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Coronavirus Diligence Briefing

Our briefing for Wednesday April 15, 2020:

Apr 15, 2020 4:16:11 PM

  • As the worldwide total for coronavirus cases climbed over the two million mark, the United States announced Tuesday they were halting funding to the World Health Organization (WHO) while a review is conducted. President Donald Trump blamed the WHO for not calling out China’s lack of transparency and said the governing body made a “dangerous and costly” decision to oppose travel restrictions on China. President Trump said the review would take 60-90 days. The move by the United States prompted worldwide condemnation with critics saying the virus knows no borders, and in the middle of the pandemic, now is not the time to play politics.

  • The Bank of Canada said COVID-19 could cause the economy to shrink by up to 30% this upcoming quarter, as compared to end of 2019. The central bank stated they have already provided the country with what amounts to $200 billion worth of support. Canada’s coronavirus cases are now over 28,000 and closing in on 1,000 deaths.

  • Smaller European countries are trying to reopen their societies after being in lockdowns for several weeks. Denmark planned to reopen day care centers and schools for children from the first to fifth grades on Wednesday. Meanwhile, Austria allowed thousands of shops to open their doors again on Tuesday with strict distancing measures still in place.

  • Germany plans on lifting restrictions on their shops starting next week. Chancellor Angela Merkel noted shops that meet certain size requirements will be allowed to reopen if hygiene plans are followed. Schools will also open again gradually on May 4th, with priority given to primary and secondary students in their final years.

  • In the United Kingdom, coronavirus cases are closing in on 100,000 with close to 13,000 deaths. Government officials are hoping the numbers are close to peaking and the 4,000-bed NHS Nightingale Hospital built in East London for coronavirus patient overflow only had 19 patients in it over the Easter weekend.

  • The Philippines introduced a more aggressive testing program that could locate as many as 15,000 unknown infections. The former military chief in charge of the national coronavirus taskforce said their modelling suggests up to 75% of people with infections have yet to be detected. The country has over 5,000 infections and 335 deaths due to COVID-19 and have been in lockdown since the middle of March.

Covid-19 – Due Diligence And Asset Management

Howard Mark’s Oaktree Seeks $15 Billion for Biggest Distress Fund Ever

Brief: Oaktree Capital Group LLC is seeking $15 billion to start the largest-ever distressed-debt fund, aiming to profit from companies damaged by the coronavirus pandemic. Oaktree Opportunities Fund XI will buy up debt in struggling companies and in some cases may seek control of businesses in restructurings, according to an investor presentation reviewed by Bloomberg. The sum is almost as much as the $19.4 billion in assets that Oaktree has already devoted to that strategy. The firm co-founded by Howard Marks plans to gather a larger fund than what it raised during the financial crisis more than a decade ago because it sees even more opportunities this time around, according to the presentation.

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Activist Hedge Fund Starboard Pounces on U.S. Companies in Turmoil

Brief: Most activist shareholders have refrained from challenging the boards of U.S. companies during this season of annual shareholder meetings, as businesses reel from the economic fallout of the coronavirus outbreak. Not Starboard Value LP. The New York-based hedge fund, which Jeffrey Smith spun out of investment firm Ramius in 2011, is pursuing proxy contests against five U.S. companies, even as rivals remain largely silent, according to a review of regulatory filings. Starboard, which built its reputation as a powerful player by winning more board seats than any other activist, is betting companies will be willing to settle during the crisis, so they can concentrate on their business and the safety of their employees.

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Polar to Wind up Absolute Return Fund as Fund Manager Falls Ill

Brief: Polar Capital has confirmed it is winding up its UK Absolute Equity fund due to the poor health of its fund manager. The fund, managed by Guy Rushton, had been among the top-performers in the Investment Association Targeted Absolute Return sector but its performance has faltered during the coronavirus sell-off. It had held £472.17m at the time of its February factsheet but that has since fallen to £292.2m. Polar Capital has now sent a letter to investors informing them the fund has been suspended with immediate effect so that an orderly wind down of the fund can occur. “The decision to terminate the fund has been prompted by the poor health of the individual fund manager,” the letter said. “Over the past few weeks and due to the unprecedented market turmoil caused by the Covid-19 pandemic, Polar’s risk team and central dealing desk has, at the request and with the consent of the fund manager, stepped in to provide assistance and support to the fund manager as he decided to reduce the fund’s risk.

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Hedge Funds Profiting from Covid-19 ‘Must Give More Back’

Brief: Hedge fund tycoons have made £1.5 billion in profits by shorting UK shares during the financial crisis, according to Evening Standard calculations that triggered calls for curbs on their activities and a windfall tax. Firms such as Citadel, owned by billionaire US investor Ken Griffin, AQR​ Capital, co-founded by billionaire hedge funder Cliff Asness, wealthy London financier Crispin Odey’s Odey Asset Management and Sir Paul Marshall and Ian Wace’s Marshall Wace were the most prolific winners from the market crash… An analysis of the 50 most shorted stocks show hedge funds made gains of £1.48 billion during March’s stock market rout betting against under-pressure firms like easyJet and Premier Oil. On the fall of easyJet alone, AQR made a paper profit of £48 million and Citadel £43 million. Odey made more than £4 million on Metro Bank, while every one of Marshall Wace’s 30 short positions will have paid off. Marshall Wace has one of the biggest number of shorts in London.

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Glade Brook Pitches ‘Extraordinary Opportunity’ in Tech Debut Amid Coronavirus

Brief: Glade Brook Capital Partners LLC, the venture capital firm led by Paul Hudson, is pitching a new fund to investors targeting the debt of private technology companies impacted by economic disruption from COVID-19. The $1.5 billion Greenwich, Connecticut-based firm began marketing the Special Situations Fund last week and is targeting $100 million for it by the end of April, according to a pitch document seen by Reuters. The fund will invest in preferred stock, convertible bonds and senior debt, in primary and secondary markets, in what Glade Brook sees as “high quality” but “dislocated” private technology companies, according to the materials.

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Silver Lake Finds its Sports and Entertainment Bets Caught in Covid-19 Crosshairs

Brief: Private equity firm Silver Lake built its reputation on the back of investments in technology companies such as internet phone service provider Skype and chip maker Broadcom. But in recent years, the firm, which manages more than $40bn in assets, has established itself as a major player in the sports and entertainment arena as well, investing billions of dollars in businesses that include cinema chain AMC Entertainment Holdings and the parent company of UK soccer team Manchester City. Now, some of these deals are coming under pressure. Companies in the sports, media and entertainment sectors are facing declining revenue as social-distancing guidelines and curbs on public gatherings have shut down sports leagues and the movie industry and led to concerts and cinema screenings being cancelled worldwide.

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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