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Our briefing for Wednesday January 27, 2021:
Jan 27, 2021 3:12:35 PM
- In the United States, Senate Majority Leader Chuck Schumer said he will start moving on a Democrat-only COVID-19 relief plan as soon as next week if Republicans continue to balk on President Joe Biden’s $1.9 trillion proposal. The House of Representatives could pass the budget on a reconciliation process, which would allow the relief bill to pass with a simple majority in the Senate, not the usual 60 votes. However, moving forward with the reconciliation process means that not all of President Biden’s $1.9 trillion plan would likely qualify for that route. The $160 billion for Covid-19 vaccines and testing would likely be out because discretionary spending is excluded from the process, while the proposed minimum-wage hike may also be disqualified for having insufficient budget impact.
- In Canada, the country’s two most populous provinces seem to be turning a corner in their daily coronavirus case count. After seeing multiple days of 3,000 COVID-19 cases per-day coming out of the Christmas/New Year’s holiday season, Ontario reported 1,670 cases on Wednesday. That marks Ontario’s fewest number of cases since late November. Meanwhile, Quebec reported 1,328 new cases and Premier Francois Legault said the average number of new cases has declined in recent weeks – something he credits to government measures – which included a nighttime curfew. Premier Legault said as long as the numbers keep progressing in the right direction, his government plans to ease COVID-19 restrictions in some regions as of February 8th.
- The United Kingdom has moved ahead with its plan to quarantine travellers returning to the country in hotels for 10 days. Prime Minister Boris Johnson told the House of Commons on Wednesday that passengers returning from “red list” countries will be met at the airport and transported directly into quarantine. Non-UK residents from red list countries will continue to be refused entry to the country. There are 30 destinations on the “red list” that cover all of South America, southern Africa and Portugal. Home Secretary Priti Patel said that passengers will be required to declare why they are travelling. Going on holiday is not a valid excuse, she added.
- The European Union (EU) is pushing COVID-19 vaccine maker AstraZeneca to supply the bloc with more doses of its COVID-19 vaccine from plants in the UK and Europe after the company announced shipping delays. “UK factories are part of our advanced purchase agreement and that is why they have to deliver,” said EU Health Commissioner Stella Kyriakides, noting that two of the four factories from which AstraZeneca has committed to providing vaccines to the EU are in Britain. AstraZeneca said last week it would cut supplies to the EU in the first quarter meaning that the bloc would receive 31 million doses in that period, or 60% less than initially agreed to, due to production issues at a Belgian factory.
- The Philippines have further tightened travel restrictions when it comes to the coronavirus. As of February 1st, all inbound travellers, regardless of where they come from, will have to go into quarantine in government-approved facilities for at least five days. Tests will no longer be carried out in the airport, but instead on the fifth day of quarantine. Only those who display a negative test will be allowed to go to their destination where they will remain in quarantine for nine more days. The new restrictions are being put in place to try and stop the surge of COVID-19 variants from entering the country. The Philippines have found at least 17 cases of the UK variant.
- A team of 13 World Health Organization (WHO) experts are set to leave quarantine and enter the city of Wuhan, China for the first time since the coronavirus pandemic started over a year ago. The City of Wuhan has largely gone back to normal since becoming ground zero for the coronavirus but will now be the centre of attention again. “The eyes of the world are focused on this, the opinions of the world are focused on this,” said Dutch virologist and WHO team member, Marion Koopmans. Several countries, such as the United States and Australia have been vocal about Beijing’s attempt to downplay the outbreak in its early stages. Last week, an independent panel for pandemic preparedness and responses said both the WHO and China could have acted faster and more forcefully to contain the start of the COVID-19 outbreak.
Covid-19 – Due Diligence And Asset Management
Blackstone Deploys $25 Billion to Ramp Up Spending
Brief : Blackstone Group Inc. deployed a record $25.4 billion in the fourth quarter, as the world’s biggest alternative asset manager sealed large deals and found opportunities in an economy ravaged by the Covid-19 pandemic. New York-based Blackstone spent $11.7 billion on real estate in the three months ended Dec. 31, and its private equity unit invested $8.2 billion, the firm said in a statement Wednesday announcing their fourth-quarter earnings. The moves show that company’s leaders are making big bets after sitting out the early stages of the pandemic. The statement also showed record assets under management and distributable earnings for the period. “It was our best quarter in the 35-year history of the firm,” Blackstone President Jon Gray said in an interview. Shares rose 0.1% at 12:09 p.m. in New York. The S&P 500 was down 1.8%. The deployment strategy echoes Blackstone’s approach in 2009 when it invested amid the financial crisis and pulled off deals that helped power its rise over the past decade. While the U.S. stock market has been soaring, assets from commercial real estate to travel are struggling as lockdowns and social distancing rules have changed the patterns of everyday life from Los Angeles to Shanghai. The firm continued to bolster its business units, with $32.3 billion of inflows in the last three months of the year. Deals such as Ancestry.com Inc. and the recapitalization of BioMed Realty Trust Inc. helped to shrink piles of cash that have been sitting on the sidelines. Blackstone said Tuesday it would buy a life insurance business from Allstate Corp., adding $27.9 billion in assets to its roster.
Dalio and BlackRock’s Fink Predict Inflation Rebound
Brief: Saudi Arabia’s flagship investment conference began on Wednesday with top global asset managers predicting that 2021 would bring a return to growth as nations get the Covid-19 pandemic under control -- and with it a rise in inflation. “We will see a rebound in growth and a rebound in inflation,” Bridgewater’s Ray Dalio said during the opening panel of the Future Investment Initiative, or FII. “With that, you’re also going to see a pick up in deficits,” leading governments to sell more bonds. That view was shared by BlackRock Chief Executive Larry Fink, who predicted that developed countries would likely reach herd immunity around September. “I think we are going to have a huge amount of job creation, but all these elements are highly potentially inflationary.” Saudi Crown Prince Mohammed bin Salman’s signature event will host top global executives like Goldman Sachs Group Inc.’ David Solomon, Blackstone Group Inc.’s Steven Schwarzman and SoftBankCorp.’s Masayoshi Son.
Traditional Portfolios Won’t Cut it Anymore, Endowments and Foundations Say
Brief: Most endowments and foundations believe that a traditional portfolio of stocks and bonds will not meet their return requirements, new data shows. According to results from a TIFF Investment Management survey, only 10 percent of its respondents — all TIFF clients — said they expected a passive portfolio with a 65 percent allocation to stocks and 35 percent allocation to bonds to exceed their return hurdles. TIFF, the nonprofit outsourced-CIO provider that manages $7 billion in assets, is expected to published the survey results on Wednesday with details on how its more than 100 clients view the market. Although most respondents said that the economic conditions created by the Covid-19 pandemic haven’t affected the long-term health of their organizations, the surveyed investors were not optimistic about how the markets are shaping up. Over the next ten years, 41 percent of respondents said they believed equities will fare worse than they did the previous decade. Fifty percent of respondents said the same about bonds. Very few expected the asset classes to outperform the previous decade, with only 8 percent anticipating that equities will outperform, and 5 percent predicting that bonds will. Meanwhile, over a quarter of the respondents said they expect their institutions to increase spending in 2021, the survey showed. Endowments and foundations “are spending more in the middle of a pandemic and they’re going to do it for the next three to five years,” said Kane Brenan, chief executive officer at TIFF, via Zoom Tuesday.
Tech and Media Sector Ready to Power M&A Bounce-Back in 2021
Brief: Sector-specialist M&A advisory firm Ciesco has reported global resilience in the tech, digital, media and marketing sectors in the face of the Covid crisis. Ciesco tracked global M&A activity in these sectors, reporting 1,091 M&A transactions in 2020, with announced deal values of USD55.9 billion. This value excluded the one mega-deal of the year (defined as a deal greater than USD10 billion): the USD27.7 billion acquisition of communication platform Slack by Salesforce. This took place despite a mostly pandemic-induced 19 percent drop in M&A activity last year. Digital Media, Traditional Media and MarTech were the most popular sectors for deal-making, collectively representing over half of all deal volume in 2020. Customer Relationship Management businesses (CRM) saw a 30 percent year-on-year rise in M&A activity. The Private Equity market showed the greatest buoyancy. PE deals in tech, digital, media and marketing represented 37 percent of all M&A activity in 2020. This was down from 42 percent in 2019, but notably higher than 13 percent in 2017. Consultancies, tech companies and holding companies contributed to a diverse buyer universe, joining Private Equity among the Top 10 acquirers. Chris Sahota, CEO of Ciesco, says: “Our report demonstrates the attractiveness of data and technology-driven business models to financial investors, and through last year’s turbulence, businesses are learning to adapt and future-proof their operations. “2021 will be a period of re-invention for many companies. Technology and data will be at the forefront of this evolution, with smart use of data informing decisions across all parts of an organisation. “Global holding networks spent much of 2020 restructuring their operations in the face of declining revenues and took the opportunity to divest under-performing legacy assets. We see a strong appetite for M&A to strengthen technology services, disciplines and geographies.”
Financial Sector Quants and Data Analyst Held Back by Lack of Automation
Brief: Fewer than four-in-ten (37 per cent) of data scientists in financial services firms currently use AI, machine learning and other advanced technologies in their key analysis and investment processes and workflows, according to new research executed in the UK, US and Asia, for Alveo a solutions provider of managed data services for data mastering and analytics. Conducted among banks, investment companies, insurance firms and hedge funds, the research reveals how the slow adoption of AI and other cutting-edge automation technology is seriously hindering quants and data analysts in their most valuable work. Two-thirds (66 per cent) of respondents say quants and data analysts in their organisation have to spend between 25 per cent and 50 per cent of their time collecting, preparing and quality-controlling data; time they could otherwise have spent on modelling and analysis. Poor data quality also prevents risk managers from making the best use of analytics. Nearly one-in-three respondents (29 per cent) say problems with data quality are most severe in risk management and market making. The benefits of data integration are, however, appreciated by more than a quarter of respondents. 27 per cent agree that improved productivity is one of the main gains from more closely integrating market data and reference data into advanced data analytics – a task vastly accelerated through integration of data using AI and machine learning.
Active and Alternative Funds More Popular in UK
Brief: UK fund buyers have a greater appetite for active and alternative funds than their global counterparts as a means to manage increased volatility, according to research. A survey conducted by Coredata Research found that 77% of those based in the UK are using alternatives for risk management, compared to the global average of 57%. There is a similar disparity in the use of active funds to protect against volatility, a strategy adopted by 65% of UK respondents compared to 47% globally. There was more alignment in the respective views of UK and global funds buyers when it came to predicting volatility for 2021. Covid-19 was identified by 23% of respondents in the UK and globally as the top volatility concern. Similarly, 60% of global respondents expect market volatility to increase in 2021 compared to 54% of UK fund buyers. Andrew Inwood, principal of CoreData, said that fund buyers will continue to favour active strategies and alternative assets in 2021 if, as expected, markets remain choppy. “We will likely see a continued shift to private markets and alternatives as investors seek out uncorrelated sources of return to diversify portfolios and generate alpha,” he said. The survey was conducted in November and December 2020 and canvassed 200 professional fund buyers globally.
