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Our briefing for Wednesday August 26, 2020:
Aug 26, 2020 3:40:23 PM
- In the United States, the Centers for Disease Control and Prevention (CDC) has reversed course on its COVID-19 testing guidelines and are now saying people without symptoms may not need to be tested, even if they’ve been in close contact with someone known to have the virus. The sudden change has left health officials in a state of confusion as the CDC did not explain why they made the update, but CNN is reporting the new guidance was a result of pressure from the Trump administration. “I am worried this is just a way to slow down testing that would clearly not be good. We don’t want to decrease the amount of testing. We want to decrease cases by decreasing transmission, not by decreasing testing, said Dr. Carlos del Rio, an American infectious disease specialist.
- In a news conference on Wednesday, the Canadian federal government announced a $2B funding plan, aimed at helping provinces and territories re-open their schools safely in the midst of the pandemic. While in Canadian politics, education falls under provincial jurisdiction, the federal government said the money is meant only to top up provincial resources and comes with no strings attached on how it’s spent. The funding can be used to help adapt learning spaces, improve air ventilation, increase hand sanitation and hygiene and buy personal protective equipment – all things needed now in dealing with COVID-19.
- According to the World Travel & Tourism Council, the coronavirus will see the United Kingdom’s travel industry lose more than £20B. The industry group points to the UK’s “devastating” policy on quarantining travellers with high COVID-19 infections – a list that is reviewed on a weekly basis and has been criticized by tourism advocates for its stop-start measures. This dire outlook goes hand-in-hand with the news on Wednesday that London’s Gatwick airport plans to cut a quarter of its workforce as part of a major restructuring. Currently as much as 75% of the airport’s staff are on furlough at the country’s second busiest airport.
- Authorities in Germany’s capital city, Berlin have banned several protests planned for the weekend. The protests were due to the government’s coronavirus pandemic measures currently in place. A similar protest, which is supported by German far-right leaders was held in Berlin on August 1st during which protestors ignored mask-wearing initiatives and social distancing rules, which were imposed on the protest. Elsewhere in the country, coalition parties agreed on Tuesday to extend measures to help soften the blow to Europe’s largest economy. The new measures could cost up to €10B and include prolonging a short-time work scheme and freezing insolvency rules.
- In Italy, the Vatican released a statement that as of next Wednesday (September 2nd) the faithful will be readmitted to Pope Francis’s weekly general audiences. Thousands of people usually attended the weekly Wednesday gatherings, but haven’t been able to do so since the pandemic outbreak in the country began in March. The Vatican said starting from next week, the Pope would hold attendance in the San Damaso Courtyard of the Apostolic Palace and anyone who wanted to attend, could do so.
- South Korea has ordered doctors in the Seoul area back to work on Wednesday as they began a three-day strike in protest of several government proposals. The strikes come at a time when the country has seen new cases hit the triple digits for the past week and a half. Earlier in the week, the doctors had reached an agreement with the government to look after any COVID-19 patients but hit a wall on any of the broader issues. The government wants to increase the number of medical students by 4,000 over the next 10 years to better prepare for public health crises like the COVID-19 pandemic. However, student doctors said the plan would unnecessarily flood an already competitive market. They are asking for the extra funding to be spent improving the salaries of existing trainees, which would encourage them to move out of the capital city of Seoul and into more rural areas where more health professionals are needed.
Covid-19 – Due Diligence And Asset Management
World Economic Forum says Annual Meeting in Davos Will be Delayed until Summer 2021
Brief: The World Economic Forum announced Wednesday that it decided to postpone its upcoming annual meeting in Davos, Switzerland, due to safety concerns and in an effort to slow the spread of Covid-19. The meeting, originally scheduled for January, will be rescheduled to “early next summer,” according to Adrian Monck, managing director of public engagement at the Forum. “The decision was not taken easily, since the need for global leaders to come together to design a common recovery path and shape the ‘Great Reset’ in the post-COVID-19 era is so urgent,” Monck said in a statement. “However, the advice from experts is that we cannot do so safely in January.” The World Economic Forum’s annual summit in Davos is routinely one of the globe’s largest collections of world leaders and corporate executives. This year’s gathering, which took place over four days starting Jan. 21, featured commentary from President Donald Trump, European Central Bank President Christine Lagarde and climate activist Greta Thunberg. The 2020 conference also included Wall Street and finance bigwigs, and counted among its ranks billionaire George Soros, hedge-fund manager Paul Tudor Jones, JPMorgan Chase CEO Jamie Dimon, and Bridgewater Associates founder Ray Dalio.
Global Stocks Hit Record on Trade Deal Progress, Vaccine Hopes
Brief: Global equities climbed to a record high on Wednesday, as progress in U.S.-China trade talks and hopes for the development of a vaccine against the novel coronavirus fueled investor appetite for stocks. The MSCI All-Country World Index, which includes both emerging and developed world markets, climbed 0.4% to 581.11, topping a previous high from February. While tensions between the U.S. and China have been rising recently, risk assets rallied after the two countries this week reiterated their commitment to a phase-one trade deal in a biannual review. Massive stimulus injections to boost pandemic-ravaged economies in the U.S., Europe and other major regions are fueling a rally as stocks rebound from the global sell-off through March. Covid-19 cases are rising in some parts of Europe and the U.S. and U.S.-China trade tensions persist, but investors in search of returns have few alternatives to equities. With investors focused on vaccine progress, Moderna Inc. said it’s near a deal to supply at least 80 million vaccine doses to the European Union.
Coronavirus no Damper for Southeast Asian Private Equity Firms Flush with US$8.7 Billion in Unspent Cash
Brief: While private equity firms’ fundraising activities have been hit by the economic fallout of Covid-19, those in the industry say the pandemic has created opportunities for companies with deep pockets – particularly in Southeast Asia. Singapore-based Ascent Capital Partners has its sights set on Myanmar, where it is looking for investments in tech, education and health care start-ups. The country of 53.7 million has gone from SIM cards costing more than US$2,000 on the black market during the military dictatorship’s rule until 2011, to 80 per cent of the population owning smartphones as of 2018. Having worked with partners to invest a combined US$26 million in local internet service provider Frontiir in June, Ascent Capital has another US$70 million in its pockets. Founder and managing partner Lim Chong Chong said that as the adoption of technology in Myanmar was likely to accelerate, the company wanted to make another investment this year, and two to three more in the next 18 to 24 months – each of at least US$10 million. “Education and health care … are the sectors where our discussions are the most advanced,” Lim said. Private equity firms’ Asia-focused fundraising slumped 44 per cent year on year to US$13 billion in the first quarter of 2020 due to the pandemic, the lowest since the third quarter of 2013, according to a recent Reuters report referencing data from Preqin.
Hamilton Lane Says Private Equity, Debt to Outperform Post-Covid
Brief: Private equity and credit are set to outperform publicly-traded assets in the aftermath of the Covid-19 pandemic as investors looking to take advantage of market dislocations pile in, according to $68 billion alternative investment manager Hamilton Lane. “Investors have recognized that the greatest periods of outperformance in the private markets relative to public markets are as you’re going through and coming out of a downturn,” Andrew Schardt, the firm’s head of direct credit, said in an interview. Private credit vehicles raised $57 billion in the first half of the year, buoyed by appetite for distressed strategies, according to research firm Preqin. Still, the opportunities has been limited thus far, in part due to the Federal Reserve’s unprecedented efforts to shore up liquidity. Second half earnings may shed light on whether there will be more deterioration that could lead to attractive investments, according to Schardt. “One of the challenges on the distressed side has been that if you’re too early, you’re wrong,” he said. “So it’s a fine line of balancing how you’re going to approach the market and the opportunity recognizing you need to have the capital ready to go, but be patient.” Uncertainty caused by the coronavirus outbreak may end up pushing private-debt dynamics in favor of lenders going forward, Schardt said. The asset class’s longer-term investment approach relative to public debt may also help boost returns as companies struggle to bounce back.
Commentary: Why Investors Should Scrutinize VC Allocations in the COVID-19 Crisis
Brief: The coronavirus pandemic and ensuing capital markets volatility present a crisis of magnitude on par with prior historic events that have reshaped economies in lasting ways. As we begin to process the impact and reorient to the ongoing market turbulence, this uncertain period provides a valuable opportunity to evolve our ways of thinking and doing business. For investors and CIOs with exposure to venture capital, it means rethinking whether pre-COVID-19 allocation strategies continue to fit this precarious new environment. Heading into 2020, venture capital had never been better capitalized. The size of the industry quintupled in the last decade, according to Crunchbase projections, to $294.8 billion in 2019 from $53 billion of capital deployed into startups in 2008. For good reason, venture capital has provided access to investment opportunities in game-changing companies that have disrupted entire industries. Venture funds have distributed more capital to investors than called since 2012, breaking a prior 11-year streak. But with colossal market participants such as Softbank Group fueling an investment frenzy, capital oversupply led to inflated environments with significant pockets of dislocation supporting valuations that are often not based on a company's fundamentals or ability to drive true equity value.
York Capital Seeking to Cut 40% of Space in NYC’s GM Building
Brief: York Capital Management is looking to cut about 40% of its Fifth Avenue office space as the pandemic prompts companies to rethink the need to occupy expensive skyscrapers. The hedge fund firm is seeking to sublet about 20,000 square feet of its space at the General Motors Building, according to people familiar with the matter. It currently rents about 50,000 square feet at the trophy property, which sits across from the Plaza Hotel and offers sweeping views of Central Park and beyond. A spokesman for York declined to comment. Wall Street banks and asset managers, among the largest employers in New York City, have been taking stock of their office space as it becomes clearer that many employees will work remotely for the foreseeable future. Commercial landlords, already hard hit by the economic impact of the coronavirus, have seen a slump in demand and lost revenue as some tenants have stopped paying rent. Many firms across industries are looking at reducing their occupancies. Sublease space in the city jumped to 13.6 million square feet in the second quarter, almost 40% higher than last year, according to Savills US. Financial services and insurance firms account for about 15% of new and expected sublets. York Capital, which runs about $18 billion, has about 150 employees over a few floors at the GM Building. The 50-story tower at 767 Fifth Ave. is owned by Boston Properties Inc. It has about 2 million square feet and its front plaza is occupied by an Apple store, adding to the skyscraper’s luster.
