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Our briefing for Wednesday November 11, 2020:
Nov 11, 2020 3:06:01 PM
- In the United States, Texas has become the first state to surpass one million COVID-19 cases. Health experts are concerned as America is reporting more than 120,000 new COVID-19 cases a day and the country is just a few weeks out from celebrating its Thanksgiving holiday and Christmas shortly thereafter. “The upcoming holidays of Thanksgiving, Diwali, Christmas, Hanukkah and New Year’s create the potential for innumerable super-spreading events across the country,” said Dr. Isaac Bogoch, an infectious disease specialist at the University of Toronto. According to statistics from the University of Washington more lives will be lost to COVID-19 in December then what America saw in March and April. The United States was reporting more than 2,000 deaths a day in the spring.
- In Canada, its most populous province set a new record high for COVID-19 cases for the fourth time in the past five days. Ontario reported 1,426 new cases on Wednesday prompting Toronto’s medical officer of health to move the city into the “red” level of the provinces colour-coded system, along with added stricter measures on top of those restrictions. As of this Saturday, indoor dining at restaurants and bars will remain prohibited, meeting and event spaces, along with casinos and bingo halls will remain closed and the health officer recommended not socializing with people outside of their household. The “red” category restrictions will remain in place for 28 days.
- In an effort to have university students at home with their families for the holidays, the United Kingdom issued its plan on how to make that happen on Wednesday. University students will have staggered departure dates over the next month with the government and universities working in tandem on mass testing. The plan is to have learning move online by December 9th. If by that deadline, students develop symptoms and test positive for COVID-19, they will still have a two-week window that could get them home in time for Christmas.
- According to people familiar with the matter, Italy may need to spend €10 billion a month to aid businesses and workers hit by coronavirus restrictions. The Bloomberg report cites a person who declined to be identified because the discussions are confidential, but lockdown measures similar to the ones imposed on Italy earlier this year are estimated to cost the government between €40 to €50 billion if they last until March. Before the pandemic hit, Italy was the Euro region’s third-largest economy, but has struggled to deal with the fallout from the coronavirus.
- One day after announcing they have their third COVID-19 vaccine ready for regulatory approval, it really appears Russia doesn’t want to be outdone on the vaccine front. The Gamaleya Research of Epidemiology and Microbiology, along with the Russian Direct Investment Fund announced via social media on Wednesday that the Sputnik V vaccine is showing a 92% efficacy rate. This news comes just a few days after Pfizer announced their vaccine produced a 90% efficacy rate. The preliminary Phase 3 findings are based on results from 20,000 volunteers, including more than 16,000 who also received a second injection of the vaccine. The western world was skeptical of the Sputnik V vaccine when it was registered by Russia in August and the timeliness of this apparent 2% bump in efficacy isn’t likely going to squash those concerns.
- Singapore and Hong Kong have announced the world’s first air travel bubble. The air travel bubble will replace quarantine with COVID-19 testing starting November 22nd officials said in separate briefings on Wednesday. There will be several flights a week on Singapore Airlines Ltd. and Cathay Pacific Airways Ltd., which will become daily as of December 7th. Flying within the travel bubble will require more paperwork than usual. Tests should be taken within 72 hours prior to departure, with travel approval being done online at least seven days ahead of time. Should travelers obtain the virus in either city during their stay, they would need to bear the full cost of any medical treatment provided to them. The two Asian financial hubs hope the travel bubble can be a template for other countries to follow, if successful.
Covid-19 – Due Diligence And Asset Management
Hedge Fund Managers Face ‘Survival of the Fittest’ Test for 2020
Brief: For years, hedge funds have blamed placid markets for their uninspiring returns. That excuse won’t fly this year. Volatile markets in which stocks move less in lockstep should be a recipe for making money. But much of the industry is struggling, and clients are losing patience. “This year separates the adults from the children,” said Tim Ng, chief investment officer of Clearbrook Global Advisors, which invests in hedge funds. “If you are a fundamentally driven, bottoms-up securities manager across any asset class, this should have been the year when you did well. Everything you’ve wanted for years exists.” The $3.3 trillion industry gained 0.4% through October, according to the Bloomberg Hedge Fund Indices, trailing both stocks and bonds. Hedge Fund Research Inc.’s index looks worse, showing a drop of more than 4%. Big winners include Brevan Howard Asset Management and Coatue Management, and in the losing column are firms such as Bridgewater Associates, whose flagship fell 19% through Nov. 5. Some investors in struggling funds are asking: If they couldn’t make money before and still can’t now, why keep them? “It’s getting harder to have conviction in hedge funds,” said Adam Taback, chief investment officer of Wells Fargo Private Wealth Management, another allocator. “Many have not protected enough on the downside and others haven’t provided enough upside.” Taback said he isn’t cutting funds from client portfolios, though the bar for getting recommended is higher. He believes more fund shutdowns are coming.
Deutsche Bank Sees Hurdles to Consolidation: Future of Finance
Brief: The coronavirus crisis, Brexit, climate change and the end of the Donald Trump-era will disrupt markets and challenge investors and policy makers heading into 2021. To help sort through the issues, Bloomberg is hosting the Future of Finance conference, a virtual event with leading figures from banking, insurance, regulatory agencies and central banks. On Tuesday, Robert Kaplan, head of the Federal Reserve in Dallas, told the event that the resurgence of Covid-19 jeopardizes the next two quarters for the U.S. economy, which is poised to bounce back. On Thursday, speakers include Felix Hufeld, head of Germany’s financial regulator BaFin, Austrian Finance Minister Gernot Bluemel and Erste Group CEO Bernd Spalt. Key Developments on Wednesday: Deutsche Bank’s Americas chief Christiana Riley said a wave of trading has been unleashed in recent days by vaccine news and clarity in the U.S. election Allianz CEO Oliver Baete said the risks are increasing for a “massive shock” to the global economy as businesses and consumers become less willing to invest in the future.
Alternative Fund Managers Demonstrated Resilience in Adapting to the New COVID-19 Reality
Brief: Despite extreme levels of market volatility, increased trading volumes and disruptions to society due to Covid-19, alternative fund managers have persevered, and even exceeded, performance expectations from investors. Nonetheless, managers continue to face challenges in addressing important areas of focus, including environmental, social and governance (ESG) products, and diversity and inclusion (D&I), according to the 2020 EY Global Alternative Fund Survey. In times of change, does accelerated adaptation present obstacles or opportunities? – the 14th annual survey (formerly the EY Global Hedge Fund Survey) – reveals that total allocations to alternative investments remain relatively unchanged; however, the competition between asset classes continues to intensify. Following a multiyear trend, allocations to hedge funds shrunk again to just 23 per cent in 2020, compared to 33 per cent in 2019 and 40 per cent in 2018. Investments in private equity and venture capital remained stable at 26 per cent, while investments in private credit increased from 5 per cent to 11 per cent as many market participants anticipate Covid-19 initiating a credit cycle that will create opportunities for these managers. A shift in alternative products is not the only change this year. Hedge funds have been expanding their offerings, or tapping into new markets, such as private asset classes in particular, via a variety of unique structures. More than 40 per cent of hedge fund managers are currently offering co-investment vehicles or best-idea portfolios, and, additionally, almost 20 per cent of managers are creating side pockets, which allow investors an election to participate in illiquid investments within a broader portfolio.
Pfizer CEO Sold $5.6 Million of Stock as Company Announced Vaccine Data That Sent Shares Soaring
Brief: Pfizer CEO Albert Bourla sold almost $5.6 million worth of stock on Monday, the same day the drugmaker announced positive early data on its experimental coronavirus vaccine that sent shares soaring. Shares of Pfizer jumped by almost 15% on Monday after the company and its partner BioNTech said its vaccine was more than 90% effective in preventing Covid-19 among those in the trial without evidence of prior infection. Bourla sold 132,508 shares at an average price of $41.94 per share, or nearly $5.6 million, according to securities filing. The sale was part of a pre-scheduled 10b5-1 trading plan, which was adopted on Aug. 19, the filing shows, as the company was enrolling participants in its late-stage trial. The sale accounted for 61.8% of the shares owned both directly and indirectly by Bourla. He still owns 81,812 both directly or indirectly, the filings show. Pfizer confirmed the sale in a statement and added that Bourla has a larger holding in the company through the company’s “qualified and nonqualified savings plans,” which likely means stock options. “After being with the company for more than 25 years, Albert owns a substantial amount of Pfizer stock under our qualified and nonqualified savings plans,” a Pfizer spokesperson said in a statement. “He now holds approximately nine times his salary in Pfizer stock after the sale this week.”
Pandemic Payment Holidays Mask Wave of European Problem Debt
Brief: Pandemic payment breaks on European loans totalling billions of euros threaten to undermine efforts by the region’s banks to put the coronavirus crisis behind them. Some of the millions of borrowers who were given repayment holidays by banks and governments across Europe shortly after the outbreak of the pandemic still need relief as a second wave of lockdowns squeezes the economy and puts people out of work. But the longer their loan repayments are kept on ice, the bigger the potential problem for banks as debts stack up, making them more difficult to tackle. The European Central Bank’s chief supervisor Andrea Enria has warned of a “huge wave” of unpaid loans that could top 1.4 trillion euros and has cautioned against postponing writing them off, warning that waiting for loan moratoria to expire could see many borrowers “unravel at once”. Although the volume of loans on pause fell sharply over the summer, a Reuters survey and analysis of the latest data available shows that loans totalling about 320 billion euros ($380 billion) were still on a payment holiday at 10 of Europe’s biggest banks. In Ireland, banks started to phase out payment holidays in September, a move Michelle O’Hara, a manager at a charity advising those in debt difficulty, said prompted a call surge.
How the MiFID II Review and Covid-19 are Reshaping the Hedge Fund Operational Landscape
Brief: With certain aspects of the EU’s ongoing MiFID II review affected by the coronavirus pandemic, Hedgeweek explores how a fresh overhaul of the framework may further impact hedge fund operations, and why the Covid-19 crisis may provide an easing of the regulatory burden. Introduced in January 2018, the European Union’s Markets in Financial Instruments Directive (MiFID) II brought sweeping changes to transparency rules and transaction reporting requirements across the financial markets spectrum. Among the major reforms impacting hedge funds was a package of measures covering third party research. These included extra scrutiny over the ways that asset managers pay for sell-side analysis, and the unbundling of research from brokerage fees, a move aimed at curbing inducements to trade. Almost three years on, industry consensus indicates MiFID II has led to a reduction in hedge fund research spend. But anecdotal evidence also suggests portfolio managers have sought to capitalise on the reduced amount of stock analysis with targeted research budgets to help them gain an edge. The European Commission kicked off an industry-wide consultation on its planned MiFID II review in February this year. But certain parts of the review have been delayed as a result of the Covid-19 pandemic, with ESMA expected to report back on these in early 2021.
