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Coronavirus Diligence Briefing

Our briefing for Wednesday May 27, 2020:

May 27, 2020 3:06:21 PM

  • In the United States, Dr. Anthony Fauci, the nation’s top infectious disease expert and a member of the White House coronavirus task force, has called on Americans to wear face masks when out in public. Dr. Fauci said while the use of a mask is not 100% effective, it is a valuable safeguard and shows respect for one another if each person is wearing a mask. However, even something as small as a mask can stoke political fires within the United States as President Donald Trump refuses to wear one in public and criticized his November presidential opponent, Joe Biden for wearing one during a Memorial Day service.

  • The fallout from the military’s report on the state of long-term care homes in Canada’s two largest provinces continues. The Quebec government made the military’s report public on Wednesday, after receiving it the day before. The report provides an account on the 25 long-term care homes where members of the military were asked to assist during the pandemic. In many cases the report described of how staffing and equipment were inadequate when they arrived, but has since improved. While not overly encouraging, the report didn’t seem to be as dire as those outlined in the five cases in Ontario on Tuesday. More than 60% of the COVID-19 related deaths in Quebec have occurred in long-term care homes.

  • The United Kingdom launched its test and trace system on Wednesday. The National Health Service programme is designed to identify and isolate those infected with the coronavirus. Those infected will share their recent contact information and anyone identified as a contact will be expected to stay home for 14 days, even if they feel well to stop the virus from spreading. Along with the test and trace system, Prime Minister Boris Johnson said it was the government’s ambition to ensure coronavirus tests are returned within 24 hours. However, Prime Minister Johnson would not commit to a timeline, other than noting ,“It’s going to be as soon as possible.”

  • France, Italy and Belgium have halted the use of hydroxychloroquine to treat patients suffering from COVID-19. The move comes after the World Health Organization decided to pause a large trial on the drug due to safety concerns earlier in the week.

  • The European Commission has called for the power to borrow €750 billion to help bankroll recovery efforts from the coronavirus. European Commission president Ursula von der Leyen wants a transformation of the European Union’s central finances that will allow them to raise large capital, which then can be redistributed to hard-hit member states.

  • According to a media report, the German government wants to end a travel warning for tourist trips to 31 European countries from June 15th. Elsewhere in the country Chancellor Angela Merkel will concede more power to its 16 states as they continue to fight the coronavirus pandemic. Chancellor Merkel has insisted on social distancing and mask wearing as vital to avoid a new wave of infections as states that have seen a low amount of cases want to move away from stricter rules.

  • A plan for a travel bubble between Australia and New Zealand could be presented to both governments as early as next week. The travel bubble could be operational by September as Australians are the largest national cohort visiting New Zealand, accounting for 40% of foreign arrivals and Australia is the most popular destination for New Zealanders travelling overseas.

Covid-19 – Due Diligence And Asset Management

Pompeo Certifies Hong Kong is no Longer Autonomous From China, Jeopardizing Billions of Dollars in Trade

Brief: Secretary of State Mike Pompeo said he certified to Congress Wednesday that Hong Kongno longer enjoys a high degree of autonomy from China -- a decision that could result in the loss of Hong Kong's special trading status with the US and threaten the autonomous region's standing as an international financial hub… His decision comes after Beijing introduced controversialnational security legislationfor Hong Kong -- legislation that Pompeo again denounced in Wednesday's statement as a "disastrous decision." Last week, the top US diplomat warned that the passage of the legislation would be a "death knell" for Hong Kong's autonomy. The proposed law hasprompted protestsin Hong Kong and has been denounced internationally, with observers warning it could curtail many of the fundamental political freedoms and civil liberties guaranteed in the agreement handing the city over from British to Chinese rule in 1997.

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Australian Investment to Stay at Home After Pandemic, IFM Says

Brief:One of Australia’s largest investment firms expects to see more demand for assets in its home market in the coming year as the coronavirus pandemic slows the recent wave of money flowing out of the country. IFM Investors Pty., a A$156 billion fund ($104 billion) owned by 27 of Australia’s largest not-for-profit retirement firms, is seeing appetite among its clients for local infrastructure projects, Chief Executive Officer David Neal said. The firm is considering raising new capital to lend to struggling companies and will consider being a cornerstone investor in future capital raisings by Australian-listed companies… Favoring local assets would mark a shift in strategy for the nation’s A$2.7 trillion pension pool -- the world’s fourth largest -- that’s been sending more money offshore in recent years as it outgrew the local market and investment opportunities dried up. It’s an opportune time as the government weighs new spending, with the economy on the brink of its first recession in almost 30 years.

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BlackRock CEO Says It’s Still Worth Betting On Global Equities

Brief: BlackRock Inc. Chief Executive Officer Larry Fink said it’s still worth betting on equities in the long run even though the coronavirus convulsed global stock markets this year and troubles may still lie ahead. “Even today, a strong ownership in the new economies over long horizons is going to be a great asset class,” Fink said on a Deutsche Bank AG webcast on Wednesday. “The only asset class over a long horizon that you can rest assured, over long horizons, that you’re going to be safe, will be global equities.” That doesn’t mean the near-term picture looks rosy. Fink’s remarks come weeks after he delivered a grim message on a private call with clients of a wealth advisory firm. Bankers he’s spoken to expect the coronavirus pandemic will hit American companies hard, with cascades of bankruptcies to follow, Bloomberg News reported at the time. Fink, whose firm is the world’s biggest asset manager, acknowledged Wednesday that near-term pain probably lies ahead.

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Goldman is Bringing Traders Back to Offices in New York and London in the ‘Next Several Weeks’

Brief: Wall Street is heading back to work. Goldman Sachs is planning on having some of its traders and other markets personnel return to offices in the U.S. and London in the next few weeks, executive John Waldron said Wednesday in an investor conference. “We are beginning the process of returning to our offices around the world,” said Waldron, who is Goldman’s president and chief operating officer. “We are planning for a core group of people in our markets-facing businesses to return in the US and London over the next several weeks.” Goldman, a top player in global trading and capital markets businesses, sent New York-area employees home in March as lockdowns began in the U.S. The bank’s Wall Street-centric businesses performed well in the first quarter, exceeding analysts’ expectations amid record volatility. Now, some of the 98% of bank employees working from home will begin to return to the bank’s offices in Manhattan, New Jersey and Connecticut.

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Frozen UK Property Funds Face Existential Crisis

Brief: British property funds are set to remain frozen for months as the market is impossible to value due to the coronavirus crisis, and some may need to change structure to survive, industry sources say. Ten big open-ended property funds tracked by Morningstar, with a total of 6.5 billion pounds ($8 billion) under management, stopped investors from getting their money out in mid March, saying valuers could not accurately assess real estate assets in a plunging economy.With question marks over the future of office working, the retail industry in crisis and the housing market only just reopening, the price of property is set for a major readjustment, but a dearth of transactions means the scale of change is still unclear.“This is a crisis unlike any other,” said Ben Sanderson, a director at Hermes Real Estate Investment Management. “In the short term, it’s going to be hugely challenging.”

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The II Fear Index: Investors Want the Fed’s Support, Even if it Increases Credit Risk

Brief: Nearly three-quarters of investment professionals believe the U.S. Federal Reserve’s corporate credit buying programs have stabilized markets since their lows in March. But this week’s II Fear Index reveals investors are also worried about new risk introduced by the initiatives — including a dangerous assumption of credit risk by the public. For six weeks, Institutional Investor has been polling investment professionals about everything from government initiatives to the rationality of equity investors for the weekly II Fear Index. This week’s survey had 168 respondents, the highest yet for the poll. About 74 percent of the surveyed investment professionals said the move by the Fed to purchase corporate bond ETFs, a first for the central bank, provides necessary liquidity to credit markets. But 70 percent said the Fed’s ETF buying also “raises concern about careless risk taking.” Sixty-seven percent of respondents said the initiative “unreasonably encouraged shifting credit risks from the private sector to the public sector.”

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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