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Our briefing for Wednesday October 28, 2020:
Oct 28, 2020 3:48:58 PM
- In the United States, Admiral Brett Giroir, who leads the government’s testing effort, says the country is at yet another critical point in the fight against the pandemic. With over 73,000 new cases reported on Tuesday, the new 7-day rolling average for COVID-19 cases is 71,832, a fresh new record and an increase of over 20% compared to a week ago, according to data from Johns Hopkins University. During an appearance on NBC Wednesday, Giroir emphasized that Americans, “can control the virus” by following public health measures such as social distancing, mask wearing, avoiding crowded gatherings and frequent washing of hands.
- The Bank of Canada lowered its predictions of economic growth for 2021, cautioning that the effects of the coronavirus pandemic will be long-lasting. The Bank of Canada projected the country’s GDP to expand 4.2% next year, down from the 5.1% they projected back in July. However, Canada’s central bank does believe 2020 won’t end as badly as originally thought thanks to a stronger performance than anticipated over the summer months. The drop in 2020’s GDP for Canada is expected to be at around 5.5%, which is better than the earlier 7.8% estimate. The Bank of Canada’s outlook though is taking two major factors into account: that widespread lockdowns won’t be utilized again and that a vaccine or effective treatment will be widely available by the middle of 2022.
- In the United Kingdom, new modeling from the government’s emergency scientific committee suggests Prime Minister’s Boris Johnson’s localized coronavirus lockdown approach will be redundant by mid-December. The reason being is the model suggests that the whole of England will likely require the toughest restrictions they have seen since the first initial lockdown back in the spring. The model is outlining more deaths than the first wave because while the peak will be lower, the cold winter months will allow the daily death toll to stay higher for longer. This is news Prime Minister Johnson definitely doesn’t need as he is struggling to find a balance between the demand of the scientists who wanted a “circuit breaker” shutdown and his Conservative party members who want to prioritize easing of rules to help the economy.
- Germany’s federal and state governments have agreed on Wednesday to shut down parts of the economy and toughen restrictions on social contact. The new regulations to come into effect as of Monday, will see all restaurants, bars and most public entertainment to be closed until the end of November. The German professional football league, along with other professional sports will be played, but without spectators. Schools, daycare centers, hair salons and retailers can remain open. Chancellor Angela Merkel will meet with state leaders in two weeks for a reassessment in order to evaluate the efficiency of the measures and make any necessary adjustments.
- Increasingly worried by the spread of the virus over continental Europe, the European Commission has unveiled plans to improve EU-wide coronavirus testing and tracing. The Commission plans to extend the linked network of contract tracing apps launched in Germany, Italy and Ireland last week to as many of the other 24 nation member bloc as possible. The Commission also proposed that member states should co-ordinate strategies for rapid testing, vaccination and travel around the bloc.
- In Australia some good news out of Melbourne as the city emerges from its 112-day lockdown on Wednesday. The lockdown was one of the strictest the world has seen – enforcing home confinement, travel restrictions and closures of stores and restaurants. At its peak in July, Victoria state was experiencing 700 cases a day, the majority of those in Melbourne. Over the weekend, there were zero cases noted. State Premier Daniel Andrews praised the six million residents of the region: “Fundamentally, this belongs to every single Victorian who has followed the rules, stayed the course, worked with me and my team, to bring this second wave to an end.”
Covid-19 – Due Diligence And Asset Management
Blackstone Third-Quarter Earnings up on Strong Asset Sales
Brief: Blackstone Group LP said on Wednesday its third-quarter distributable earnings rose 9% year-on-year, as the world’s largest manager of alternative assets such as private equity and real estate took advantage of a rise in corporate valuations to cash out on some of its leverage buyout investments. Distributable earnings - cash available for paying dividends to shareholders - totaled $772 million, up from $710 million a year earlier. This translated into distributable earnings per share of 63 cents, surpassing analysts’ average estimate of 57 cents, according to data compiled by Refinitiv. Blackstone said its private equity portfolio appreciated 12.2% in the quarter, compared with an 8.5% rise in the benchmark S&P 500 stock index over the same period. Opportunistic and core real estate funds rose 6.4% and 3.5% respectively. Blackstone’s shares were down 2.9% in afternoon trading, in line with the broader market.
Europe is Leading the Way Down in Markets Gripped by Covid Fears
Brief: Europe’s race to contain the pandemic is raising alarm bells across financial markets. Moves from stocks to the euro and Italian bonds show investors are grappling with the economic fallout from lockdown restrictions that are now some of the toughest in the world. While markets globally have taken a dip this week, the hit was most severe in Europe. The Stoxx Europe 600 Index sank as much as 2.7% on Wednesday, reaching the lowest level since May. In contrast, U.S. equities are only at a three-week low and Asian markets have barely budged. “A second lockdown could well be the death knell for a lot of businesses who just about survived the first lockdown,” said Michael Hewson, chief market analyst at CMC Markets. The selloff on Wednesday was sparked by news that German Chancellor Angela Merkel will propose closing bars, restaurants and leisure facilities for a month. France is also expected to announce new curbs after coronavirus deaths reached the highest since April. In Italy, Prime Minister Giuseppe Conte approved a plan to limit opening hours for restaurants and shut gyms. In Spain, the government has imposed a national curfew.
Cash Builds for Property Debt Funds with Crisis Delayed for Now
Brief: Real estate debt investors are stockpiling cash, searching for opportunities to lend to commercial-property owners hurt by the pandemic. Property debt funds, including at Blackstone Group Inc., raised $14.1 billion from April through September, compared with $15.7 billion a year earlier, according to research firm Preqin Ltd. Yet the expected flood of deals has so far been just a trickle. Now there are signs of a thaw. On one side, competition is building to put that cash to work, motivating some lenders to take on higher risks. On the other, borrowers are growing desperate as loan extensions start to expire on malls, hotels and even some offices that are still struggling as Covid-19 continues to ravage the U.S. economy. “If you’re willing to do it, you’ll get a lot of deals, but you have to be willing to play in those sectors and take some risks,” said Mark Fogel, chief executive officer of Acres Capital LLC, a New York-based commercial property lender. He said he’s getting almost twice as many calls from borrowers looking to refinance their debt or get bridge loans to stay afloat than just a few months ago.
Consolidation is Coming for the Asset Management Industry
Brief: Fee pressures, growing costs, and a desire for scale are signs that the fragmented asset management industry is ripe for more mergers and acquisitions, according to Morgan Stanley. The top 10 asset management companies hold just a 35 percent share of the $90 trillion market, Morgan Stanley said in a research report dated October 25. The only industry more fragmented, the bank said, is the capital goods sector. Although strong financial markets have helped assets under management swell, this growth has masked problems like outflows, fee pressures, and lower revenue growth, the report said. The market downturn and investor exodus in March revealed some of these problems, but after the market bounced back, they stabilized. Still, Morgan Stanley expects that the market crisis will accelerate these existing trends, motivating some asset managers to make M&A decisions more quickly.
Japanese Insurers Look to Domestic Bonds as Yield Gaps with Foreign Peers Narrow
Brief: Japanese life insurers, among country’s largest institutional investors, are returning to the domestic bond market after many years of forays into foreign debt as the yield gaps between them have shrunk following the COVID-19 pandemic. Many of them plan to increase their holdings of domestic fixed income assets while planning to reduce those of foreign debt in the second half of the current financial year to March, officials said at news conferences or in interviews with Reuters. “We have long been investing primarily in U.S. dollar bonds but now that their yields have fallen to so low, we are not in a position to buy them aggressively anymore,” said Koichi Nakano, general manager for investment planning at Meiji Yasuda Life. Foreign bonds have been a major source of income for Japanese institutional investors who had been deprived of interest income at home due to the Bank of Japan’s hyper-easy monetary policy. The coronavirus outbreak and subsequent monetary easing around the world to shore up battered economies, however, knocked down bond yields in the United States and elsewhere, shrinking the yield gaps between Japan and the rest of the world.
These Allocators Say They Are Sticking With Value Managers
Brief: Value managers have underperformed for over a decade — a trend that has only intensified during the coronavirus pandemic and run up to the U.S. presidential election. But they can count on at least one group of asset owners to stay committed to value strategies: private-sector pensions. Corporate and health care retirement plan investors surveyed by consulting firm NEPC have largely reported that they would maintain their current exposures to value stocks. The poll took place in September, a month when the Standard & Poor’s 500 value index fell almost 4 percent. Just under three-quarters of corporate pension investors said they would not reduce or increase allocations to value managers, as did 80 percent of healthcare plan respondents. Of the 19 percent of investors who were considering changes to their value exposure, just 7 percent planned on cutting allocations to value managers. Nearly twice as many — 12 percent — wanted to rebalance from growth managers into value strategies.
