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Coronavirus Diligence Briefing

Our briefing for Tuesday May 19, 2020:

May 19, 2020 4:18:55 PM

  • United States President Donald Trump has told the World Health Organization (WHO) via a letter that he will permanently pull funding if the world health body does not “commit to major substantive improvements over the next 30 days.” Those improvements according to President Trump include demonstrated independence from China. "I cannot allow American taxpayer dollars to continue to finance an organization that, in its present state, is so clearly not serving America's interests," the President wrote. The WHO confirmed they received President Trump’s letter and was “considering the contents”. European leaders defended the WHO while speaking at the World Health Assembly asking for a global united front against the coronavirus pandemic.

  • In Canada as provinces slowly start their reopening in phases, one situation that will not change anytime soon is the closure at the Canada-United States border. During his news briefing on Tuesday, Prime Minister Justin Trudeau confirmed the agreement has been extended another 30 days after it was set to expire on May 21st. The agreement both countries committed to back in March has the border temporarily closed to non-essential travel, only allowing commercial traffic and essential workers who cross for work.

  • According to United Kingdom government figures, the number of unemployment benefits jumped to the highest rates on record in the early weeks of the coronavirus pandemic. Unemployment related benefits jumped by a whopping 69% to 2.1 million between March and April, the biggest month-to-month increase since records began in 1971. In related news, the government’s environment secretary and Prince Charles have made a plea to the British public for furloughed workers to lend a hand to pick fruit and help farmers in order to “supplement their income”. The environment secretary noted the UK usually receive help from other countries such as Romania and Bulgaria to help harvest strawberries, salads and vegetables.

  • The leaders of Germany and France agreed to a one-off $500 billion-euro fund to help the European Union (EU) recover from the coronavirus pandemic. German Chancellor Angela Merkel and France President Emmanuel Macron’s funding effort will add further cash to an array of financial measures already carried out by the EU.

  • The Philippine government has warned its citizens shopping malls might be closed again after the weekend saw hordes of people shopping and ignoring safety protocols. The news comes as the country just began loosening its two-month lockdown, although its largest cities – Manila and Cebu – remain in lockdown.

  • Wuhan China’s Municipal Health Commission has stated they have conducted 1.3 million coronavirus tests since May 12th. Wuhan started conducting city-wide tests after health officials detected several locally transmitted cases. The city was ground zero of the coronavirus epidemic and had experienced a strict 76-day lockdown. It was announced last week that China had originally promised to test all 11 million people of Wuhan in 10 days. They have since backed off that slightly ambitious timetable, noting there will a 10-day timetable in testing different districts of the city, but those tests will not necessarily start on the same day.

Covid-19 – Due Diligence And Asset Management

Eleven Hedge Fund Traders Scored Big During Worst of the Crisis

Brief: A small group of hedge funds managed to overcome the fast and furious market rout in March as the coronavirus pandemic sent countries around the world into a lockdown. For them, the sell-off brought riches that some haven’t seen since … well, since the last financial crisis. Notably, these profits were derived from a wide variety of investment approaches, from macro and credit to long/short equity and oil. The crisis beaters were the exceptions. Most hedge funds, including those run by industry titans such as Ray Dalio and Michael Hintze, failed in their mission to protect investors from the market turmoil. Three in every four hedge funds lost money, with some down as much as 40% in March, according to data compiled by Bloomberg.

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Asset Managers Told to Adapt for Survival in Post Covid World

Brief: Asset managers have been warned they must rapidly adapt their business models to claw back investor flows and profits lost as a result of the Covid-19 pandemic, with businesses advised to ramp up their digital distribution capabilities, accelerate cost saving plans and bolster their range of alternative assets. According to a report by Boston Consulting Group, asset managers are facing a “new chapter of economic turmoil in 2020 which is likely to prompt a winner-takes-all phenomenon” not seen since the aftermath of the global financial crisis. “Overall, the market storm of early 2020 has only intensified the industry’s challenges, as asset managers find themselves in uncharted territory,” said Lubasha Heredia, a New York–based BCG partner and co-author of the report.

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JPMorgan’s Jamie Dimon says the Coronavirus Crisis is a ‘Wake-Up Call’ to Tackle Economic Inequality

Brief: JPMorgan CEO Jamie Dimon said in a memo to stakeholders on Tuesday that the coronavirus pandemic is a "wake-up call" to build an "inclusive economy" that recognizes the financial situations of all parties involved.Dimon said: "This crisis must serve as a wake-up call and a call to action for business and government to think, act, and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years."The bank chief said he looked forward to sharing more ideas on how to create an "inclusive economy" that is stronger, more resilient, and offers "widespread access to opportunity." Dimon said: "From the reopening of small businesses to the rehiring of workers, let's leverage this moment to think creatively about how we can mobilize to address so many issues that inhibit the creation of an inclusive economy and fray our social fabric."

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U.S. Financial Conditions are Easing at Fastest Pace in History

Brief: American financial conditions have loosened at the fastest pace since at least 1990, belying mounting investor skepticism that a V-shaped economic recovery will follow the pandemic-induced crash. A Bloomberg measure of market health across bond, stock and liquidity indexes has staged a revival like never before -- bouncing back to early March levels, when recorded coronavirus cases globally were around 90,000 versus more than 4.8 million today. All told, this gauge of animal spirits has improved from the nadir by 5.4 standard deviations in just 37 trading days, a feat that took 50 days back in 2008. Explaining why investors are getting their mojo back is the easy part. Thank historic policy stimulus, indications that the collapse in the investment and consumption cycle has bottomed, as well as the global race for an experimental vaccine.

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Most Investors Don’t Think this Rally is for Real, According to Widely Followed Wall Street Survey

Brief: More than two-thirds of professional investors doubt that the stock market jump off the March lows is the start of a legitimate new bull market, according to the Bank of America Fund Manager Survey for May. Amid a surge that has seen the S&P 500 rise 32% since the March 23 trough, some 68% of survey respondents called the move a “bear market rally.” The term implies that even though the surge tops the 20% benchmark that would signal a new bull market, the fundamentals tell a more pessimistic story. The Bank of America poll is among the most widely followed surveys of investors on Wall Street. That said, respondents still see the near-term “pain trade,” or the one that catches most investors off guard, as the market going higher. Current sentiment is consistent with an S&P 500 level of 3,020, or about 2.3% higher than Monday’s close, according to Michael Hartnett, chief investment strategist at Bank of America Global Research.

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Citigroup Launches New ESG Investment Banking Group

Brief: Citigroup Inc (C.N) said on Tuesday that is launching a new business unit within its corporate and investment bank dedicated to environmental sustainability to strengthen its commitment to an area that has grown increasingly important to corporate clients and investors. The New York-based company said its Sustainability & Corporate Transitions group will be led by Banking, Capital Markets and Advisory (BCMA) Chief Strategy Officer Bridget Fawcett and Keith Tuffley, who has lead the unit’s sustainability efforts so far. “The current Covid crisis will elevate the importance of ESG to our clients, as they increasingly focus on more sustainable and resilient strategies and on recovery plans that help drive the just transition to a net-zero emissions future,” global BCMA heads Tyler Dickson and Manolo Falcó said in a memo to bankers sent on Tuesday. Companies have become more focused on environmental, social and governance (ESG) factors in recent years as activists and investors put pressure on them and companies that put these considerations at the forefront are rewarded.

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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.

Topics:Coronaviruscovid-19