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Coronavirus Diligence Briefing

Our briefing for Wednesday August 12, 2020:

Aug 12, 2020 3:05:57 PM

  • In the United States, multiple media sources are reporting the government is weighing new rules that would temporarily bar American citizens and legal residents from entering the country in order to control the coronavirus surge. The proposal would affect people who are suspected to having been exposed or infected with the virus. The rule would affect all entry points, including airports and borders with Canada and Mexico. United States President Donald Trump has previously praised his administration’s travel bans as being key to help curb the spread of the virus, but so far citizens and lawful residents have been exempt from the travel restrictions for entering the United States.

  • In Canada, a federal opposition leader has threatened to trigger a fall election if Prime Minister Justin Trudeau, his chief of staff and finance minister don’t resign. Bloc Quebecois Leader Yves-Francois Blanchet made the threat on Wednesday after the Liberal government created a self-made controversy in the midst of the COVID-19 pandemic for failing to recuse themselves from cabinet talks of a contract to a charitable organization, despite having family ties to it. If the Bloc Quebecois leader tables a motion of non-confidence and it gets passed with support of the other political parties, it would trigger an election campaign. “Which is more dangerous – the management of the crisis or taking the time to change the people who are managing the crisis,” said Blanchet.

  • According to the United Kingdom’s Office for National Statistics, the economy shrank 20.4% in the second quarter of 2020. The country suffered the worst second quarter drop among the G7 economies and the worst quarterly slump for the UK since record keeping began in 1955. The over 20% drop, combined with a 2.2% contraction in the first quarter means the country’s economy is now officially in a recession.

  • In an interview with German radio, the country’s health minister has expressed scepticism about Russia’s COVID-19 vaccines, saying they haven’t been adequately tested. Speaking to Deutschlandfund radio, health minister Jens Spahn said, “It’s not about being first, it’s about having a tried, tested and safe vaccine which will be given – and that’s the important part – to hundreds of millions, maybe even billions of people.” Spahn lists Russia’s lack of a phase 3 clinical trial and questionable transparency for his skeptical attitude towards the Sputnik V vaccine.

  • While Germany may have its doubts, other countries like Brazil and the Philippines seem to be jumping on board with Russia’s touted medical breakthrough. Brazil’s Parana state is scheduled to sign an agreement with Russia, according to a statement from the Russian Embassy. Under the rumoured agreement, some vulnerable groups in Brazil, such as health professionals and teachers would be the first to receive the vaccination. Meanwhile Philippine President Rodrigo Duterte seemed eager for the trials, even volunteering himself in an address to the nation earlier this week. President Duterte said the Russian vaccine was good for humanity and that hopefully by December, the Philippines would be COVID-free. President Duterte also believed his strong relationship with Russia would mean the island nation would get priority access to the vaccine.

  • New Zealand has taken preliminary steps to delay next month’s general election after the country discovered its first COVID-19 cases in more than three months. Prime Minister Jacinda Ardern said she was suspending the dissolution of parliament, which was due to make way for an election scheduled to take place on September 19th. The country’s health officials are tracking the source of four new cases, all within one family in Auckland, the country’s largest city. The breakout led Ardern to reimpose lockdown measures in Auckland, which requires people to stay home unless for essential trips. The restrictions for now will be in place until Friday, while the rest of the country is placed back into slightly lesser restrictions.

Covid-19 – Due Diligence And Asset Management

Amadeus Capital Plans to Raise $400 Million for Three New Funds

Brief: Venture capital firm Amadeus Capital Partners is planning to raise three funds with a combined target of about $400 million for tech investments in industries including enterprise software, artificial intelligence and cybersecurity, people with knowledge of the matter said. The two largest funds have targets of $150 million each, said two people familiar with the plans, who asked not to be identified because the fundraising isn’t yet public. They are in the pre-marketing stage and the British firm will start raising money in the autumn, one of the people said. The pan-European Scale Fund, led by managing partner Andrea Traversone, will look for investments in cybersecurity, enterprise software, health tech and artificial intelligence, with a particular focus on companies using AI to uncover new types of materials, one of the people said. Amadeus has a track record in these areas, including its recent exit from an early investment in cybersecurity company ForeScout Technologies Inc., now listed on the Nasdaq with a market value of $1.44 billion. The Latam Sustainable Growth fund will focus on Latin American companies in the fintech, edtech and software-as-a-service sectors, the person said. The fund will be headed by Pat Burtis and newly hired partner Kai Schmitz. The firm already has an office in Bogota and portfolio companies, Creditas and Descomplica, in Brazil.

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U.S. Companies Should Consider Slavery Reparations, Vista Equity CEO Says

Brief: The COVID-19 pandemic has hit Black Americans especially hard after decades of social and economic injustices, but it also presents an opportunity for systemic change, said financier Robert Smith, the wealthiest African-American according to Forbes. In a video interview with Reuters, the CEO of private equity firm Vista Equity Partners said companies that profited from the Transatlantic slave trade should consider making reparations to African-Americans. “I think that’s going to be a political decision that’s going to have to be made and decided upon. But I think corporations have to also think about, well, what is the right thing to do?” Smith said in a video interview. Corporations “can bring their expertise and capital to repair the communities that they are directly associated with in the industries in which they cover,” he added. “I think that has to be a very, a very thoughtful approach. But I think action needs to be taken.”

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Big Brother is Watching Traders at Home in the Coronavirus Era

Brief: The pandemic has created an unexpected boom in one corner of finance: surveillance. As traders continue to work from home, banks are beefing up their efforts to monitor staff and root out any misconduct, according to NICE Actimize, which makes compliance, risk and financial-crime software. There’s been a surge of interest in advanced technology, such as machine learning, that can help employers catch unusual employee behavior, said Chris Wooten, an executive vice president at the company. “With employees shifting to remote work, there was an increase in both the types of communications to be monitored and the types of behavior that could raise concerns,” he said in an email. “We saw communications channels expand from what was traditionally just office phones and trading turrets, to include personal mobile phones and unified communications platforms such as Microsoft Teams.” Of 140 financial institutions surveyed by NICE Actimize, 76% of respondents said they expect monitoring and surveillance will increase over the next three years. Almost 20% said those measures would apply to all employees. “Clearly this reflects the investments that financial institutions are making now, or will be making in the future,” Wooten said.

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Gundlach Says Trump Will Win, Calls Harris too Charismatic

Brief: Jeffrey Gundlach said he thinks Donald Trump will win re-election because polls showing otherwise don’t reflect the true support for the president.
“Will Joe Biden beat Donald Trump in November? I don’t think so,” Gundlach said during a webcast Tuesday for his company’s closed-end funds. “I’d bet against that. I think the polls are very, very squishy because of the highly toxic political environment in which we live.” On Biden’s choice of Senator Kamala Harris as his running mate, Gundlach said she is “a little too charismatic.” “I don’t think it’s a good pick,” he said. “She might be a little bit dominant with her personality.” Gundlach said much can happen between now and Election Day. “I think there’s a lot of time here, there’s going to be a lot of twists and turns,” he said. Gundlach, who predicted Trump’s win in 2016, has criticized Biden’s electoral chances -- and that of other Democratic candidates. In January, he said he didn’t think Biden would win the Democratic nomination and in March he called him “unelectable.”

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Impax Asset Management Outlines Winners and Losers in the Push to “Build Back Better” From Covid-19

Brief: Impax Asset Management says there will be “winners and losers” in the economic transition to a more sustainable economy, as trends continue to be accelerated in the post-pandemic rebuilding process. In a new report, the asset management firm notes that policy makers are unlikely to return to the “old normal” as they move from lockdown to rebuilding. As a result, Impax says that investment opportunities will open up in industrial automation advances, digitalisation acceleration and health, safety and well-being. Risks associated with human capital management, diversity, climate change and biodiversity are “becoming relevant to fundamental analysis across sectors”. The report also identifies four structural changes that will continue to disrupt business as we know it. These include a heightened awareness of systems-level risks; the exposure of supply chain vulnerabilities; social distancing measures changing behaviour; and an acceleration towards a digital economy.

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Layoffs, Shrunken Bonuses Coming in Asset Management

Brief: Employees in the asset management industry can thank the broad market recovery for saving their compensation from the deepest cuts, but there still will be plenty of paycheck pain. Year-end incentive pay at traditional asset managers and hedge funds is expected to fall between 10 percent and 15 percent compared to 2019, according to consultant Johnson Associates’ second-quarter analysis, Private equity staffers will fare better, especially at the large brand-name firms, which benefit from economies of scale. Bonuses for such employees is expected to decline 5 percent to 10 percent relative to last year. But the smaller and mid-sized PE firms will likely make deeper cuts in comp, lopping 15 percent or more from year-end bonuses. While traditional managers have suffered as investors move to lower-fee products like bond funds, hedge funds are still reeling from net outflows on the back of disappointing performance. The largest private equity funds have enormous amounts of cash to invest, but face portfolio company defaults. Alan Johnson, head of the compensation and consulting firm, said PE outfits benefit from leverage when markets are up. “Now they’re on the other side of leverage and it hurts,” Johnson told Institutional Investor.

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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