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Coronavirus Diligence Briefing

Our briefing for Wednesday September 30, 2020:

Sep 30, 2020 3:19:42 PM

  • In the United States, seven former commissioners of the US Food and Drug Administration (FDA) wrote a commentary for the Washington Post condemning the White House’s pressure on the agency they once were the head of. “The White House has said it might try to influence the scientific standards for vaccine approval put forward by the FDA or block the agency from issuing further written guidance on its criteria for judging the safety and benefits of a potential COVID-19 vaccine,” they wrote. The former commissioners, who had served under both Democratic and Republican administrations, said actions like these were undermining close to 115 years of work the FDA has put in to build public trust. The group of seven said if people doubt the safety of any COVID-19 vaccine, they won’t get immunized.
  • With 625 new COVID-19 cases confirmed on Wednesday, Canadian health authorities are saying the country’s most populous province situation is about to get worse, before it gets better. The new forecasting from Ontario’s provincial government say the region could see 1,000 cases per day during the first few weeks of October. The number of new cases are doubling every 10 to 12 days, which will account for the “remarkably high surge” in the coming weeks. Health officials will wait to see if measures such as closing strip clubs and limiting hours of operation for bars and restaurants will help limit the spread of the virus before possibly implementing any further restrictions.
  • In a televised address on Wednesday, United Kingdom Prime Minister Boris Johnson, flanked by his chief medical and scientific advisers implored its citizens to observe social-distancing rules. The plea was made on a day where the UK confirmed over 7,100 new cases and Johnson said he would “not hesitate” to enact further restrictions to slow the spread of COVID-19 in the country. Prime Minister Johnson’s comments are seen as a show of defiance to Conservative MPs who are becoming increasingly worried about the economic damage caused by further restrictions. 
  • Spain and its government are planning new national coronavirus rules that will impose tougher restrictions on country hotspots, such as Madrid. The government plans to reintroduce rules restricting people’s movements and gatherings in urban areas with high levels of infections and hospitalizations. The new controls come just over three months after Spain emerged from a tough three-month lockdown. As of Tuesday night, the health ministry confirmed 10,000 active cases in Spain, with a third of them in Madrid, the country’s capital city. 
  • A Bloomberg article notes India’s recent explosion in COVID-19 cases is thanks in large part to super-spreaders. The conclusion is based on a study conducted by United States researchers and published in the journal “Science”. A group of patients that included about 8% of India’s confirmed cases later led to almost two-thirds of its total infections. The research was based on tracing more than three million contacts in the southern states of Andhra Pradesh and Tamil Nadu through August 1st. Researchers said COVID-19 transmitters tended to spread the virus during prolonged close contact on buses and other forms of transportation. In settings such as these, there was a concerning 79% chance of an infection occurring.
  • In Japan, the government announced a plan on Wednesday to offer vacations against COVID-19 free of charge to all of its citizens. The government is expected to spend ¥670 billion up until June 2021 to secure sufficient supplies of a COVID-19 vaccine, whether it be domestically, or abroad. The government has already signed basic agreements with U.S. drugmaker Pfizer and British drugmaker AstraZeneca PLC to secure vaccines when they become available. On top of the funds to purchase COVID-19 vaccines, Japan will also ensure local governments have the funding to provide vaccinations to their residents.

Covid-19 – Due Diligence And Asset Management

Hedge Funds May Escape Fed Blame Over Market Mayhem in March

Brief: Hedge funds can rest easier for now. Federal Reserve Vice Chairman for Supervision Randal Quarles said he doesn’t think the investment firms deserve the lion’s share of blame for tumult that swept financial markets in March -- contrasting statements from other policy makers that the funds’ overly leveraged Treasury trades were a crucial factor. “Our view is that was not a significant source of the pressure that we were seeing in the Treasury market,” Quarles, who also heads the Financial Stability Board of global regulators, said Tuesday during a University of Maryland webinar. Still, he added that market watchdogs lack the “granular data” to fully substantiate that assessment. The comments are significant because Quarles has been leading an effort by global central banks to examine whether hedge funds and other non-bank financial firms should face more oversight. Hedge funds have feared that regulators would clamp down on them since June when the Bank for International Settlements called the firms’ rapid unwinding of so-called basis trades “a key driver” of the March turmoil. The transactions involve buying Treasury securities using leverage via repurchase pacts while simultaneously selling futures contracts.

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Morgan Stanley Said to Start Search for New London Headquarters

Brief: Morgan Stanley has begun looking for a major new London headquarters, countering fears the coronavirus crisis will crush demand for office space in the world’s financial capitals. The U.S. lender has contacted a handful of developers as it assesses options for a potential move from its current premises in Canary Wharf, people with knowledge of the process said. The bank wants at least 600,000 square feet (about 55,740 square meters) of space and will likely focus on options in the east London financial district as well as developments in the City of London, the people said, asking not to be identified as the process is private. The search is at an early stage and is unlikely to result in a deal until late next year at the earliest, with no certainty a move will take place at all, the people added. A spokesman for Morgan Stanley declined to comment. Morgan Stanley would become the latest in a series of major investment banks to move to new premises in London as firms seek modern, efficient buildings that can help attract and retain staff, and keep a lid on costs. While the search for a potential new building comes several years before the bank’s current leases expire, there’s a scarcity of large new development plots in the capital, and putting up a building on such a scale would take years. The lender currently occupies about 800,000 square feet of space across two buildings in Canary Wharf. One option being considered is to move into a single large new premises, bringing all of its London staff together. 

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M&A Spikes in Record Third Quarter as Boards go on Pandemic Deal Spree

Brief: Mergers and acquisitions came back with a bang in the third quarter as executives rushed to revisit deals left on hold at the height of the coronavirus pandemic and boardrooms regained confidence after a roller-coaster year. A deal frenzy in September led to a record third quarter with more than $1 trillion worth of transactions around the world, mostly focused on coronavirus-resilient sectors such as technology and healthcare, according to Refinitiv data. The third-quarter spike, however, failed to take up all the slack after a lacklustre start to the year. M&A deals overall were down 21% at $2.2 trillion in the first nine months of 2020, with U.S. transactions coming in at $800 billion, a 43% slump from the same period last year. "The way out of this crisis is through M&A and we have started to have really engaging conversations with CEOs and boards around strategic positioning post-COVID," said Alison Harding-Jones, Citigroup's C.N head of M&A for Europe, the Middle East and Africa (EMEA) and vice chairman of EMEA banking, capital markets and advisory.

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Most Executives Think Covid-19 Changed Their Companies Forever

Brief: Many of the changes to global business triggered by Covid-19 will prove lasting. A survey released Wednesday by the IBM Institute of Business Value identified a “culture shift” at corporations worldwide, and concluded that “executives must accept that pandemic-induced changes in strategy, management, operations and budgetary priorities are here to stay.” One big dividend from this culture shift: Two-thirds of respondents said they’ve been able to complete initiatives that encountered resistance in the pre-Covid work world. The survey of almost 3,500 executives in 22 countries found cash flow along with cost and liquidity management among the highest priorities through 2022. About 60% said they were accelerating the digital transformation of their organizations. Three-quarters plan on building more robust IT capabilities. The digital transformation is expected to increase the actual number of jobs, “but the skills required for those jobs are going to be very different,” said Jesus Mantas, senior managing partner of IBM Services. That means potentially millions of workers who can’t transition to the new world of work could be left behind. In a move away from the recent practice of just-in-time delivery, 40% of executives highlighted the need for spare capacity in their supply-chains.

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Sarasin & Partners Poised for Further Growth After Weathering Covid Storm

Brief: Sarasin & Partners, a global thematic investment manager which invests responsibly on behalf of charities, private clients and institutions, has seen its assets under management (AuM) rise by 5.4 per cent (from GBP14.7 billion at the end of 2019 to GBP15.5 billion as at 9 September, 2020) over the course of a highly volatile 2020. This follows a period of significant growth for the Sarasin Group in the prior year, when a GBP338 million net investment inflow, coupled with strong market performance, which helped grow Sarasin & Partners’ AuM by 19 per cent over the course of 2019. Managing partner Guy Matthews attributes the robust performance and AuM growth to its strong foundations, solidified by the completion of a four-year restructuring and reinvestment programme and the maintenance of a commitment to continue investing in people, processes and technology. “While much of our immediate focus has turned to the pandemic and addressing operational continuity and client service excellence, we want to take this success and build it out even further,” says Matthews. A primary factor behind the AuM growth has been strong investment performance for its thematic global equity and multi-asset capability – successfully enhanced under head of global equities Jeremy Thomas and head of multi-asset Phil Collins respectively.  Sarasin’s global thematic approach to investing, which has underpinned the group’s equity selection process since 1996, along with its commitment to stewardship, has been further refined to both capitalise on long-term secular megatrends shaping the global economy such as ageing, digitalisation, automation, evolving consumption and climate change, and all the while integrating responsible stewardship principles such as embedded ESG analysis and active ownership.

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Hedge Fund Launches at “Historically Low” Levels Despite Q2 Recovery, but Liquidations Ease Following Covid Crash

Brief: The rate of new hedge fund launches grew between April and June following the coronavirus-fuelled first quarter slump, as hedge fund performance recovered – but the number of new roll-outs over the past 12 months remains “historically low”, Hedge Fund Research says. New hedge fund launches totalled an estimated 129 in the second quarter. That number was a sharp increase on Q1 which proved the highest quarterly launch total since 153 funds were rolled out in Q2 2019, according to HFR’s latest Market Microstructure Report. But the number of estimated fund launches during the preceding four quarters reached just 404 – an “historically low” figure - stemming in part to the Covid-19 pandemic which drove down Q1’s launch total. At the same time, the industry appears to be recovering from a spike in hedge fund liquidations, which reached a four-year high in the three-months between January and March this year. An estimated 178 funds liquidated in Q2 2020, down from 304 liquidations the previous quarter. But just as virus volatility has driven fund launches to fresh lows, fund liquidations over the past four quarters are at an “historically high” 821.

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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