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Our briefing for Tuesday September 1, 2020:
Sep 1, 2020 3:09:16 PM
- In the United States, Admiral Brett Giroir, a member of the White House coronavirus task force and the director of the coronavirus testing program, said it’s up to all Americans to do what they are supposed to do heading into the Labour Day long weekend. Giroir is preaching avoiding crowds, outdoor vs. indoor gatherings with families, wearing masks and protecting the vulnerable. When it comes to testing, Admiral Giroir doesn’t want to answer any more questions on when every American can obtain a test quickly and cheaply. “It’s great to talk about this utopian kind of idea where everybody had a test every day and we can do that. I don’t live in a utopian world. I live in the real world and the real world had no tests for this new disease when this first started, said Giroir.”
- In Canada, the testing story is a little different due to the smaller population as the country’s health authority is willing to consider approving home COVID-19 tests to screen for the virus. Health Canada had previously said it was concerned people might misuse home tests or misinterpret the results. Advocates argue that cheap, rapid tests to be used by people daily, or weekly are very unlikely to miss people sick enough to be contagious. Rapid COVID-19 tests, similar to home pregnancy tests, exist as prototypes in research labs, but have yet to be approved or manufactured at scale for mass use by the population.
- In the United Kingdom, more than 30 pharmaceutical companies and business groups have called on the government to help fill a £310 million financing void faced by medical research charities. These charities work closely with the industry to fund and develop drugs. Pharmaceutical companies working on COVID-19 vaccines such as AstraZeneca, Pfizer and Roche have asked Prime Minister Boris Johnson’s government to plug the £300+ million shortfall faced by research charities due to the pandemic, with further cash help in the next three years. The government did respond by saying they have already given the charity sector £750 million in emergency funding since the pandemic started and are willing to work together to ensure patients benefit from charity-funded research.
- Just a few days removed from setting the single day world record for COVID-19 cases and closing in on four million confirmed cases overall, India had millions of masked students sitting in for college admission exams on Tuesday. Already suspended twice due to the pandemic, government officials weren’t willing to do it for a third time. More than two million students filed into various academic centres across the country, trying to do the best they could in a bad situation with physical distancing, hand sanitisation stations and temperature checks in place. India had recently relaxed more COVID-19 restrictions and announced metro trains can resume services beginning September 7th.
- In the Philippines, Manila fitness gyms, barber shops and internet cafes were allowed to partially reopen on Tuesday as quarantine restrictions were further lifted. President Rodrigo Duterte also shortened night curfew hours in most cities in the capital and outlying provinces. These new curfews will be in place for a month. However, it wasn’t all improving news for the country. The southern city of Iligan was placed under a mild lockdown after a rise in community infections. More than 220,000 COVID-19 cases have been confirmed in the Philippines, along with 3,500 deaths.
- “Theft doesn’t even stop during a pandemic” - #stopCovid19thieves. These are the conditions and social media hashtags trending in Africa as they deal with the coronavirus. The nation was largely spared the brunt of the pandemic during the first wave with some of the lowest number of coronavirus infections in the developing world, but that hasn’t stopped fraud from running rampant. Some examples include Uganda recalling its ambassador to Denmark and her deputy after the pair were recorded in a Zoom call allegedly plotting to pocket COVID-19 funds and South Africa and Somalia dealing with corruption allegations; either over relief funds, or procurement of medical equipment.
Covid-19 – Due Diligence And Asset Management
Boycott of Buyout Firm Leonard Green has Rhode Island Alone
Brief: Rhode Island’s $8 billion public pension fund so far is standing alone in its boycott of Leonard Green & Partners LP over the private equity firm’s management of a hospital company it owns. Seth Magaziner, Rhode Island’s treasurer, last month sent a letter to the firm saying he would not invest with Leonard Green in the future over its handling of Prospect Medical Holdings Inc., which owns 17 hospitals in five states, including Rhode Island. Magaziner said the firm has siphoned money out of the hospitals while cutting back on pensions and capital improvements and has allowed patient care for the poor to slip. Once committed, investors in a private equity fund that disagree with its management or investments have few options. They can either engage the firm, publicly or behind the scenes, or they can decline to do business with the firm in the future, said Eileen Appelbaum, co-director of the Center for Economic and Policy Research, a non-profit public policy organization. “You can’t get out of anything that’s happening in a fund you’re already in,” Appelbaum said. “Your only leverage is to say ‘we’re not going in again.’” A Leonard Green fund purchased Prospect Medical Holdings in 2010 for $363 million, including debt. Since then, Prospect has borrowed to pay out more than half a billion dollars in dividends to shareholders including Leonard Green. It has also sold and leased back some of its properties to pay down its debts.
JPMorgan Says Investors Should Prepare for Rising Odds of Trump Win
Brief: Investors should position for the rising odds of President Donald Trump winning re-election, according to JPMorgan Chase & Co. Betting odds that earlier had Trump well behind challenger Joe Biden are now nearly even -- largely due to the impact on public opinion of violence around protests, as well as potential bias in polls, said strategist Marko Kolanovic. Based on past research, there could be a shift of five to 10 points in polls from Democrats to Republicans if the perception of protests turns from peaceful to violent, he said. People giving inaccurate answers could artificially skew polls in favor of Biden by 5%-6%, he added. “Certainly a lot can happen in the next ~60 days to change the odds, but we currently believe that momentum in favor of Trump will continue, while most investors are still positioned for a Biden win,” Kolanovic wrote Monday. “Implications could be significant for the performance of factors, sectors, COVID-19 winners/losers, as well as ESG.” Biden’s narrowing advantage in polls evokes memories of the 2016 election, when such tallies seemed to favor Hillary Clinton strongly. While Clinton won the popular vote by several million, the Electoral College, a state-by-state count that determines the election outcome, ended decisively in Trump’s favor. Kolanovic, who has been accurate on calls including the stock rally after Trump’s election and the rebound from Covid-19-fueled lows earlier this year, said important drivers of the election in coming weeks include developments on the Covid-19 pandemic, which looks like it might subside as the vote nears.
Global Trade Seen Rebounding Faster Now Than Post-Lehman
Brief: Global trade is on course to recover more quickly from the coronavirus pandemic than after the 2008 financial crisis, according to Germany’s Kiel Institute for the World Economy. Shipping volumes are already back at levels that took more than a year to reach following the collapse of Lehman Brothers Holdings Inc., hinting at a V-shaped recovery, the institution’s President Gabriel Felbermayr said. Trade has seen a “deep slump and a quick rebound,” he said. “The current situation is significantly better” than a decade ago. The pandemic has pushed the global economy into what may be its deepest slump since the Great Depression. The initial rebound reflects the lifting of severe restrictions to contain the virus, and policy makers have warned against premature optimism that the worst has passed. The World Trade Organization said earlier this month that projections for a strong, V-shaped trade rebound in 2021 might be “overly optimistic.”
More Fed Stimulus Need ‘In Coming Months’ to Fight Pandemic Headwinds, Brainard says
Brief: The Federal Reserve will need to roll out new efforts “in coming months” to help the economy overcome the impact of the coronavirus pandemic and live up to the U.S. central bank’s new promise of stronger job growth and higher inflation, Fed Governor Lael Brainard said on Tuesday. “It will be important to provide the requisite accommodation to achieve maximum employment and average inflation of 2% over time,” Brainard said in prepared remarks in an online discussion organized by the Brookings Institution. Brainard, among the architects of the new long-term strategy the central bank adopted last week, is the first Fed official to tie that new approach directly to the need for further monetary stimulus, likely in the form of more aggressive bond-buying or more ambitious promises about returning the country to low unemployment. Some analysts have argued the Fed’s new “framework” is incomplete without more details on what it intends to do to implement it, and Brainard in prepared remarks suggested that needs to be addressed. “With the recovery likely to face COVID-19-related headwinds for some time, in coming months, it will be important for monetary policy to pivot from stabilization to accommodation,” Brainard said. That decision “will be guided” by the new strategy which trades risks of higher inflation with efforts to promote further job growth.
PE Panorama: UK Private Equity Bailouts are Probably a Bad Idea
Brief: According to S&P Global Market Intelligence and Financial Times reports, the UK government has been evaluating ways to extend state-backed loans to private equity investee companies in difficulties, without violating European Union rules on state aid. These rules state that enterprises with losses over 50% of their share capital cannot receive state loans under programmes such as the UK’s Coronavirus Large Business Interruption Loan Scheme. Many private equity-backed firms, with substantial leverage debt on their balance sheets, cannot meet the associated “undertakings in difficulty” qualifications. The arguments against state aid for private equity-backed businesses have already been rehashed in the US. The fundamental point at issue in both cases is the same: why should state capital bail out businesses ultimately owned by big pools of private capital? Governments may be prepared to do whatever it takes to save jobs during a difficult period like the ongoing coronavirus crisis, but it won’t take long for questions about the allocation of state aid to take front seat. Pension funds and other institutional backers of private equity aren’t much of a justification for advancing state aid. If an investee company collapses, their returns suffer. If a private equity firm decides to deploy more fund capital to support an ailing investee, that may drive down returns too. And if state loans are made, taxpayers may be the ultimate losers where the money is diverted to keeping portfolio companies afloat. There’s also the argument that private equity-backed firms take on such large debt burdens partly to lower their tax exposure, which is hardly likely to endear them or their owners to the taxpaying public.
‘Want a Bonus or Promotion? Come In’: Bankers Face Pressure to go Back to the Office
Brief: Investment bank employees in the City are facing pressure to return to the office, as senior executives take the lead in shifting from remote working arrangements. Junior and mid-ranking employees at some of the largest banks in the City have told Financial News that recent moves by senior staff to come back to the office have increased the urgency to unwind working from home arrangements, even if any return remains entirely voluntary. Bankers and traders said they fear being overlooked for promotions or having bonus payments reduced if they did not return to the office as more people trickle back to the City. “The senior guys don’t particularly want to go back, but they’re coming because the top says so, and that will create pressure for the people under them,” said one director at a US investment bank who requested anonymity. Generally, investment banks have been slow to unwind their remote working arrangements, which have seen tens of thousands of employees working from home. However, the government is preparing to launch a campaign next week to coax workers back to offices. The strategy, dubbed “All in, all together”, will inform the public of how to return safely to work with the right health and safety measures in place.
