercapital in 1985.

  • Dubai has directed the private sector to implement working from home for 80% of its workforce starting Thursday and lasting until April 9th. Supermarkets, groceries and pharmacies are exempt as the United Arab Emirates have 333 reported cases of the virus.

  • Australia is expanding its testing to include people if they have a fever or an acute respiratory infection. The country previously limited testing to only people who were displaying symptoms and had recently returned from overseas. The country now has over 2,500 cases of Covid-19.

  • In Brazil, the coronavirus has sparked a political feud as a majority of the country’s state governors are charting a response that runs contradictory to what it is being said by its President, Jair Bolsonaro. On Tuesday, Bolsonaro described the coronavirus as “a little cold” that would not harm most people and urged governors to get citizens back to work and children back to school.

Covid-19 – Due Diligence And Asset Management

Private Equity Eyes Industries Crippled by Coronavirus: ‘They Have Been Waiting for This’

Brief: The coronavirus pandemic is shutting down entire sectors of the economy and putting millions of Americans out of work, but one corner of Wall Street may find opportunity amid the carnage: private equity. The group, which includes investment giants Blackstone, Carlyle and KKR, has a record $1.5 trillion in cash ready to deploy and has been actively seeking deals across the struggling travel, entertainment and energy industries, according to a half-dozen investment bankers who declined to be identified to speak candidly about potential clients. “They have been waiting for this type of market dislocation,” the head of mergers at a major Wall Street firm told CNBC. “I don’t think they wanted something quite this bad, but they did want a pullback in valuation.”

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Brevan Howard Hedge Fund on Track for Record Month with 17% Gain

Brief: Brevan Howard Asset Management’s flagship macro hedge fund is surging amid the ongoing market turmoil, on course for its best monthly gain since starting in 2003. The Brevan Howard Master Fund returned 17% in the three weeks through March 20, boosting its gain for this year to 21.6%, according to a letter to investors seen by Bloomberg. The firm’s best month so far was a 9.9% gain in January 2008. A spokesman for the Jersey-based investment firm declined to comment. The returns mark a turnaround for the hedge fund that’s seen assets plunge to $3.3 billion from its 2013 peak of almost $28 billion as clients exited following underwhelming returns.

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U.S. Fed Hires BlackRock to Help Execute Mortgage-Backed Securities Purchases

Brief: The U.S. Federal Reserve has hired asset management giant BlackRock to help it execute the purchase of commercial mortgage-backed securities announced this week as part of the central bank’s aggressive efforts to shore up the U.S. economy.Over the past week, the central bank has released a volley of measures to boost liquidity in the financial markets and get cash into the hands of small businesses and consumers amid growing worries the coronavirus outbreak would wreak economic havoc across the country.

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FCA Rules out Short Selling Ban as Hedge Funds Stack up Bearish Bets

Brief: The UK’s Financial Conduct Authority last night (23 March) ruled out a ban on short selling, as many major hedge fund firms continue to weigh in with bearish bets to capitalise on the recent global market turmoil. The UK market watchdog said on Monday there is “no evidence” that short selling – a core component of most hedge fund strategies – had driven recent market falls, adding aggregate net short selling activity is low as a percentage of total market activity and has decreased in recent days. The notice comes as many well-known hedge fund firms including as Crispin Odey’s Odey Asset Management, Gladstone Capital Management, Man GLG, and Marshall Wace have made gains with successfully shorts in a range of names amid the recent downturn.

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Bill Ackman Puts Part of his Personal Fortune in Covid-19 Testing

Brief: Bill Ackman said he has invested a portion of his personal wealth to help manufacture antibody testing kits produced by Covaxx, a newly formed subsidiary of closely-held United Biomedical Inc., amid the outbreak of the coronavirus. Ackman has repeatedly called for a complete shutdown of the U.S. for 30-days to help combat the spread of the Covid-19 virus. He has also called for antibody testing, like the one Covaxx develops, across the country to determine who has been contracted the virus. “The key to a successful reopening beyond the maintenance of social distancing, hand washing, mask use and other related practices is a broad-based testing regime and tracing program,” Ackman said in a letter on Wednesday to investors in his hedge fund, Pershing Square Capital Management.

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Ex-Goldman Sachs CEO Calls on America to Return to Work ‘Within a Few Weeks’

Brief: If you’re already tired of the coronavirus lockdown and its subsequent trashing of the world economy, you have something in common withLloyd Blankfein, the billionaire former CEO of Goldman Sachs—especially if you’re itching to return the work and resume interacting with the public, as Blankfein would like you to do, as soon as possible. Over the weekend, presumably watching the value of his investments vanish—along with the savings andjobs of millions of “normie” Americans—Blankfein took to Twitter to suggest that, maybe, we don’t need to social distance that much after all.

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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