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Coronavirus Diligence Briefing

Our briefing for Wednesday November 18, 2020:

Nov 18, 2020 3:14:22 PM

  • In the United States, drugmaker Pfizer, along with its German partner, BioNTech announced on Wednesday that their Phase 3 trial of its coronavirus vaccine is now complete. The analysis shows the vaccine was 95% effective in preventing infections, even in older adults and caused no serious safety concerns. The COVID-19 vaccine partners will now file the formal paperwork to American drug regulators on Friday for emergency use of its new apparent breakthrough. The Food and Drug Administration’s (FDA) process is expected to take a few weeks with an advisory committee tentatively scheduled to review the Pfizer vaccine in early December. 

  • In Canada, CTV is reporting news that shouldn’t come as a surprise to anyone: the COVID-19 travel restrictions in place at the country’s land border with the United States is expected to remain in place for at least another month. The current extension is set to expire on November 21st, but sources tell CTV News that the measures are set to be renewed through December 21st. In related news, new figures from the Canada Border Services Agency said the country has admitted approximately 5.3 million travellers, most of them essential workers, who have been exempted from the mandatory 14-day quarantine to control the spread of COVID-19. 

  • The United Kingdom’s public spending watchdog has criticized Boris Johnson’s government for a series of failures when it awarded more than £17 billion of contracts to private companies to deal with the coronavirus. The National Audit Office flagged some of the failures as a lack of transparency, errors, and potential conflicts of interest. For instance, some government departments failed to explain why some companies with government connections or poor due diligence records were chosen to provide crucial services during the pandemic, such as supplying personal protective equipment, consulting, and policy advice. 

  • In Germany, police had to use water cannons to disperse thousands of anti-lockdown protestors who gathered in the capital city of Berlin on Wednesday. Police stopped the demonstration after protestors, who were angry at a law regulating coronavirus shutdowns, failed to observe social-distancing rules and wear masks. One of the largest demonstrations since the pandemic began, wanted to initially gather outside of the Reichstag building, where parliament sits but were denied that opportunity with riot police standing by. The German government passed a series of amendments on Wednesday to their law on protecting the population in a national epidemic. Previously, imposed shutdowns on the basis of decrees were open to legal challenge – the amendments to the epidemic law put such measures on stronger legal footing.

  • Japan is planning to move its capital city Tokyo, to its highest COVID-19 alert level as cases trend upwards. More than 2,000 cases were reported in Japan – a new daily record with almost a quarter of those in Tokyo. The 493 new cases in Tokyo surpassed a previous high set in August. Japanese media are reporting government officials are expected to meet Thursday to discuss what to do with Tokyo to help curb the spread, with measures that could include asking businesses to close early.

  • Australia’s state of South Australia, home to the city of Adelaide, are implementing a six-day circuit breaker set to go into effect midnight Thursday local time. Liberal Premier Steven Marshall said the circuit breaker is needed to undertake a testing and tracing blitz. The lockdown will essentially shutdown the state with all non-essential businesses closed and only one person per household to be allowed to leave once a day, for essential shopping. People will not be allowed to leave their home to exercise or travel. After the six-day circuit breaker, state officials will rollout other measures to follow for eight days after that.

Covid-19 – Due Diligence And Asset Management

Jamie Dimon Lashes out at ‘Childish Behavior’ From Congress Amid Deadlock Over Coronavirus Relief

Brief: JPMorgan Chase CEO Jamie Dimon criticized lawmakers for a monthslong deadlock over a second round of coronavirus relief to help unemployed Americans and struggling businesses as the pandemic deepens. “I know now we have this big debate. Is it $2.2 trillion, $1.5 trillion?” Dimon said Wednesday, referring to competing visions for a relief bill from Democrats and Republicans, at The New York Times’ DealBook conference. “You gotta be kidding me,” Dimon told Andrew Ross Sorkin. “I mean just split the baby and move on. This is childish behavior on the part of our politicians.” Congress has so far failed to pass a second relief bill after key parts of the first law, the CARES Act, expired in July. While financial pain for the unemployed and small businesses is set to grow as Covid-19 infections surge to records across the country, top leaders from both parties haven’t met since the Nov. 3 presidential election. Dimon urged lawmakers to agree on fiscal stimulus that would act as a bridge until midyear 2021, when promising vaccines may be widely distributed. “Thank God we have these two vaccines coming, thank God,” Dimon said. “Now is the time to not act like it’s over, let’s double down and get though Covid the best we can.”

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Goldman Plans Second Round of Jobs Cuts After Pause for Pandemic

Brief: Goldman Sachs Group Inc. is preparing to trim its workforce for the second time in just three months, as a moratorium on firings during the pandemic gives way to a push to improve efficiency. This round isn’t expected to exceed the roughly 400 positions the bank began eliminating in September, according to people with knowledge of the matter. But executives expect to go deeper in the coming year, in what could eventually amount to one of the most significant staff reductions at the bank as it looks to deliver on a promise to rein in costs. Big U.S. banks including Goldman Sachs pledged early this year to refrain from broad firings as the pandemic erupted across the country. But the industry’s resolve has frayed as the virus has persisted, leaving executives to refocus on earlier cost-cutting initiatives. Goldman had laid out a target in January to eliminate more than US$1 billion in expenses, and it has been examining how to meet that goal. A spokeswoman for the bank reiterated its statement from September. “At the outbreak of the pandemic, the firm announced that it would suspend any job reductions,” the company said at the time. “The firm has made a decision to move forward with a modest number of layoffs.”

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A Harvard Researcher Found Hedge Funds Weren’t to Blame for Treasury Market Turmoil in March. The FSB Is Taking a Close Look

Brief: The Financial Stability Board is scrutinizing the behavior of hedge funds and other non-bank investors during the market tumult sparked by the coronavirus earlier this year. “Market dysfunction was exacerbated by the substantial sales of U.S. Treasuries by some leveraged non-bank investors and foreign holders,” the FSB, a global group of finance officials, said Tuesday in announcing its report on the market turmoil in March. “Dealers also faced difficulties absorbing large sales of assets, amplifying turmoil in short-term funding markets.” Recent research from Marco Di Maggio, a finance professor at Harvard’s business school and a faculty research fellow at the National Bureau of Economic Research, found that hedge funds did not drive disruption in the Treasury market, as they represented a relatively small trading role. Foreign sellers were “a more significant cause behind illiquidity,” he suggested in a paper on the tumult. But the FSB said in its report that “some leveraged investors” worsened dysfunction in the market by unwinding almost $90 billion in U.S. Treasuries trades in March. That’s the volume of selling reportedly done by relative-value hedge funds that focus on fixed-income markets, according to Di Maggio — a figure he said was dwarfed by the foreign sector’s $260.4 billion of net outflows in Treasuries securities in March. 

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Bitcoin Hits Three-Year High as Investors Jump In

Brief: Bitcoin, the world's best-known cryptocurrency, has jumped above $17,000 (£12,800) to hit a three-year high. The digital currency has suffered plenty of wild price swings since it was launched in 2009. But investors have been flocking to cryptocurrencies during the pandemic-driven volatility on global stock markets. However, experts have cautioned about viewing them as a "safe haven". On Wednesday, Bitcoin had climbed more than 7% to $17,891, its highest level since December 2017. Some analysts said the Covid-19 pandemic has encouraged investors to reassess the long-term outlook for Bitcoin and other cryptocurrencies. But there are still concerns about the fraudulent trading in cryptocurrencies following a succession of high-profile hacks. During times of volatility, investors tend to move their money out of shares and into what are considered safer havens, like cash and gold. Some feel cryptocurrencies are now being viewed as a shelter from stock market volatility. "Covid-19 has disrupted the traditional safe-haven trade and gold's inability to outperform. Periods of extreme risk aversion have forced many traders to diversify into Bitcoin," said Edward Moya, at trading firm Oanda.

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Howard Marks Pivots Back to Caution After Catching Distress Wave

Brief: Howard Marks, the dean of distressed-debt investing who turned bullish within days of the sector’s 2020 low, is back to a cautious stance now that the ensuing rally has whittled attractive targets down to pre-pandemic levels. “When the level of optimism is high, there is usually more room for disappointment,” Marks, the co-founder of Oaktree Capital Group, said in a Tuesday telephone interview. “The main way to achieve high returns in a low-return world is through taking increased risk. And I don’t think this is the climate to take more risk.” Back in early April, after valuations had collapsed and the supply of newly distressed assets was soaring, Marks told investors it was time to play offense. Trying to time the market for the absolute low is “irrational,” he wrote at the time, because the bottom is apparent only in retrospect. The same advice still applies today about forecasting tops as well as bottoms, according to Marks. “Trying to predict market sentiment gets you into trouble,” he said in the interview. Nevertheless, Marks has doubts about the wisdom of buying at current prices. “Maybe we’re in the area of a top,” he said. “The rebound has been substantial.” Investors are viewing future events including the development of a Covid-19 vaccine favorably, with equity and debt markets staging strong rallies. Yields and spreads remain low, and “the pressure to buy is strong,” he said.

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Amid a Tough Year, CQS Makes Changes – And Sees a Rebound

Brief: London hedge fund firm CQS, which struggled with management turnover, layoffs, and drastic performance losses earlier this year, has made up some of the lost ground in its funds and has told clients it has a plan for getting the firm back on track In a letter sent to clients on Tuesday and obtained by Institutional Investor, firm founder Michael Hintze called 2020 “arguably the most turbulent year in financial markets for a generation” and acknowledged that government lockdowns in response to the Covid-19 pandemic have posed massive challenges for the global economy “and in turn, for a number of our funds.” The assets CQS specializes in, namely structured credit and more complex credit instrument, were among those hardest hit, Hintze wrote.  The firm’s flagship CQS Directional Opportunities Fund, which Hintze manages, lost more than 33 percent in March and was down by more than 50 percent through April, according to a Financial Times report, while the CQS ABS Fund lost 43 percent in March alone. But the funds have posted strong gains since then, according to the letter. The ABS Fund has gained 37.2 percent from its March low through the end of October, while another hard-hit fund, the Credit Multi Asset Fund, gained 16.4 percent over the same period — nearly erasing its drawdown. 

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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