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Our briefing for Tuesday November 24, 2020:
Nov 24, 2020 3:06:22 PM
- In the United States, the General Services Administration (GSA) informed President-elect Joe Biden that the Trump administration is ready to begin the formal transition process. According to a CNN report, this is welcome news to the Centers for Disease Control and Prevention (CDC). The Biden team was unable to gain access to a government organization like the CDC until the GSA initiated the process. During the pandemic, the CDC have been at odds with the Trump administration over its handling of the coronavirus. The government health organization is hoping the Biden team re-establishes their department in a more visible role as both sides figure out their ongoing response to the pandemic, most notably, the distribution of vaccines to the American public.
- The Canadian federal government will unveil the impact of the emergency COVID-19 spending on the country’s finances in a budget update next week. Finance Minister Chrystia Freeland told lawmakers on Monday that her department will release its new projections on November 30th. Canada is facing its largest budget deficit since World War II after COVID-19 emergency spending is closing in on $400 billion. “Our plan will continue to support Canadians throughout the pandemic and ensure that the post Covid economy is robust, inclusive and sustainable,” said Freeland.
- Airlines shares soared in the United Kingdom after the government said it will slash its 14-day quarantine for arrivals from high-risk countries. England’s self-isolation period will be down to just five days if a passenger takes a COVID-19 test on the fifth day that proves to be negative. Those that don’t get a COVID-19 test by the fifth day must continue to isolate for the full two weeks. The news will be greeted fondly by travellers who would like to travel for the holiday season if possible. The news is also a step forward for the airline industry, but they were seeking an outright removal of the UK’s quarantine system. Major airlines such as Ryanair and British Airways owner, IAG have blamed the quarantine policy for making an unprecedented crisis for the industry worse.
- In Germany, the governors of all 16 states have agreed to extend the central government’s “lockdown-lite” until at least December 20th but want to see it relax for Christmas and New Year’s Eve to allow for family celebrations. Germany has been under a partial lockdown since the beginning of November, which has seen pubs, restaurants, gyms and theatres shutdown and domestic tourism banned. The restrictions were supposed to end this month, but with the number of coronavirus infections still high in the country, state leaders reached a consensus they should be extended. The 16 governors will take their discussed next steps to Chancellor Angela Merkel in a video call on Wednesday. According to media reports, it is highly likely that the draft measures the governors have agreed upon will be endorsed by the central government.
- Japan and China agreed to restart business travel between the two countries by the end of this month. The agreement between the two countries was supposed to be made in October but was delayed due to increasing new infections cases in Japan and China. The timing still seems to be strange as media reports are noting Japan is eying tighter virus steps as cases in Tokyo jump. The agreement will approve short-term business travel and long-term stays for expats. This also marks the first high-level dialogue between the two countries since Japanese Prime Minister Yoshihide Suga took office back in September.
- The CEO of Australian’s national airline said it will require future international travellers to prove they have been vaccinated against COVID-19 before flying. Qantas chief executive Alan Joyce made the comments to Nine News - “Whether you need that domestically, we will have to see what happens with COVID-19 in the market. But certainly, for international visitors coming out and people leaving the country, we think that’s a necessity.” Joyce thinks the topic will be something all airlines and countries will grapple with as more COVID-19 vaccine treatments become readily available. The International Air Transport Association – the body that represents airlines globally – said a digital health pass, which could include vaccine information, is the key to reopening borders.
Covid-19 – Due Diligence And Asset Management
Business Travel May Never Return to Pre-Pandemic Levels: Trivago CEO
Brief: Business travel is typically the most lucrative for the leisure and hospitality industry, but the coronavirus pandemic may have changed that forever. Corporate trips taken by Americans contributed $334 billion to the entire travel industry's $1.1 trillion in revenue last year, according to Bank of America research. That revenue dried up when the pandemic hit. “Whenever this [pandemic] is over, we will have practiced for more than one year how to interact across very, very big distances. So, we do expect a structural reduction of the business travel market,” Trivago CEO Axel Hefer told Yahoo Finance Live. Hefer’s comments echo sentiments from business leaders across industries as many major companies re-imagine the future of work. Microsoft founder and philanthropist Bill Gates predicted in a recent interview that business travel will shrink by 50% and office work will be reduced by a third post-pandemic… Even the most optimistic predictions estimate it will take several years for business travel to return to pre-pandemic levels. According to Bank of America research, corporate travel is unlikely to rebound until 2024.
“Cause for Concern”: Man Group Sounds Warning on Risk Appetite and Positioning
Brief: Man Group has raised the alarm over elevated risk appetite and potentially hazardous market positioning following the recent seismic factor reversal, with some hedge fund strategies potentially gambling on “prior winners continuing to win”. In a market commentary on Tuesday, the London-listed hedge fund giant pointed to a continued close correlation between hedge funds’ positions and momentum and value factors – a positioning that shows “little sign of shifting after the dramatic factor reversal two weeks ago.” This positioning – coupled with gross and net exposures for equity long/short hedge funds now “comfortably” at five-year highs – suggests “funds remain fully committed to prior winners continuing to win, and markets continuing their march higher,” Ed Cole, managing director, equities at Man GLG, wrote in the company’s weekly ‘View From The Floor’ note. A number of hedge fund strategy types were rocked by the recent sell-off in momentum stocks as investors piled into value companies, a rapid market rotation driven partly by the positive announcements regarding a Covid-19 vaccine breakthrough earlier in the month.
Buyout Titans Fire Up LBO Machine With $1.6 Trillion to Spend
Brief: The biggest private equity firms in the U.S. are unleashing a flurry of new leveraged buyouts and debt-funded dividends, seeking to make up for lost time after staying on the sidelines for much of 2020. From Blackstone Group Inc. to KKR & Co., firms have been pivoting from repairing the balance sheets of companies they own to hunting for new investments and realizing gains on businesses that performed well during the pandemic. North American buyout activity, which was 57% off last year’s pace at the end of June, is now only 32% behind, according to data compiled by Bloomberg. Of course, any number of adverse developments -- from a worsening economic outlook to setbacks in Covid-19 vaccine production -- could upend the trend. But with interest rates at record lows, seemingly insatiable demand from bond and loan buyers and almost $1.6 trillion of pent-up cash, industry watchers say the ramp up in deal making might just be getting started. “Private equity firms don’t get paid to sit on cash,” said Harold Varah, global co-head of financial sponsors at RBC Capital Markets. “You’ve seen a tempering of the storm, a desire to deploy capital and a leveraged finance market that has recovered pretty remarkably. All the elements that you need for deal making are there.”
The U.S. Futures Watchdog Won’t Assign Blame for the Oil Price Crash. Market Watchers Say That’s a Big Problem
Brief: After more than seven months of investigating the oil price collapse of April 20, the U.S. Commodity Futures Trading Commission, the top futures watchdog, released an interim report Monday outlining the day’s events, but would not provide any definitive reasons for the price plunge, nor any final conclusions or recommendations as to how to prevent a future oil price crash. The report drew immediate criticism from within the CFTC’s own ranks, with Dan Berkovitz, one of the agency’s commissioners, blasting the probe as “incomplete and inadequate.” In an interview late Monday with Institutional Investor, Berkovitz, who pushed hard for the investigation, noted the report merely offers a basic, if detailed, overview of various facts and statistics about the market and trading as oil prices bottomed out, but does not provide the public with any suggestion as to the cause. “Providing statistics that may or may not have contributed to the oil price collapse is not enough,” he said. “That should be just the start of our analysis, not the end. Intelligent readers and members of the public are going to say, ‘What’s my takeaway from this?’ The report makes it impossible to draw any conclusions.”
Goldman Sachs Slashes US Growth Forecasts as Spiking Coronavirus Cases Drive Economic Slowdown
Brief: Goldman Sachs has cut its US growth forecasts for the next two quarters, pegging their gloomier outlook on the "rapid and broad-based resurgence of the coronavirus." The bank lowered its fourth-quarter gross domestic product forecast to 3.5% from 4.5%. Growth in the first quarter of 2021 will slow to just 1% from the prior estimate of 3.5%, the team added. The third wave of infections and cities' implementation of new lockdown measures cuts into an already weakening economic recovery, economists led by Jan Hatzius said in a note to clients. Data from virus-sensitive sectors show "clear signs of a growing hit," according to the team. The US sits squarely in its worst phase of the coronavirus pandemic yet. New cases totaled 150,098 on Sunday, bringing the 7-day average to 167,568, according to The COVID Tracking Project. Total deaths neared 250,000, and the number of Americans currently hospitalized with COVID-19 hit 83,782. "The public health and economic situation is likely to get worse before it gets better, in our view," Goldman said, adding that various high-frequency indicators of consumer activity show an economic slowdown coinciding with "the national deterioration in public health."
The Assets Class That Raised Record Funds This Year
Brief: U.S. venture capital funds have raked in record assets this year, despite a global pandemic that was expected to drag down fundraising. On Friday, two Andreessen Horowitz funds closed with a combined $4.5 billion in commitments, bringing the year-to-date fundraising total for the asset class to almost $70 billion, according to PitchBook. “US venture capital funds have raised a combined $69.1 billion in 2020, edging past a 2018 record and defying the odds amid a pandemic-rattled economy,” PitchBook said in a blog post Friday.The record fundraising in U.S. venture capital contrasts with slower asset gathering in other alternative asset classes, including the larger private equity industry. As of the third quarter, private equity funds had raised about $400 billion globally — trailing behind the $481 billion raised over the same period in 2019, according to Preqin data. Other private capital managers, including hard-hit real estate funds, have also struggled to raise money this year, according to Preqin. However, while U.S. venture capital fundraising has hit a new high in terms of total assets, the number of fund closes have plummeted this year. PitchBook reported that just 287 funds have closed so far in 2020, less than half the number that closed during the previous record year of 2018.
