Our briefing for Tuesday May 12, 2020:

May 12, 2020 4:39:25 PM

The battle between science and the economy rages on in the United States. Dr. Anthony Fauci, a key member of the White House’s coronavirus task force, was speaking with senators on Tuesday cautioning against states and cities opening too quickly from the pandemic. In California, Elon Musk restarted his Tesla electric car plant, despite local orders against manufacturing. Musk who is quite vocal on social media, took to twitter asking if anyone was arrested for defying the order, let it be him only, and not any of his employees for returning to work. President Donald Trump weighed in the online conversation, also taking to twitter in support of Musk stating, "California should let Tesla & @elonmusk open the plant, NOW,. "It can be done Fast & Safely!"
In Canada, Ontario Premier Doug Ford hinted at good news coming for the people of the province on Thursday. During his news briefing on Tuesday, Premier Ford said in the coming days Ontario will hit stage one of the province’s three-stage framework, which was introduced a few weeks ago. Stage one would allow for the reopening of seasonal businesses, low-risk businesses and essential services. The province has seen close to 21,000 coronavirus cases, with the current majority (62%) concentrated in the Greater Toronto Area, Canada’s most densely populated region.
The Bank of England didn’t completely rule out cutting interest rates to negative levels, a step it has never taken before, to protect the country as much as possible from the economic impact of the coronavirus. Speaking in an interview, deputy governor Ben Broadbent said, “The committee is certainly prepared to do what’s necessary with our remit. With the risks still tilted to the downside, yes, it’s quite possible that more monetary easing will be needed over time.”
In a televised national address, Indian Prime Minister Narendra Modi announced a $266 billion stimulus plan to help the country’s stalled economy due to the coronavirus pandemic. Not many details were given, but Prime Minster Modi said the package will provide support to industry, small and medium size businesses, the self-employed, farmers and others who have been hit by India’s almost eight-week lockdown.
The Philippines will be tweaking their lockdown procedures as they try to balance the health of their people with the economy. President Rodrigo Duterte announced Metro Manila, Laguna province south of the capital and Cebu City in the Visayas will be under a modified enhanced community quarantine from May 16^th to May 31^st. This change will allow manufacturing plants and public transport to restart in those areas, albeit under a limited capacity. The stay-at-home orders imposed on the central and southern parts of the Luzon island, and several provinces in Visayas and in Mindanao will be lifted after May 15^th.
South Korean officials are navigating mobile phone data, credit card statements and closed-circuit TV footage as they try to identify people who visited nightclubs that are now at the centre of a new coronavirus outbreak in the country. More than 100 new cases have been linked to Seoul nightclubs and bars. To make matters worse, some of the nightclubs in question are homosexual bars, where the lifestyle is still considered taboo in the country, making people afraid to come forward and be tested for fear of persecution and discrimination.

Covid-19 – Due Diligence And Asset Management

Hedge Fund Cheyne Raising Cash for Debt Oversold in Pandemic

Brief: London-based hedge fund Cheyne Capital is planning a new vehicle to buy up debt that’s been excessively punished by the coronavirus selloff, the latest in a number of investment firms targeting distressed credit. The firm is seeking to raise 300 million euros ($325 million) and will launch the fund as soon as next month, according to people with knowledge of the matter. Cheyne will buy up bonds and loans that it deems are now cheap and sell them once they’ve recovered, said the people, who asked not to be identified because the information is private. A spokeswoman for Cheyne declined to comment on the new vehicle. Investment firms around the globe that target distressed debt are seeking to make the most of the chaos wrought by the coronavirus pandemic by setting up new funds. Oaktree Capital Group LLC, Highbridge Capital Management and Chenavari Investment Managers are among those who are raising capital to invest in discounted debt.

JPMorgan to Raise up to $3 Billion for Real Estate Credit Fund

Brief: JPMorgan Chase & Co.’s asset-management arm has launched a new fund to take advantage of dislocations in the public and private real estate credit markets, according to a person familiar with the matter. JPMorgan Asset Management is looking to raise $2 billion to $3 billion from institutional investors for the Real Estate Credit Opportunity Fund, according to the person, who asked not to be identified because the information is private. The vehicle will target 10% to 15% net returns investing in bonds and pools of loans tied to commercial real estate, according to documents viewed by Bloomberg. The fund will invest in strategies including structured credit, rescue loan origination and both performing and non-performing loan acquisition, the documents said. A JPMorgan Asset Management spokesman declined to comment.

Kohlberg is Sued Over Deal Soured by Pandemic

Brief: Covid-19 is threatening another mergers and acquisitions process. Kohlberg & Co. is trying to back out of its $550m agreement to buy Decopac, claiming the company has suffered a material adverse effect, according to a lawsuit. Snow Phipps, a New York middle market private equity firm, has sued Kohlberg, alleging the firm has acted in bad faith, has breached its stock purchase agreement to buy Decopac and refused to secure financing on the terms it initially set out, according to a lawsuit filed 17 April in Chancery Court in Delaware. Snow Phipps is seeking specific performance to make Kohlberg complete the sale, the filing said. Kohlberg, of Mount Kisco, NY, agreed on 6 March to buy Decopac, which supplies and markets cake decorating products. Snow Phipps claims that Kohlberg knew about Covid-19 and the seriousness of the virus when it signed the agreement.

PIMCO Outflows Drag Down Allianz AUM

Brief: Assets under management at Allianz SE fell 6.2% in the first quarter, as subsidiary Pacific Investment Management Co. recorded net outflows of €43 billion ($47.5 billion). Total AUM was €2.13 trillion as of March 31, an increase of 1.4% for the year, an update said Tuesday. Group revenue grew 20% for the quarter and 5.7% for the year, to €42.6 billion. Net income dropped 17.9% for the quarter and fell 27.7% for the year ended March 31, to €1.48 billion. Third-party assets under management — made up of Allianz Global Investors and PIMCO — fell 7.7% in the first quarter to €1.56 trillion. Third-party AUM grew 0.6% for the year. Third-party net outflows were €46.4 billion in the first quarter. That compared to €20 billion and €18 billion in net inflows for the quarters ended Dec. 31 and March 31, 2019, respectively.

Scaramucci’s SkyBridge Looks to Dalio, Marks to Boost Returns

Brief: SkyBridge Capital, the investment firm founded by Anthony Scaramucci, is turning to some of the biggest names in the hedge fund industry to boost returns after its portfolio lost almost a quarter of its value this year. The firm is investing $100 million each in Ray Dalio’s Bridgewater Associates and Howard Marks’s Oaktree Capital Group, according to a letter sent to clients on Monday. The fund-of-funds will allocate an additional $90 million to Dan Loeb’s Third Point. Scaramucci said all three performed well in the last financial crisis and in other periods of market dislocation. “We believe our investors will be better served -- in good and bad markets -- by greater diversification across different strategies and across different managers,” he wrote. “We learned hard lessons in March, and we are taking decisive corrective action.” SkyBridge’s flagship fund lost nearly 24% in the first four months of the year. After investing heavily in credit hedge funds, the fund posted most of the losses in March as the coronavirus fueled a market sell-off. Clients have asked to redeem 9.3% of capital for June 30, an amount Scaramucci called “manageable.”

TIAA Offers Buyouts to 75% of U.S. Employees, Including Nuveen

Brief: TIAA-CREFis offering a voluntary separation program for 75% of its U.S. employees, which includes employees ofNuveen, TIAA's investment manager.The 25% of employees not eligible for the program "involve certain groups that are involved in processes and technology necessary to conduct business, and some critical client support roles," TIAA said in an emailed statement. The program offers 45 to 91 weeks' salary, depending on length of service and salary, 100% of last year's bonus and six months of outplacement assistance, the email said. "As we navigate through these unprecedented times, we are exploring a variety of measures to reduce costs while managing our business and continuing to serve our clients. As part of that process, we have introduced a voluntary separation program for our employees, which is designed to give our people the ability to decide what's best for them," the company said in the statement…

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.

Coronavirus Diligence Briefing