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Our briefing for Wednesday November 4, 2020:
Nov 4, 2020 4:40:05 PM
- In the United States, those hoping for a clear-cut answer on who their new President would be to lead their country out of the coronavirus pandemic, will likely have to wait a few more days. Several states are still counting mail-in ballots such as Michigan, Pennsylvania, Arizona and Nevada. With many states being decided by razor-thin margins, the Trump administration has already made it known they plan to challenge apparent close loses by demanding recounts, such as Wisconsin and even suing to stop the count in Michigan. On election day, data from Johns Hopkins University reported 91,530 new coronavirus cases in the country – their second highest since the pandemic began.
- United Kingdom lawmakers have approved Prime Minister Boris Johnson’s plan for a new national lockdown in overwhelming fashion. A total of 516 MPs voted for the restrictions while only 38 voted against. The lockdown restrictions will come into effect as of midnight on Thursday and last until December 2nd. Prime Minister Johnson said he hoped the country could return to the tiered system on a local and regional basis after the lockdown period ends.
- In Canada, the country’s most populous province has introduced a new colour-coded system to communicate what regions are under what restrictions when it comes to the coronavirus. Ontario revealed the details on Tuesday where a region could be placed into one of five colour-coded categories based on the level of virus spread within their communities and the capacity of their hospitals. Under the new system four regions – Toronto, Peel, Ottawa and York will be set into the “orange” restrict category, as of November 7th or November 14th in Toronto’s case. Those regions would be allowed to reopen gyms and serve patrons in bars or restaurants, under certain restrictions. Some public health experts have come out against the new colour-coded system expressing concern that the threshold for tightening restrictions in the hardest hit areas is set too high.
- Italy is set to launch into its newest form of coronavirus restrictions as of Thursday. Prime Minister Giuseppe plans to impose a 10 PM to 5 AM curfew across the country until December 3rd. Along with the curfew, Italians in the highest risk zones will be told to stay within their city or town and will be allowed to leave only for specific business or health reasons. Stores deemed to be non-essential, as well as bars and restaurants would also be closed in high-risk zones.
- In Indonesia, a senior government minister announced on Wednesday the plans to inoculate nine million citizens with an experimental COVID-19 vaccine from China. The shot will come from Chinese drugmaker Sinovac Biotech and the vaccination drive is separate from Phase 3 clinical trials, also from Sinovac, which is happening in conjunction with Indonesia’s state-owned biotech firm Bio Farma. The government official said the inoculation plan would likely start in the third week of December.
- The Premier for New South Wales in Australia said via social media the borders between the country’s two most populous provinces will open soon. “On Monday, 23 November, the NSW/Victoria border will reopen. We will need to keep moving forward as we live with COVID-19. I have confidence that everyone will continue to work hard to keep everyone safe,” said Premier Gladys Berejiklian in a tweet. The border between New South Wales and Victoria has been closed since July when the second wave hit Victoria state and forced Melbourne into an almost four-month lockdown.
Covid-19 – Due Diligence And Asset Management
British Banks Denied Pandemic Loans to Over 150,000 Companies
Brief: British banks turned down more than 150,000 applications for government-guaranteed business loans during the Covid-19 outbreak in an effort to prevent fraud, according to the industry watchdog. The Financial Conduct Authority told lenders not to relax their checks on potential borrowers when they offered credit under the Coronavirus Business Interruption Loan and Bounce Back Loan programs, according to Chief Executive Officer Nikhil Rathi. “Our understanding is that approximately 14% of CBILS loans were denied because of concerns around diligence and 8% of BBLS loans upon first application,” Rathi told a virtual session with a U.K. parliament committee on Wednesday. The programs, intended to fund smaller companies, have received more than 1.6 million applications since their introduction in May. Bounce Back loans have proved most popular, with companies receiving about 40 billion pounds ($52 billion) so far, but some critics have pointed to loose eligibility criteria that left lenders open to potential fraud. The initiative was launched “at great speed” to meet the need for corporate funding after the country went into lockdown, said Rathi, who took over as head of the FCA in October. The regulator made it clear that “banks must maintain relevant systems” especially when taking on new customers, he said.
Investors Sell Out of European and UK Equity Funds as Second Wave Sweeps Continent
Brief: Investors sold UK and Europe-focused equity funds in October as governments battled to curb Covid-19 infections with another round of restrictions. Across Europe, a record 1.5 million new cases of the virus were registered last week, prompting Germany, France, and Belgium to declare nationwide lockdowns. Equity funds focused on UK were the worst hit, shedding GBP358 million of outflows over the month according to data from Calastone. The UK has also announced a new national lockdown, which has done further damage to investor sentiment, already suffering from the failure of negotiations with the EU to agree a trade deal. Income funds, which are disproportionately exposed to UK equities, also suffered their worst ever month as GBP763 million left the sector. Meanwhile, European equity funds suffered outflows of GBP69 million, to the benefit of funds focused on North America and Asia, which saw inflows. Data from Morningstar shows that European funds performed poorly in October, with Europe-focused funds from Robeco, Schroders, Janus Henderson, Fidelity, and J O Hambro all ranking among the 10 lowest returning funds for the month.
Working From Home Spurs Investment in Real Assets
Brief: Institutional investors are planning increased allocations to real assets over the next 12 months due to the lasting impact of Covid-19 on world economies, including the working-from-home trend, research has suggested. Nearly half of insurers and 37% of pension funds globally say they expect to increase investment in real asset strategies amidst ongoing uncertainty, according to the study by Aviva Investors. ‘Real estate long income’ was identified as the preferred asset class by over 50% of insurers and 45% of pension funds, while debt strategies were also favoured highly. The report also highlighted the increased efforts of investors to align their portfolios with net-zero emissions targets. Nearly 60% of insurers and 48% of pension funds are looking towards “energy-efficient real estate assets”, the report found. Meanwhile, the acceleration of the working from home trend by the pandemic is expected by many institutions to provide the “greatest opportunity” for real assets investing over the long-term. Mark Versey, chief investment officer of Aviva Investors’ real assets division, said: “Whilst Covid-19 clearly had an immediate and profound impact on the built environment, many investors have seen these changes as the acceleration of existing structural shifts.
A Unique Opportunity for Private Equity Firms
Brief: The private equity industry is currently navigating a number of challenges in addition to the Covid-19 pandemic, which the whole world is facing. As regulation and political will around environment, social and governance (ESG) factors grows, PE firms are coming under increased pressure to incorporate this approach into their investment strategies. These firms are also keeping a close eye on the progress of the Brexit negotiations to make sure to maintain their access to Europe. “Covid-19 has presented much uncertainty and many challenges to the global private equity industry and market perspectives are mixed. However, this uncertainty has offered some private equity firms, who are fortunate enough to have plenty of dry powder, or who may have recently completed large closings, a unique opportunity to invest in assets at interesting price points. “It also affords private equity firms the opportunity to be closer to their portfolio companies, invest in businesses suffering from the pandemic and demonstrate added value by putting the sizeable amounts of capital they have to work. It would not be surprising, once the economic impact of Covid-19 filters through, to see private equity taking a more active role in the debt markets and continuing a trend, which has been prevalent since the global financial crisis,” says Johan Terblanche, Managing Partner and head of the Luxembourg Funds & Investment Management team at the Maples Group. So, while markets have been hit by downturns and recessions in the past, the rapidly changing situation is also presenting challenges for private equity firms and private equity fund vehicles globally.
Adapting and Responding to Change
Brief: Uncertainty remains the order of the day as the world heads into a period of slow recovery which risks being scuppered by a variety of factors including the US elections, trade tensions and the prolonged impact of the Covid-19 pandemic. Financial services practitioners in Luxembourg, like their peers in other jurisdictions, have had to navigate this volatile environment while continuing to provide a seamless service to clients. “The crisis has been a strong accelerator of change by spotlighting our resilience, as well as our ability to adapt. While organisations are considering how to accommodate working from home to a greater extent, the reduction of face-to-face contact may in turn have a detrimental impact on collaboration, connectedness and productivity. To that end, the need for support in this profound cultural change should not be minimised,” details a report published by the Digital Banking and FinTech Innovation Cluster of the Luxembourg Bankers’ Association (ABBL) and KPMG Luxembourg. Although much in the world has obviously changed, ALFI chair Corinne Lamesch told delegates at the organisation’s virtual conference that following the initial Covid shock in February and March, total assets under management in Luxembourg rebounded to EUR4.6 trillion at the end of July, approaching the all-time peak set in January. “At least for now, Luxembourg’s role as the world’s leading cross-border fund centre remains unchallenged,” she said.
Fund Managers Flag Concerns About Proposed FCA Rules
Brief: Property fund managers have raised concerns over the City watchdog’s proposals to enforce a six-month redemption period, claiming the rules could reduce consumer choice and create problems for other parts of the market. Earlier this year the Financial Conduct Authority published a consultation paper floating rules which would require investors to give notice — potentially up to 180 days— before their investment is redeemed from an open-ended property fund. But some fund managers have raised red flags for how the rules would work in practice as the consultation comes to an end today (November 3). A spokesperson from Columbia Threadneedle said the asset manager did not support the FCA’s proposals, arguing the rules would limit investors’ access to such portfolios. The spokesperson said: “The proposed change would mean these funds become unavailable to retail investors, reducing customer choice and preventing access to an asset class that is an important risk and return diversifier and income-generator.
