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Covid-19 Diligence Briefing

Our briefing for Wednesday January 6, 2021:

  • In the United States, two Senate seat run-offs in the state of Georgia appear to be going in favour of the Democrats. As long as both of these results stay the same, the Democrats would have control of both the House of Representatives and the Senate. Media are already reporting this could open up the possibility of passing the $2,000 checks for Americans in the latest coronavirus stimulus relief, which was suggested by President Donald Trump, but met with opposition by his fellow Republicans. Both Democratic Senators in Georgia ran on the premise of passing the $2,000 checks once President Elect Joe Biden is sworn in as America’s 46th leader on January 20th. 
  • In Canada, the CBC is reporting new air traveller restrictions set to come into effect on Thursday are tighter than expected. Speaking on the condition of anonymity because the regulations weren’t yet finalized, airline industry officials received briefings from government officials on Tuesday. One of the items to come out of the meeting was that airlines were not expected to be given the power to exercise their own discretion and allow travellers to board planes to Canada if they are unable to get a negative COVID-19 test abroad. The only exception is if the standard PCR test (the standard nose swab test) is not widely available to travellers in the area. CBC says Canada’s consular services around the world are still determining the availability of testing in different regions, which could leave some stranded if they can’t provide the negative PCR test.
  • The United Kingdom plans on vaccinating 13 million people against the coronavirus by the middle of next month in what a government health spokesperson said would be “Herculean” but can be achieved. “It’s a stretching target no doubt. Very stretching target,” said Nadhim Zahawi, the minister responsible for the program’s deployment. However, Zahawi went on to say with the plan put together by the National Health Service (NHS), they can deliver. Since December 8th, the NHS has administered more than 1.3 million COVID-19 vaccine doses with one-in-four adults over the age of 80 receiving at least their first shot. 
  • Germany has urged patience among its citizens as the government has received some heat from the rollout of the COVID-19 vaccine. Chancellor Angela Merkel had a contentious meeting with state leaders on Tuesday and agreed to lengthen controversial limits on movement, private gatherings and hard lockdown measures until at least January 31st. During the meeting, Chancellor Merkel defended the vaccination strategy, saying more supply is coming soon.
  • The European Union (EU) has approved Moderna’s COVID-19 vaccine, making it the second vaccination authorized for the European bloc of countries. Under a contract the EU has with the American biotech firm, they have secured up to 160 million doses of the vaccine, which due to the two-dose process, will vaccinate 80 million people. The European Commission says Moderna has promised to deliver all of their doses between now and September. The EU has 448 million citizens and have noted they secured up to two billion of potential COVID-19 vaccines.
  • The Philippines is negotiating with seven vaccine manufacturers to procure at least 148 million COVID-19 vaccinations, which would account for close to two-thirds of their population. The news came from Carlito Galvez, a former military general who now has the unenviable task of leading the country’s vaccination strategy against the coronavirus. Galvez says the government hopes to close deals with Novamax, Moderna, AstraZeneca, Pfizer, Johnson & Johnson, Sinovac Biotech and the Gamaleya Institute this month. Although, availability of these vaccines will be hard to come by as the competition throughout the world is fierce.

Covid-19 – Due Diligence And Asset Management

Billionaire Christopher Hohn Hedge Fund Recoups Pandemic Losses

Brief: Billionaire activist investor Christopher Hohn’s hedge fund has racked up a 12th straight year of gains, overcoming record losses at the onset of the pandemic. The Children’s Investment Fund made about 14% in 2020 as its concentrated stock portfolio rose amid surging markets, according to people with knowledge of the details. That took the fund’s assets to about $35 billion, a separate person said, asking not to be identified because the information is private. Hohn hasn’t lost money in a year since the last financial crisis. Last year, the fund recovered from losing 19% in March, the most in a month since it started trading in 2004, as the coronavirus roiled global markets. Bets on firms such as Microsoft Corp., Canadian Pacific Railway Ltd. and Charter Communications Inc. contributed to the fund’s 2020 gains. Still, while Hohn outperformed activist hedge funds that were up an average 6.2% through November, he fell short of the 18.4% gain in the S&P 500 Index. A spokesman for the London-based investment firm, which manages about $45 billion, declined to comment on the returns. Hohn is famous for building large stakes in companies and pushing for change to boost their share prices. He runs a long-biased portfolio spread over a small number of stocks, making it susceptible to sharp drops in values. The strategy has worked for his investors over the years, with the fund losing money only in 2008 when it dropped 43%.

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New Listings on TISE up 27 Per Cent in 2020, Despite COVID-19

Brief : The International Stock Exchange (TISE) listed 831 securities during 2020 against the backdrop of the coronavirus (Covid-19) global pandemic. This is the second highest annual total of new listings since the inception of the Exchange – eclipsed only by a bumper 2018 – and represents a 27 per cent increase on 2019. It means that there was a total of 3,162 securities listed on TISE at the end of December 2020, which is a rise of 6 per cent year on year. Cees Vermaas, CEO of The International Stock Exchange Group, says: “It is really pleasing that our business flows have held up so well this year, despite the impact of Covid-19 across the world. What we have seen is that while Covid-19 may have disrupted or slowed some market activity, it has also generated other new listings business as companies refinance, whether opportunistically or essentially, in the face of the changing economic conditions.” During 2020, TISE has maintained its position as a leader in the European high yield bond market. There were 124 high yield securities issued by companies such as telecommunications firms Altice and eircom, luxury car manufacturer Aston Martin, LEGOLAND owners Merlin Entertainments, transport operator Stena and US digital content platform and producer Netflix, which were listed on TISE during the year. This also included three of the largest 10 transactions in the third quarter of the year: the largest being the Liberty Global and Telefónica financing vehicle for the merger of Virgin Media and O2; the UK’s largest pub chain, Stonegate Pubs; and debut issuer First Quantum Minerals. Overall, the total number of high yield bonds listed on TISE reached 291 at the end of December 2020.

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BlackRock Bucks New York Departure Trend With Plans to Stay Put

Brief: As a growing number of Wall Street firms plan to move New York employees to cheaper U.S. hubs and even let rainmakers work from faraway homes, BlackRock Inc. is planting its feet firmly in Manhattan. Executives at the world’s largest asset manager have privately urged employees not to get too attached to doing their jobs remotely full-time, while it awaits a move to a new office tower in New York, where it’s based. With the pandemic surging across the U.S., the company extended the work-from-home period through this year’s first quarter. But that won’t be the new normal. “The office will remain our primary work location longer-term,” senior executives including Chief Operating Officer Rob Goldstein wrote in one memo sent to staff in November. “Employees will have increased flexibility to work remotely part-time, but full-time remote work will be done very selectively and with approval.” Returning to offices on a larger scale will take time, they wrote, and the company is working on making regular Covid-19 testing available to “as many people as practicable.” BlackRock still plans to move its New York staff into 50 Hudson Yards, a new skyscraper on Manhattan’s west side, in late 2022 or early 2023, a spokesman confirmed this week. The relocation, first announced in 2016, came with a lucrative incentive: BlackRock secured $25 million in state tax credits to create hundreds of new jobs and keep staff there.

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Hedge Funds Turning Doubtful on Staying Power of Recovery Trade

Brief: Once believers, professional investors are getting antsy about stock bets tied to a smooth reopening of the American economy. Hedge funds that make both bullish and bearish equity bets spent Monday -- the worst opening day in five years -- leaning back into what has come to be known as the stay-at-home trade, buying lots of online tech companies optimized for lockdown commerce. Their preferences showed a shift away from the travel-leisure-retail group they’d favored in the second half of 2020, data compiled by Goldman Sachs’s prime brokerage show. It happened as virus angst mounted, with infections surging and vaccine distribution short of hopes. “When we think of what could possibly derail these lofty expectations of a second-half economic boom, it has to do with the race between the vaccines and the virus,” said David Rosenberg, founder of Rosenberg Research & Associates Inc. “Nobody said it’s not a big bull market. It’s just one premised on cheap money rather than solid fundamentals. Hence the speculative fervor.” When the S&P 500 dropped 1.5% Monday, hedge-fund clients tracked by Goldman reduced short positions in companies that cater to at-home demand, such as internet and software shares, with a basket of such stocks seeing the biggest net buying in three weeks. Meanwhile, reopening companies, like airlines and cruise operators, experienced the largest net selling in two weeks.

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U.S. Private Payrolls Post First Decline in Eight Months as COVID-19 Cases Soar

Brief: U.S. private companies shed workers in December for the first time in eight months as out-of-control COVID-19 infections unleashed a fresh wave of business restrictions, setting the tone for what is likely to be a brutal winter for the economy. The ADP National Employment Report on Wednesday showed job losses across all industries last month as the coronavirus outbreak kept many consumers and workers at home. While the report underscored the magnitude of the crisis, the economy was unlikely to slide back into recession, thanks to additional fiscal stimulus approved in late December. The ADP report added to slumping consumer spending and persistently high layoffs in suggesting that the economy lost significant momentum at the end of 2020. “America’s great jobs machine ran into a wall of rising coronavirus cases and state lockdowns which puts the entire economic recovery from recession at risk,” said Chris Rupkey, chief economist at MUFG in New York. “The heart of every recession is job losses and right now the decline in jobs at year end is hinting that the dark days of the labor market last spring have returned.” Private payrolls decreased by 123,000 jobs last month, the first decline since April, after increasing 304,000 in November. Economists polled by Reuters had forecast private payrolls would rise by 88,000 in December.

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World’s Super-Rich Families Want More Hedge Funds, Survey Finds

Brief: Family offices are heading back to hedge funds. More than a third of 185 investment firms for wealthy clans plan to boost allocations amid the economic upheaval caused by the Covid-19 pandemic, according to survey released Wednesday by BlackRock Inc. and Juniper Place, a London-based firm that helps asset managers raise capital. Family offices and other investors soured on hedge funds in recent years, bemoaning high fees and lackluster returns. But the health crisis has given some of those managers a boost, particularly stock-pickers who benefited from aggressive bets on technology stocks and copious economic stimulus that drove equities to new heights. “Recent market turmoil and the expectation of sustained volatility in the medium term has re-invigorated hedge fund appeal,” New York-based BlackRock and Juniper Place said in their report. Family offices have proliferated in recent years along with a surge in personal wealth derived from tech, finance and real estate. Some of the largest include Bill Gates’s Cascade Investment and Sergey Brin’s Bayshore Global Management. There are now more than 10,000 single-family offices globally, according to accounting firm EY. Single family offices, which have just one client, had average assets of $802 million, according to research published in 2019 by Campden Wealth and UBS Group AG. More than three-quarters of family offices said they preferred long-short equity hedge funds, according to research BlackRock conducted in July and August. Such funds were the best performing broad strategy last year, gaining about 4% through November on an asset-weighted basis, according to data from Hedge Fund Research Inc.

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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.

Our briefing for Tuesday January 5, 2021:

  • In the United States, CNN is reporting on a study that says COVID-19 infections may have been four times higher than the cases reported. The study was published in the medical journal JAMA Network Open on Tuesday. Researchers tested randomly selected blood samples for the presence of COVID-19 antibodies in a series of surveys conducted in 10 states, as well as one nationwide. As of November 15th, about 10.8 million cases were reported to the US Centers for Disease Control and Prevention, but the study suggests the actual number of infections at that time was closer to 46.9 million. The study also suggests that approximately 35% of COVID-19 deaths may not be reported.

  • In Canada, the leaders of Air Canada, WestJet, Air Transat and Sunwing have sent a letter to Transport Minister Marc Garneau to delay a new COVID-19 testing strategy for travellers for at least two weeks. As of right now, starting this Thursday, travellers five years of age or older must receive a negative result from the standard nose swab test within 72 hours of boarding a flight to Canada. The major airlines, along with two major trade associations said the timeline for implementing the new testing protocol isn’t feasible and should be pushed back to January 18th. Elsewhere in the country, Alberta’s Premier Jason Kenny’s response to his MLAs travelling abroad during the holidays was not enough to ease the concerns of the public, so he has now either demoted or in the case of his Chief of Staff, accepted their resignation. Premier Kenney originally said there would be no punishment for those elected officials who travelled outside of the country during the last few weeks. 

  • With the United Kingdom into their third lockdown and heading into a double-dip recession, Chancellor Rishi Sunak announced 6.2 billion USD of emergency support to help UK businesses. The retail, hospitality and leisure businesses will be entitled to one-off grants as much as 9,000 pounds to help with the crunch until the spring. The extra funds are on top of the 3,000 pounds per month businesses have received for shutting their doors because of the coronavirus restrictions. Chancellor Sunak said the following via a video message on Twitter: “This will help businesses to get through the months ahead – and crucially it will help sustain jobs, so workers can be ready to return when they are able to reopen.” Chancellor Sunak went on to say the budget in early March will set out the next stage in their economic response. 

  • The United Arab Emirates (UAE) have administered more than 826,000 doses of the COVID-19 vaccines they have been provided with, which accounts for 8% of its population. UAE has approved the Pfizer/BioNTech vaccine, as well as one by Sinopharm unit China National Biotec Group. With Israel taking the lead in vaccinating about 15% of its population since December 20th, the UAE plans the lofty goal of vaccinating 70 to 80% of its population by April or May.

  • In Australia, the country’s most populous state – New South Wales – has called on residents in three of its cities to be tested for COVID-19 and isolate. The concerns are that a Sydney cluster may have spread to regional areas after a visitor from the city tested positive. The Australian cities told to get tested are Orange, Broken Hill and Nyngan. The state of New South Wales has been effectively isolated from the rest of the country after other states and territories closed borders or imposed 14-day mandatory quarantine rules.

  • The World Health Organization (WHO) is said to be “very disappointed” that China has not authorized entry of their inspectors to Wuhan to examine the origins of the coronavirus pandemic. The WHO were set to go in this month to examine the root cause but learned on Tuesday that Chinese officials have not yet finalized the necessary permissions for the team’s arrival in the country. The United States have been critical of the handling of the coronavirus outbreak since the beginning, accusing China of covering up the extent of how bad the outbreak was and criticizing the WHO for allowing Chinese scientists to do the first phase of preliminary research into the cause of the coronavirus pandemic in Wuhan.

Covid-19 – Due Diligence And Asset Management

GMO’s Jeremy Grantham Warns: The Stock Market is in a ‘Fully-Fledged Epic Bubble’

Brief: "The long, long bull market since 2009 has finally matured into a fully-fledged epic bubble,” says GMO’s Jeremy Grantham. “Featuring extreme overvaluation, explosive price increases, frenzied issuance, and hysterically speculative investor behavior, I believe this event will be recorded as one of the great bubbles of financial history,” wrote the investor. He compares this period the South Sea bubble, the 1929 market crash, and the dot-com boom of 2000. “These great bubbles are where fortunes are made and lost – and where investors truly prove their mettle. For positioning a portfolio to avoid the worst pain of a major bubble breaking is likely the most difficult part,” he wrote. He warns the bubble will burst in due time, “no matter how hard the Fed tries to support it, with consequent damaging effects on the economy and on portfolios.” The markets had a wild ride in 2020, briefly going into a bear market after COVID-19 lockdowns were set in place. Soon after they recovered as the Federal Reserve made unprecedented moves to support the economy, and Congress passed a stimulus bill. “I am not at all surprised that since the summer the market has advanced at an accelerating rate and with increasing speculative excesses,” wrote Grantham.

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Solomon Sees Vaccine Bringing Goldman Staff Back by End of Year

Brief : Goldman Sachs Group Inc. Chief Executive Officer David Solomon said he expects to have all his employees back at their offices by the end of the year as the vaccine rollout ramps up. “The big focus right now is we’ve got to get people vaccinated -- we’ve got to get to the other side,” Solomon said in a Bloomberg Television interview Tuesday. “I certainly would expect a lot of Goldman Sachs employees back in full by the end of the year. We will get through this, and I’m really hopeful that over the course of the next six months we see a real improvement.” The Goldman CEO said he’s encouraged by the amount of vaccine production, but flexible, efficient ways need to be found to get shots distributed, which he believes will be the biggest challenge facing President-elect Joe Biden’s administration. In addition to government actions, the private sector can play a role in speeding up vaccinations, he said. “There’s still work to be done,” he said. “And once we deal with the vaccine and the virus, and people feel safe, we’re still going to have to deal with the economic consequence of the shutdowns and the impact on our economy that this pandemic’s had.”

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Pandemic-Spurred Policy “Revolution” Will Continue to Drive Asset Allocations in 2021, says BlackRock

Brief: The world’s largest asset manager, BlackRock, has predicted that the “revolution” in monetary and fiscal policy spurred by the Covid-19 pandemic will dampen government bond real yields in 2021. The asset manager favours inflation-linked bonds, as well as risk assets such as equities and high-yield credit. Central banks across the world responded to the coronavirus crisis last spring by lowering interest rates and buying bonds, totalling 190 rate cuts and USD1.3 billion spent every hour since March 2020 on asset purchases. Interest rates are expected to enter an era of “lower for longer”, despite the potential for rising inflation as vaccination programmes are rolled out and the global economy continues its recovery in 2021. BlackRock Investment Institute writes in a recent market note: “A key takeaway is how swiftly macro policies can evolve and the lasting impact this can have on market dynamics. The policy revolution that started in 2020 is still a key driver of our investment views for this year.” The Federal Reserve has already outlined plans to allow US inflation to exceed the 2 per cent target temporarily, without hiking rates, in a new monetary policy framework.

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Bill Ackman’s Billion-Dollar Year

Brief: No one in the investment world appears to have mastered the tumultuous pandemic year as well as Bill Ackman, who banked more than $1 billion in 2020. Ackman’s billion-dollar pay day is based on the gains of the shares he owns of Pershing Square Holdings — his publicly traded hedge fund — as well as estimates of performance fees and a few private investments. The 54-year-old hedge fund manager declined to comment on his spectacular year, saying he did not want to “gloat.” “Happy New Year,” he added, on the record. Pershing Square’s publicly-traded fund, now its largest, gained a net 70.2 percent in 2020, a record for the firm and multiples of the returns of the broader market and other hedge fund legends, many of whom nursed steep losses until markets began to recover from their March swoon.  Ackman owns 45 million shares, or 23 percent, of that fund, earning him $720 million on the gain in the stock alone. It gained 86 percent, including dividends, for the year. But he's been uncharacteristically shy about his winnings. “It’s hard to talk about success when a lot of people are suffering, and many more have died,” Ackman told investors in a recent call.

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Hedge Fund Raise Mining Shorts as Vaccines Seen Tamping Gold Gains

Brief: Hedge funds increased bets against major gold miners, filings reviewed by Reuters showed, as COVID-19 vaccines weakened expectations for the yellow metal after a year of record gains. Gold prices have dipped from last year’s record highs above US$2,000 per ounce as vaccines deployed against the coronavirus encouraged investment in assets that perform well during periods of economic growth. “While we are by no means out of the woods in our view, the light at the end of the tunnel means that gold markets should begin to see an unwind of the trends that became quite exaggerated over the course of 2020,” Royal Bank of Canada analysts said last month. The bank cut its 2021 forecast for gold to US$1,810 per ounce from US$1,893. Short trades as a percentage of total traded volume for Barrick Gold rose to 24.8 per cent for the second half of last month, from approximately 14.9 per cent for the first half of December, according to filings reviewed by Reuters. Newmont Corp. saw an increase to 11.4 per cent, from 8.8 per cent, over the same period, while trades in Kinross Gold rose to 20.6 per cent, from 18.2 per cent, according to the data.

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FE Survey: Covid to Accelerate Restructuring of Australia’s Pensions Industry

Brief: Testing financial conditions during 2020 have added to the pressure on Australia’s superannuation industry to deliver better investment outcomes and greater cost efficiency, according to Funds Global Asia’s 2020 Australia survey conducted in partnership with Calastone. Respondents predict that this will accelerate mergers between superannuation funds, while placing fresh demands on fund providers to offer wider product choice to scheme members. The Australian pension fund, or “superannuation”, sector, has been under scrutiny from financial regulators over the past four years as part of a far-reaching review of pensions and wealth management provision. The Australian Royal Commission on Misconduct in the Banking, Superannuation and Financial Services was established in 2017 to investigate misconduct and poor standards in the financial services industry. Publishing its findings in February 2019, the Commission identified “cultural failings” in the superannuation, banking and wealth management sectors and highlighted a need to reform governance, fee structures and remuneration policies which often worked to the “financial detriment” of scheme members.

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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.

Our briefing for Monday January 4, 2021:

  • In the United Kingdom, Prime Minister Boris Johnson announced another coronavirus lockdown via a televised address Monday evening. Everyone in England must stay at home, except for permitted reasons starting midnight Tuesday. The permitted reasons are similar to the first lockdown in March 2020, so essential medical needs, food shopping, exercise and work for those who can’t do so from home. On Monday, the UK recorded more than 50,000 new COVID-19 cases for the 7th day in a row.

  • In the United States, Operation Warp Speed is not living up to its moniker. According to data from the U.S. Centers for Disease Control and Prevention (CDC), the federal government has distributed more than 15 million doses to states and territories. However, less than a third (4.5 million) have actually been administered so far. There were repeated promises of 20 million Americans being vaccinated by the end of 2020. In a news conference on Monday, New York State Governor Andrew Cuomo said they will be fining hospitals that don’t administer the allotted COVID-19 vaccines within a week of receiving their supplies and will decline to provide them with further doses for failing to do so. “I don’t want the vaccine in a fridge or a freezer, I want it in somebody’s arm. If you’re not performing this function, it does raise questions about the operating efficiency of the hospital,” said Cuomo.
  • In Canada, as COVID-19 cases continue to climb and some provinces are in a form of lockdown, the public is raising eyebrows at the conduct of some of their elected politicians. Multiple media reports have uncovered several federal and political politicians travelling over the holiday season, either for leisure, or to visit an ailing relative. The federal government has advised Canadians throughout the pandemic to avoid all-non-essential travel and are introducing new testing requirements for those planning to travel by air this week. The majority of MPs and MPPs/MLAs called out via the media have stepped down from either a cabinet post or other higher profile duties. The exception seems to be the province of Alberta where their Premier Jason Kenney took responsibility for not being clear about travel rules and has now ordered MLAs should not leave the country, unless it’s for government business. Premier Kenney said he planned not to sanction members of his party for their actions. 
  • China has stepped up their efforts to suggest the COVID-19 pandemic started somewhere else. In an interview with a state broadcaster over the weekend, Foreign Minister Wang Yi stated: “more and more research suggests that the pandemic was likely to have been caused by separate outbreaks in multiple places in the world.” The comments come as the World Health Organization (WHO) is expected to be granted access to Wuhan for the first time this month. The WHO has been to China over the past year, but never granted access to Wuhan, considered to be ground zero for the coronavirus pandemic. 
  • Philippine President Rodrigo Duterte has warned legislators of a “crisis” if they push forward with an investigation of unauthorized use of COVID-19 vaccines. A media report has suggested around 100,000 Chinese nationals working in the Philippines have been inoculated as early as November, along with President Duterte’s security team. The president has told his security team to ignore summons from the Congress, adding “there will be a little crisis. I am prepared to defend my soldiers. I won’t allow them to be brutalized in hearings.” Health regulators have yet to approve any vaccinations for use in the Philippines.
  • Japanese media are reporting Prime Minister Yoshihide Suga is considering declaring a state of emergency in Tokyo and surrounding areas as early as January 7th. The measures would last a month and grant power to local governments to urge residents to stay home and order some businesses to close or limit operations. Japan’s state of emergency differs from what has been seen in some European nations such as France, Italy and the UK. Due to civil liberties enshrined in the country’s postwar constitution, Japan’s government can’t send police to clear people off the streets.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Bet on Recovery in 2021

Brief: Hedge funds, which use leverage and employ more aggressive, often riskier strategies than other investors, believe many previously undesirable sectors, ranging from energy to retail, will rebound in 2021. Accounting for roughly $3 trillion in assets, hedge funds showed resilience in 2020, with many outperforming the market, according to investors. “We think 2021 is going to be a really positive year for the markets,” said Jason Donville, president and CEO at Toronto-based hedge fund Donville Kent Asset Management. He forecasts an explosion of pent-up demand for travel and leisure producing a period of “super growth.” “I think it will take a little while for the vaccines to roll out and then somewhere around March, April, May, you’re going to get a confluence of the vaccines getting to a certain critical mass... and infection rates dropping.” For 2020 as a whole, the S&P 500 unofficially rose 16.26%, a stunning rally from a bear market that kicked off when the pandemic spread rapidly earlier in the year. “What I would say about 2021 is it looks like it’s going to be a year of recovery,” said Robert Sears, chief investment officer at UK-based Capital Generation Partners, which invests in hedge funds globally. “That’s the consensus view.”

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Over 80 Per Cent of Major Investors Believe Global Financial Crisis is a Possibility

Brief : Eighty three per cent of institutional investors believe that a global financial crisis is a possibility, with 60 per cent expecting the next severe crisis to occur in the next one-to-three years, according to Block-Builders.net. A new infographic - https://block-builders.net/crash-alert-83-of-major-investors-believe-gl… - highlights that around 80 per cent of major investors believe that markets have not yet sufficiently priced in the long-term risks posed by the Corona crisis, while more than half see the advantage of a defensively oriented portfolio. Institutional investors remain largely unanimous in their view that, despite all the risks, securities from the Asian region have great growth potential. One of the reasons for this is the fact that countries such as China have got a better grip on the pandemic and their economies are now correspondingly growing much faster. Meanwhile, the scars left by the pandemic on business owners' coffers are becoming ever clearer. The situation is most critical in the case of the hospitality industry, where 19 per cent of businesses report having only 4 weeks of cash reserves. Across all sectors, 11 per cent of entrepreneurs say they only have reserves for just under 4 weeks. "Despite all the risks, many stocks are still trading at all-time highs," says Block-Builders analyst Raphael Lulay. "Whether we are already in the midst of a speculative bubble remains to be seen. Many market participants continue to see the stock market as almost without alternative".

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Airlines Slam ‘Confusion’ New COVID-19 Testing Rules Create for Carriers, Passengers

Brief: Airlines say a slew of questions remain about the federal government's decision to require passengers returning to Canada to show negative results on COVID-19 tests taken abroad. Transport Minister Marc Garneau announced Thursday that air travellers overseas will have to present proof of a negative molecular test — known as a PCR test, conducted with a nasal swab — that was taken within 72 hours of departure, unless the testing is unavailable in that country. National Airlines Council of Canada chief executive Mike McNaney says the Transport Department has yet to provide a list of foreign agencies whose tests are considered acceptable or to establish how airline employees should determine whether a test document is valid. He says the new rule, which mandates a 14-day quarantine in Canada regardless of the test result, will cause "confusion" and "frustration" for carriers and passengers alike. Air Transat vice-president Christophe Hennebelle says Ottawa announced the requirement, which takes effect this Thursday, "out of the blue" without any prior consultation or notice to industry. Transport Canada did not immediately respond to questions Monday. The rule comes as a devastated airline sector continues to bleed cash following a collapse in demand caused by the pandemic. It also arrives amid growing criticism of the federal sick-leave benefit that pays $500 per week for up to two weeks to Canadians quarantined after touching down from abroad, including after vacations.

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Blank-Check Deals, Distressed M&A to Headline 2021 Trends

Brief: The new year is expected to be a mergers and acquisitions bonanza as deal makers attempt to put the pandemic behind them, meaning attorneys must be on top of trends like the continued use of special purpose acquisition companies and an anticipated increase in distressed M&A. The coronavirus pandemic caused a short-term slowdown in the pace of deal-making last year, but players in the M&A space didn't spend too much time on the sidelines; after initial shockwaves from the virus-induced shutdowns decimated figures for the second quarter, the third and fourth quarters of 2020 were relatively strong. As of Dec. 10, the total value of U.S.-targeted M&A deals announced in the third and fourth quarters totaled $915 billion, far greater than the $378.4 billion overall value of deals across quarters one and two, according to data provided by Dealogic. "There was a slowdown in the first two months post-shutdown," said Susan Oakes, an M&A partner at Holland & Hart LLP. "But once things settled into place, the deals that were on hold restarted, and we've been really extraordinarily busy." In 2021, clients will look to build on the momentum from the end of 2020, but they'll have to do so in a landscape that has been significantly altered because of the once-in-a-century pandemic.

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The NYC Billionaires Who Got Richer During the COVID-19 Pandemic

Brief: Big Apple billionaires are booming — with a collective wealth that ballooned by $81 billion to more than $600 billion during the pandemic, according to an analysis. That 16 percent surge among Gotham fat cats since mid-March included big gains for former Mayor Mike Bloomberg, the city’s richest person, whose financial data and media empire shot up by $6.8 billion to some $55 billion, a 14 percent spike, says Americans for Tax Fairness and the Institute for Policy Studies, which crunched the Forbes data. President Trump also did quite well, as his net worth grew by $420 million, jumping from $2.1 billion to $2.5 billion, a 20 percent increase, the data shows. New Mets owner and hedge fund titan Steve Cohen is also among the metro-area billionaires — a class of 141 — who had a great 2020, adding $700 million to his pile, which now totals $14.6 billion, a 5 percent uptick. Buoyed by trillions in federal COVID-relief largesse, Wall Street powerbrokers notched some of the largest gains. Stephen Schwarzman of Blackstone Group fattened his wallet by some $5 billion to about $21 billion, a 34 percent gain. JPMorgan’s Jamie Dimon’s holdings went from $1.2 billion million to $1.5 billion, about a 29 percent increase. 

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Hedge Fund Launches Rise as Industry Positions for Growth in 2021

Brief: New hedge fund launches increased to the highest level in five quarters in Q3 2020 on optimism in the US economy, as managers and investors positioned for acceleration of performance gains and capital growth into 2021, according to the latest HFR Market Microstructure Report, released today by HFR. New hedge fund launches increased to an estimated 151 in Q3 2020, the highest quarterly launch total since 2Q19 and exceeded the estimated quarterly liquidations for the first time since 2Q18. Launches in the most recent quarter exceeded the 2Q estimate of 129 new funds, bringing the YTD 2020 launches to 364 through Q3, a period which included a record low number of fund launches in 1Q as the global pandemic began. Fund liquidations fell to an estimated 137 in Q3 2020, the lowest liquidation total since 2Q18 and marked a decline of over 50 percent from the 304 liquidations in Q1 2020. Through Q3 2020, an estimated 619 funds liquidated in 2020, with nearly half of those occurring in Q1 2020. The investable HFRI 500 Fund Weighted Composite Index® advanced +5.1 per cent in November, increasing its YTD return to +6.1 percent and topping the +3.9 per cent YTD gain of the DJIA. The HFRI 500 Equity Hedge Index led strategy performance in November with a +7.5 per cent return, bringing YTD performance to +10.9 per cent. Over the first eleven months of the year, the HFRI 500 EH: Technology Index led all strategy performance with a +23.5 per cent return. In addition to strong performance of the HFRI Indices, the HFR Cryptocurrency Index surged +52 per cent in November, bringing the YTD return to +156 per cent.

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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.

Our briefing for Friday December 18, 2020:

  • Vice President of the United States, Mike Pence, became the highest-ranking U.S. official to receive a coronavirus vaccine on Friday. In a live television appearance, Pence, his wife Karen and the surgeon general of the United States, Jerome Adams, all received the first of two doses of the Pfizer vaccine. The on-air stunt was an attempt to convince the American public that the vaccine is indeed safe for general use. Pence confidently proclaimed that he “didn’t feel a thing,” and that the “the American people can be confident: We have one and perhaps within hours two safe vaccines.” His remarks came as the American Food and Drug Administration is expected to validate a second COVID-19 vaccine from pharmaceutical company, Moderna, later in the day. Surprising absent from being publicly vaccinated is sitting U.S. President Donald Trump, who has remained relatively quiet about the massive medical breakthrough. As of Friday, Trump has yet to hold a public event related to vaccine’s distribution. 

  • According to Prime Minister Justin Trudeau, the majority of Canadians can expect to be vaccinated against COVID-19 by September 2021. However, immunizing the entire population is still a giant task, one that could see Canadian borders closed for years to come. “It’s the old adage, ‘no one is safe until everyone is safe,’” Raywat Deonandan, an epidemiologist with the University of Ottawa said, meaning that until most other countries have been vaccinated, Canadians should expect to remain in the confines of the country. COVAX, an international initiative aimed at providing coronavirus vaccines to low-income countries has suggested the current distribution model could leave poorer countries without access to a vaccine until at least 2024. The COVAX program cited multiple hurdles in the way of mass-distribution of the vaccine including lack of funding and supply-chain risks.

  • A survey from the United Kingdom’s Office for National Statistics has revealed that over two-thirds of the country intends to form a Christmas bubble including members from up to three households. The U.K. government has lifted some restrictions ahead of the holiday season, but experts are suggesting that this might not have been the right call. The World Health Organization’s regional director for Europe, Dr Hans Kluge, said “there remains a difference between what you are being permitted to do by your authorities and what you should do.” With most of the country entering tier three lockdown over the weekend, Prime Minister Boris Johnson has refused to rule out another large-scale lockdown after the Christmas holiday. In the last 24 hours, the country has diagnosed 24,507 new cases with another 1726 people being admitted to hospital since yesterday.

  • A cluster of new cases in Sydney, Australia has prompted Victoria’s Health Minister, Martin Foley to urge the public to avoid the area and has suggested that travel may be restricted if a person is found to have been in contact with someone from the Sydney area. As new cases of the virus have been spreading rapidly in Sydney, other states have now deemed it unsafe to travel to. “Don't come from Sydney if you're planning to come to Melbourne,” Foley says. “Don't go to Sydney if you're [already] planning to go to Sydney. It won't be a holiday. It won't be a Christmas.” New South Wales Premier Gladys Berejiklian is urging the public to comply with mask wearing protocols and has limited travel to Sydney’s northern beaches as the number of new cases grew by 10 overnight to a total of 28 in the area. Meanwhile, Queensland, Victoria, Western Australia and Tasmania have all introduced some measure of border restrictions on Friday.

  • Despite French President Emmanuel Macron testing positive for COVID-19 yesterday, a top government advisor said in a statement that it will take more time than expected for people in France and the rest of Europe to receive a vaccine. Immunologist and government adviser Jean-Francois Delfraissy said "the production of vaccines will be slower than envisioned 15 days or three weeks ago. We will not face a vaccine shortfall but we will have something that is more spread out over time." European nations have not yet been given access to the Pfizer vaccine like the U.K. and Canada, as they await the approval from the European Medicines Agency, which expects to have the approval passed before the end of December. France has recorded the most coronavirus cases in Europe with estimates ranging around 2.4 million people having been infected. "Vaccines are a major source of hope,” said Delfraissy. “But if you look at the vaccination capabilities that we will have in France and elsewhere in Europe, we will need time.”

Covid-19 – Due Diligence And Asset Management

J&J enrolls about 45,000 participants for late-stage Covid vaccine trial

Brief: Johnson & Johnson said on Thursday it has enrolled about 45,000 participants for the first late-stage trial of its Covid-19 single-dose vaccine candidate and that it expects interim data by late-January. The company, however, is lagging rivals Pfizer and Moderna in the race for a vaccine to combat the Covid-19 pandemic that has infected about 75 million people globally. J&J’s study, named Ensemble, is being conducted by its unit Janssen, the drugmaker said in a statement. While seven countries have already authorized the emergency use of Pfizer and German firm BioNTech’s candidates, Moderna’s rival vaccine was set for regulatory authorization this week in the United States.

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Lloyds Banking Group cancels bonuses after profit drop

Brief : Staff at Lloyds Bank won't be receiving bonuses for this year after the pandemic hit profits at the lender. It said the decision was not a reflection of the work its employees had done this year and that lower-paid staff will get pay rises above inflation. Bankers were told in a memo on Thursday first reported by the Financial Times. The bank will not meet the minimum threshold of profit for 2020 to make the payouts. The bank has said before that if profit for 2020 was more than 20% below its target bonuses would be cancelled. The lender will announce 2020's earnings on 24 February. "In 2021 we're making above-inflation pay increases for most of our people and these will be geared toward those colleagues on lower pay," the bank said in a statement. "Given our expected levels of profitability for 2020, we are unable to pay group performance share (or bonus) awards to our people for this year.

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Small lenders lose out as Big Six banks capture bulk of Canadians' pandemic savings

Brief: Canadians are stuffing savings into bank deposits at some of the fastest rates since the global financial crisis, but smaller lenders are losing out to bigger rivals, facing a tough time when the economy and lending begin to recover. The biggest banks grew personal deposits by 21 per cent in the three months to Oct. 31 from a year earlier to a record $1.7 trillion (US$1.3 trillion), driven by government stimulus and business closures that have crimped spending. Smaller lenders, however, struggled to record growth figures in the single digits, despite offering higher interest rates, as savers stuck with familiarity and size in an uncertain economic climate, analysts said. “If you have to pay more for deposits in a weak lending environment, it makes it tough,” said Avenue Investment Management Portfolio Manager Bryden Teich.

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IFC invests USD 30 million in Biological E Ltd

Brief: International Finance Corporation, a member of the World Bank Group, on Thursday said it is providing a loan of up to USD 30 million (around Rs 220 crore) to pharma company Biological E Limited. The loan will support the pharmaceutical firm's expansion of low-priced, generic vaccines for routine immunisation of children and to boost capacity for manufacturing any future COVID-19 vaccine, it added. An investment in one of India's top vaccine manufacturers BioE will expand access to low-cost vaccines for children in developing countries and help increase the production of a COVID-19 vaccine when developed, a key step in saving lives and restarting economies, IFC said in a statement. "IFC, a member of the World Bank Group, is providing a senior loan of up to USD30 million to BioE to support the Hyderabad-based company's expansion of its range of low-priced, generic vaccines for routine immunisation of children," it added.

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Private Equity Offers Survival Tactic to Fund Industry in Crisis

Brief: When Niklas Ringby spots a stock worth buying, he ignores decades of diversification advice that most investors live and die by. In the words of hedge fund legend Stanley Druckenmiller, he bets the ranch. The EQT AB money manager’s approach of wagering on just a handful of stocks may sound like excessive risk-taking to a generation of punters warned against chucking all their eggs in one basket, but it’s churning out bumper profits. The $1 billion fund he runs from Stockholm with Fredrik Atting for the private equity giant has gained 35% this year, while European stocks are down 5%, according to an investor letter. That’s on top of the 45% it returned last year. Ringby’s high-stakes strategy may offer a potential way forward for an industry in crisis. Stockpickers are persistently failing to beat their benchmarks and rapidly ceding ground to low-cost passive funds that just mimic an index. In a world awash with data and computer-driven trading where price-sensitive information is instantly factored into share values, active funds must find a way to stay relevant. That means depth instead of breadth in stockpicking and bolder, high-conviction long-term bets.

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Emerging Market Hedge Funds Are Outperforming In 2020

Brief: Although emerging markets had a difficult start to the year because of COVID-19's source in China, they have rebounded nicely, giving emerging markets (EM) hedge funds a boost. Hedge funds, in general, had a rough October, as the Eurekahedge Hedge Fund Index declined 0.5%. However, they beat the MSCI ACWI, which fell by 2.29%. Morning commuters wearing protective masks walk past Chinese flags displayed along Nanjing Road in Shanghai, China, on Friday, October 9, 2020. China's yuan strengthened, and stocks rose on mainland exchanges in a positive start to the month for traders. Emerging markets hedge funds are outperforming their developed markets (DM) counterparts this year, according to data from Eurekahedge. EM hedge funds gained 5.11% during the first nine months of the year. For comparison, North American hedge funds were up 3.00%, while European funds were down 1.51%, and Japanese funds were down 3.37%. 

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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.

Our briefing for Thursday December 17, 2020:

  • French President Emanuel Macron is the latest world leader to test positive for COVID-19 on Thursday. The Elysée Palace, President Macron’s official residence confirmed the news in a statement and noted he will isolate for seven days and continue to work remotely. President Macron has been especially busy in the last week, putting him in close contact with senior French officials and other European politicians. For instance, on Wednesday President Macron met with Portugal Prime Minister, Antonio Costa for a joint press conference and a working lunch. Pictures form the meeting show both men in close contact. Spain’s Prime Minister Pedro Sanchez will isolate for 10 days after meeting with President Macron at an event in Paris on Monday.
  • In the United States, as Washington lawmakers continue to bicker back and forth on the latest round of coronavirus stimulus, Bloomberg is reporting a congressional watchdog panel has asked for an investigation into Treasury Secretary Steven Mnuchin. Two Democratic Congressional Oversight appointees addressed a letter that says there are “irregularities” on how Mnuchin came to the conclusion of cancelling U.S. Federal Reserve emergency lending programs at the end of the year. The irregularities include that Mnuchin may not have consulted legal counsel before determining the program should wind down by the end of December and he may have changed his position after Joe Biden won the presidential election.
  • In Canada, Ontario’s doctors are calling on the provincial government for more lockdowns as the province set yet another record for daily cases on Thursday. The latest tally was 2,432 new COVID-19 cases, which has the Ontario Hospital Association (OHA) calling for new 28-day lockdown in all regions currently in the red tier of the province’s COVID-19 framework. During a news conference on Thursday, Premier Doug Ford said he appreciates the OHA’s input, but failed to commit to any further lockdown measures, other then to say, “right now, everything is on the table.” 
  • The United Kingdom’s freedom from lockdown was short-lived as Health Secretary Matt Hancock revealed on Thursday more than two-thirds of England will enter tier 3 restrictions. With COVID-19 cases rapidly rising in London, Hancock also put nearby areas of Buckinghamshire, Peterborough and Hastings into the UK’s strictest category as of Saturday. Areas to the north weren’t spared as well with the Greater Manchester area forced to stay in tier 3 after local leaders believed they had done enough to have some rules eased. “I know that tier-3 measures are tough but the best way for everyone to get out of them is to pull together – not just to follow the rules but to do everything they possibly can to stop the spread of the virus,” said Hancock.
  • In the Philippines, a Presidential spokesperson said the country is eyeing four vaccines for use during the first three months of 2021. The four vaccines the country plans to use are from Russia’s Gamaleya Institute and China’s Sinovac, Sinopharm and CanSino. By the second quarter of 2021, the Philippines expects to receive 2.6 million doses of COVID-19 vaccine produced by Britain’s AstraZeneca, which was secured by the private sector. However, the Philippines have yet to receive emergency vaccine use applications for any of these drugs. 

  • The World Health Organization (WHO) has said they will send a team of 10 international scientists to the Chinese city of Wuhan next month to investigate the origins of COVID-19. Beijing government officials have been reluctant to allow WHO investigators conduct an independent inquiry and it has taken months just to get to this point. The virus was thought to have come from a Wuhan central market that sold animals. The outbreak has been a source of tension for China as they have been on a media blitz to debunk the theory that the coronavirus got its start in the country. A biologist on the team traveling to Wuhan told the Associated Press that the WHO was not seeking to appropriate blame, rather to prevent future outbreaks, such as this in the future.

Covid-19 – Due Diligence And Asset Management

New York’s Plummeting Real Estate Sales Cost City $1.2 Billion

Brief: The pandemic’s slowdown in real estate deals has cost New York City $1.2 billion in lost revenue so far this year. Sales of commercial and residential properties -- everything from office buildings to hotels and condo units -- are down 49% this year through November, according to a report Thursday by the Real Estate Board of New York. That’s led to a 42% decline in city tax revenue, compared with the same 11-month period in 2019, the trade group said. The money comes from a long list of levies that each transaction generates. A dearth of deals means fewer collections of transfer and mansion taxes, and less income from newly recorded mortgages. Real estate investors are taking a pause amid a pandemic that’s reordered how and where New Yorkers live and work -- and, in turn, undermined property values. The pullback has dealt a crippling blow to the city’s economy, which relied on the real estate industry for 53% of its annual tax revenue in the last fiscal year, the real estate group said. While vaccines offer some optimism, “New York’s economic crisis grows,” James Whelan, the group’s president, said in a statement. “From rental assistance and unemployment benefits to state and local aid, New York needs federal relief.”

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Swiss National Bank sees no Alternative to Expansive Policy to Tackle COVID-19

Brief : The Swiss National Bank paid no heed to being branded a currency manipulator by the United States, promising on Thursday to continue an expansive monetary policy and forex interventions it said were vital to cushion the impact of the coronavirus pandemic. The central bank kept its policy interest rate locked at minus 0.75%, the world’s lowest, and said it remained willing to buy foreign currencies “more strongly”, as unanimously forecast by economists in a Reuters poll. SNB Chairman Thomas Jordan said the central bank had made “considerable foreign exchange purchases this year,” but declined to give details on the level of interventions during the second half of the year. The SNB said the interventions were necessary to relieve pressure on the franc, which has attracted safe-haven inflows during the crisis. During the first half of 2020, it bought 90 billion Swiss francs ($101.94 billion) worth of foreign currencies, dwarfing the level of interventions in previous years. Those interventions have brought the SNB into the cross-hairs of the U.S. Treasury, which labelled Switzerland a currency manipulator on Wednesday.

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Pensions Coping Well with Covid Crisis, says PLSA Sruvey

Brief: The vast majority of pension schemes say that Covid-19 is not having a detrimental effect on them running their schemes and helping savers achieve a better income in retirement, but have warned against the ending of regulatory easements too soon, a PLSA survey can reveal. In the survey, the PLSA heard that over four fifths of pension schemes (81 per cent) believe Covid-19 is having only little or no impact on the day-to-day running of their scheme; a figure that is up from 67 per cent in April and 42 per cent in March. Furthermore, nine out of ten schemes (91 per cent) say they are currently operating all business processes smoothly to suit the current environment. Impressively, all (100 per cent) Master Trusts and LGPS members surveyed said that their contingency plans are dealing with Covid-19 either very well or fairly well.   Since the start of restrictions in the UK due to Covid-19 back in March, most schemes (85 per cent) have reported that they have not seen an increase in member queries. In fact, under one in ten (8 per cent) have said that they have seen a substantial increase since the start of the crisis, while the same proportion have seen a slight decrease. Amongst those who have seen an increase in queries, most say that this has been driven by new retirements while a smaller number report queries around changes in employment or transfers out.

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Ariana Huffington: For the First Time, There’s an ‘Unprecedented Interest From the C-Suite’ in Mental Health

Brief: “Now months into the pandemic, with a dark winter ahead of us, we are seeing the evidence of an increase in depression, anxiety, and worker burnout everywhere, both among those of us who have the luxury of being able to work from home and the frontline workers,” Huffington told Yahoo Finance Live. Huffington founded Thrive Global four years ago as a behavior change platform that combines data, storytelling, and an action plan to improve work culture and support staff. It serves mostly Fortune 500 companies, including Walmart and Accenture. “For the first time, we are seeing an unprecedented interest from the C-suite on this issue of mental health,” said Huffington. “So, it's not just a matter for HR professionals. The recognition is now clear, that the well-being and mental resilience of your employees is going to be crucial to productivity and the bottom line.”

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Wells Fargo Extends Work From Home Until at Least March 1

Brief: Wells Fargo & Co has extended the ability to work from home for employees until at least March 1 amid the ongoing coronavirus outbreak, a spokeswoman for the bank said on Wednesday. “Through at least March 1, we will continue with our current operating model, which includes about 200,000 employees working from home and maintaining safety measures in locations that remain open”, the spokeswoman said in an emailed statement. The statement added that it was not known when the bank would return to a more “traditional operating model” and that it would give employees “sufficient notice” before any changes.

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After COVID Shock, U.S. Treasury Market Set for New Scrutiny

Brief: The $20 trillion U.S. Treasury market is set to come under intense scrutiny by President-elect Joe Biden’s regulators, after seizing-up amid rising pandemic fears in March and threatening the stability of the broader financial system. A review of what went wrong and measures to boost the market’s resilience could be among the first regulatory challenges for incoming Treasury Secretary Janet Yellen, according to half a dozen regulatory and industry sources. After March’s massive sell-off prompted the Federal Reserve to buy $1.6 trillion of Treasuries to stabilize the market, consensus is growing in Washington that a review is urgently needed. But potential changes on the table, including loosening trading rules, allowing new players into the market, or introducing central clearing, could prove risky to implement and unleash industry infighting over the benefits and costs. “This is the most important financial market in the world. That fact demands policymakers exhibit both urgency and extreme care,” said Gregg Gelzinis, senior policy analyst at think tank the Center for American Progress.

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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.

Our briefing for Wednesday December 16, 2020:

  • In the United States, the deaths from COVID-19 surpassed 3,000 for the third time in a week. The death toll was 3,102 on Tuesday, the third highest total since the pandemic began and lifted the overall total to over 304,000. The case load of 16.7 million infections represents roughly 5% of the American population, according to Reuters. The United States are aiming to have 2.9 million doses of the Pfizer COVID-19 vaccine delivered by week’s end, but that is a far cry from where the country needs to be. Politicians and medical authorities have conducted a two-pronged media blitz aimed at vowing the safety of the vaccines, but also urging Americans to continue social distancing and mask wearing for the foreseeable future. 

  • In Canada, Quebec announced sweeping new coronavirus restriction measures as they face a rising number of hospitalization and daily cases. As of Thursday, and expected to last until January 11th, all offices and schools will close. Most retailers will be shut down as of December 25th until January 11th, which means no in-person Boxing Day shopping this year. Grocery stores, pharmacies, banks, hardware stores and pet stores will be allowed to remain open. Big box stores will be restricted to selling essential goods only. Canada’s other largest province – Ontario saw its daily case count climb above 2,000 for the second day in a row. Again, the two longest locked down areas of Toronto and Peel Region accounted for more than half of the new cases (1,308 of 2,139 reported cases).

  • United Kingdom Prime Minister Boris Johnson is trying hard to avoid all those Grinch cartoon caricatures being printed in the daily tabloids saying developed administrations have reached “unanimous agreement” to “proceed in principle” with existing holiday plans. Those plans of course are to loosen coronavirus rules over the Christmas break with Prime Minister Johnson stating during question period in the House of Commons that “we don’t want to criminalize people’s long-made plans.” However, the UK leader has urged Britons to have a smaller and shorter Christmas and to exercise common sense in gatherings, such as coming into contact with elderly people.

  • Germany shattered its record COVID-19 deaths on Tuesday, just as it entered a new hard national lockdown on Wednesday. According to the Robert Koch Institute (RKI), 952 people died due to COVID-19. The previous record was 598 on December 11th. The drastic spike in deaths though the RKI says could be a delay in reporting data from the large state of Saxony. Nevertheless, German officials said the current situation was “as serious as it has ever been during the pandemic.” A RKI spokesperson said Germans need to be prepared for the situation to get worse over Christmas.

  • China announced on Wednesday for the first time publicly that they have ordered a foreign inoculation in their fight against COVID-19. German firm BioNTech will supply 100 million doses to its Chinese partner Fosun Pharma for mainland use in 2021. BioNTech are now seen as the prime international competitor to domestic COVID-19 vaccines such as Beijing-based Sinovac and state-owned Sinopharm. However, with a population of 1.4 billion in China, there is still plenty of opportunity for the two Chinese firms as they have already begun expanding manufacturing capacity and distributing vaccines.

  • Reuters is reporting the World Health Organization’s (WHO) global scheme to deliver COVID-19 vaccines to poorer countries faces “a very high” risk of failure, potentially leaving billions without a vaccine until as late as 2024. Reuters is looking at the WHO’s COVAX programme as the main global scheme to inoculate the world’s poor and middle-income countries. The programme is struggling from a lack of funds, supply risks and complex contractual arrangements, which could make it impossible to reach their goals. The COVAX programme’s aim is to deliver at least 2 billion vaccine doses by the end of 2021 to cover 20% of the most vulnerable people in the world from countries mostly in Africa, Asia and Latin America.

Covid-19 – Due Diligence And Asset Management

Sun Life Bets US$7B on Japanese Workers Returning to Office Life

Brief: Sun Life Financial Inc. is wagering billions of dollars that Japanese workers will return to the office after the pandemic. The Canadian insurer’s real estate arm plans to double staff and invest US$10 billion in Japan over the next two to three years, of which as much as 70 per cent may go into office buildings in the country’s major business districts, said Sonny Kalsi, chief executive officer of BentallGreenOak. “We don’t think that work from home is going to be a big long-term trend in Asia overall and in Japan specifically,” Kalsi said in an interview. “That’s part of the reason we are bullish on Japanese offices -- more so than any other market.” Like their peers around the world, Japanese companies are grappling with how to use office space once the coronavirus is defeated. Some including Hitachi Ltd. and Nomura Holdings Inc. are embracing flexibility, while others like SBI Holdings Inc. want employees back on-site to ensure productivity. Offices in Tokyo have emptied during the pandemic, even as many workers continue to commute in a country where coronavirus cases remain lower than in Europe and the U.S. Vacancies in the city surged to a four-year high last month, according to real estate brokerage Miki Shoji Co. Yet Japan’s business culture suggests people will prefer to work together in person once the pandemic subsides, underpinning the need for offices, said Kalsi, who lived in Tokyo from 1998 to 2006. “I think Japanese companies are more traditional in how they are run and managed,” he said.

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Citi to Offer Workers a 12-Week Sabbatical, Extra Vacation Days

Brief : Citigroup Inc. will soon offer workers the ability to take a 12-week sabbatical as part of a bevy of new employee perks in the wake of the coronavirus pandemic. Staffers also will be able to buy as many as five extra vacation days annually starting next year, and the bank is debuting a program that will allow employees to work pro bono with a charitable organization for as much as four weeks while still receiving 100% of their base pay. The new perks are a byproduct of months of meetings among the firm’s top human resources professionals to discuss what work would look like after the pandemic subsides, said Diane Arber, who leads human resources for the bank’s institutional clients group. “So here we are now all working from home and being extremely productive -- it really gave us time to pause and think about what should we be doing differently for the employees,” she said. “People just sometimes need a break, and they don’t want to just stop their career.” Citigroup has seen record increases in employee satisfaction in an internal annual survey, with many staff members preferring to work from home and the flexibility it provides, Arber said. With the new benefits, the bank’s looking to make some of that flexibility permanent. With the sabbatical, employees at any level who have been with Citigroup for at least five years can take as long as 12 weeks to do whatever they want. Workers are limited to two sabbaticals, and will receive only 25% of their base pay during the time away.

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FINRA Seeks Comment on Lessons From the COVID-19 Pandemic

Brief: In response to the coronavirus (COVID-19) pandemic, member firms have made rapid and unprecedented changes to their business operations in order to prioritize the health and safety of firm personnel and investors, while maintaining the public’s access to capital markets. These changes include widespread use of remote offices and alternative work arrangements and new and expanded methods of engaging with personnel and investors. Member firms have also used new methods of engaging with FINRA and other regulators and complying with regulatory requirements. For its part, FINRA has taken numerous steps to assist member firms, firm personnel and investors as they navigate the effects of the COVID-19 pandemic. FINRA welcomes feedback on lessons learned from stakeholders’ experiences during the pandemic, including the impact of changes made to member firms’ operations and business models, and the effectiveness of business continuity planning. FINRA further requests comment on whether it should consider changes to its rules, operations or administrative processes to address lessons learned during the pandemic or to address anticipated long-term impacts of the pandemic on member firms and investors.

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Vaccines Have Arrived – And Investors Are Ready to Party

Brief: Investors are shedding cash and piling into risk assets as they seek to “buy the reopening,” according to new research from Bank of America. The bank’s latest survey of fund managers found that investor optimism has “skyrocketed” this month following news that coronavirus vaccines from Pfizer and Moderna had proven effective in clinical trials. The poll ended on December 10, after UK regulators had granted emergency authorization to the Pfizer-BioNTech vaccine but one day before the U.S. Food and Drug Administration did the same. According to BofA Securities, fund managers have responded to the vaccine news by increasing allocations to equities and commodities and decreasing cash holdings. In fact, the surveyed investors reported that they were underweight cash for the first time since May 2013. Most investors said they believed the vaccine would start having a positive impact on economic activity within the first half of next year, with the average respondent predicting that the turn-around would occur by May 2021. These vaccine hopes were accompanied by higher expectations for profit and economic growth, with a net 78 percent of respondents expecting corporate earnings to improve — the highest proportion in the survey’s history.

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US Bankruptcies Surpass 600 in 2020 as Coronavirus-Era Filings Keep Climbing

Brief: U.S. corporate bankruptcy filings continue to increase during the coronavirus crisis as 18 new companies joined the list of 2020 bankruptcies in the last two weeks, according to an S&P Global Market Intelligence analysis. There have been 610 bankruptcies this year through Dec. 13, exceeding the number of filings seen in any year since 2012. The 18 new filings match the number of bankruptcies reported during the prior two-week period, continuing a slowdown from earlier in the crisis. Market Intelligence's analysis is limited to public companies or private companies with public debt where either assets or liabilities at the time of the bankruptcy filing are at least $2 million. Private companies without public debt must report at least $10 million in either assets or liabilities at the time of filing. Companies that entered bankruptcy proceedings Nov. 30-Dec. 13 include Florida-based American Purchasing Services Inc., oil field services company Superior Energy Services Inc., boutique clothing chain Francesca's Holdings Corp. and coal companies White Stallion Energy LLC and Lighthouse Resources Inc.

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70% of Fund Managers See Better Economy by June 30 – Survey

Brief: Investor sentiment remains bullish as COVID-19 vaccinations begin, according to Bank of America's December Global Fund Manager Survey, with 7 in 10 managers expecting the global economy to improve in the first half of 2021. When asked when the COVID-19 vaccine will start positively impacting the economy, 42% of surveyed fund managers said it would begin in the second quarter, while 28% said the first quarter and 19% said the third quarter. A net 89% of fund managers surveyed expect stronger growth in 2021, while a record 87% expect higher long-term yields. COVID-19 continues to be the biggest tail risk, with 30% of respondents putting it at the top of their list this month, but that's11 percentage points less than November due to vaccine expectations. The other top tail risks are fears of inflation (24%) and fiscal policy drag (18%). Although 2020 was dominated by the global recession sparked by the global COVID-19 outbreak, managers' recovery expectations surpassed previous recessions both in terms of speed and magnitude, survey results showed. Seventy percent of fund managers said the global economy is in an early cycle phase, the highest percentage reported since January 2010. Meanwhile, only 12% said it is in a recession.

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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.

Our briefing for Tuesday December 15, 2020:

  • The United States Food and Drug Administration (FDA) has found Moderna’s COVID-19 vaccine to be safe and highly effective, which clears the way for a second vaccine to receive emergency use authorization later this week. Elsewhere in the country, support is growing for the $748 billion COVID-19 stimulus legislation put together by a bipartisan group of Senators. Lawmakers stripped out the highly contested provision regarding liability protections for businesses and assistance for states and local governments. With those clauses in, the price tag of the package was $908 billion. On Tuesday, the $748 billion plan received the backing of the Center for American Progress, a think tank group that is influential within the Democratic party. 
  • In a news conference on Tuesday, Canadian Prime Minister Justin Trudeau announced the country will be receiving up to 200,000 more doses of the Pfizer vaccine next week and potentially up to 168,000 Moderna vaccines by the end of December. The Moderna vaccine has yet to receive regulatory approval from Health Canada, but secure delivery can start within 48 hours of approval. Prime Minister Trudeau confirmed that doses of the Moderna vaccine will be directed to the North, as well as remote and Indigenous communities due to easier transfer of the product. Elsewhere in the country, Quebec is expected to announce a two-week shutdown for non-essential businesses starting on Christmas Day in an effort to slow down COVID-19 spread. As a compromise, the government will allow some outdoor gatherings in public places.
  • In the United Kingdom, two health journals have published a rare joint article warning a relaxation of COVID-19 restrictions over the Christmas holidays would be a “blunder into another major error that will cost many lives.” The message came from the BMJ and the Health Service Journal marking only the second time the two have come together to deliver a joint message. However, as of right now, Prime Minister Boris Johnson’s government still plans to move ahead with its plans to allow households to mix with people from two other households over a five-day period during the holidays. 
  • The European Union (EU) medicines regulator is planning to approve the Pfizer/BioNTech vaccine a week earlier than previously suggested. The European Medicines Agency (EMA) said it hopes to sign off on the inoculation for EU member states during a meeting on December 21st instead of December 29th after receiving additional data it had requested from the firms. Some EU nations, such as Germany, have questioned the speed of the EMA after seeing the United Kingdom, United States and Canada all have the Pfizer vaccine approved for use.
  • In an effort to reopen its borders, Singapore will start a new travel lane for business. The plan will allow high-economic value travelers to visit the city-state without quarantine for short-term stays and reside in a dedicated bubble facility near the airport. The travel lane was announced by Singapore’s Minister of Trade on Tuesday. According to a report from Bloomberg, Singapore government authorities are keen to position the country as a prime spot for meetings, events, conferences and exhibitions. Earlier this month it was announced the World Economic Forum was being moved from Davos, Switzerland to Singapore.
  • In Australia, a commission review said it is unlikely the first generation of COVID-19 vaccines set for the country in early 2021 will prevent virus transmission. The Australian Academy of Health and Medical Sciences stated in their review ongoing high levels of testing, strong contact tracing, isolation and quarantine will remain crucial for the foreseeable future. “Announcements of interim results from vaccine trials are promising, but even a vaccine that is 90% effective at reducing disease will take time to manufacture, distribute and administer, and may have limited impact on SARS-COV-2 (COVID-19) transmission and spread, or protection may be short-lived,” the review said.

Covid-19 – Due Diligence And Asset Management

Ponzi Schemes, Other Investment Fraud on Rise During Pandemic, SEC says

Brief: Criminals are defrauding investors in rising numbers as they try to exploit chaos unleashed by the Covid pandemic, the Securities and Exchange Commission said Monday. Investors should be on high alert for Ponzi schemes, fake certificates of deposit, bogus stock promotions and community-based financial scams, the SEC warned in an investor alert. “The SEC has recently experienced a significant uptick in tips, complaints and referrals involving investment scams,” the federal agency said. Fraudsters use times of uncertainty and change, such as the current Covid-19 pandemic, to lure victims into investment scams,” it continued. The extent of the increase in fraud documented by the SEC is unclear. A spokesperson for the agency did not return a request for comment. Investment scams promising high returns are a type of “income scam,” whereby con artists target victims who are trying to bring in extra income, according to the Federal Trade Commission. Other examples include work-from-home and employment scams and pyramid schemes. There was a 70% jump in income scams in the second quarter this year compared with the same period in 2019, according to an FTC analysis of consumer complaint data published Thursday.

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Apollo Group in $2.3 Billion Deal for ATM Firm Aided by Pandemic

Brief : A pair of investment firms agreed to shell out $2.3 billion for an ATM operator that’s benefiting from the wave of bank-branch closures during the pandemic. Cardtronics Plc agreed to be acquired for $35 a share by Hudson Executive Capital LP and Apollo Global Management Inc. on Tuesday. The all-cash deal is expected to be completed in the first half of next year, according to a statement Tuesday. Banks have shuttered almost 3,000 branches in the past 12 months, according to data compiled by S&P Global Market Intelligence. Cardtronics has benefited from the trend by partnering with lenders looking to offer their customers’ access to cash even when a full-scale branch isn’t available. Tuesday’s sale price was 35% higher than Cardtronics’ closing level on Dec. 8, the day before the company disclosed that Apollo and Hudson had proposed a deal at $31 a share. “Cardtronics faces a secular headwind on the one hand -- reduction of cash usage/ATM transactions -- offset by a secular tailwind -- banks closing branches, making its convenient ATM locations more attractive,” Robert Napoli, an analyst at William Blair & Co., said in a note to clients. Cardtronics, with a network of 285,000 ATMs across 10 countries, operates 10% of the world’s ATMs, but handles only about 1% of withdrawals made from cash machines.

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Mental Health Tech Startups Fetch Record Investments with COVID-19

Brief: The COVID-19 pandemic has put the spotlight on mental health tech startups, globally marking a record year for venture capital investment in the sector, according to data firm PitchBook. PitchBook data showed 146 deals raked in nearly $1.6 billion in venture capital investments as of Dec. 10. Last year the total was $893 million from 111 deals. A decade ago there were only 3 deals, worth $6.6 million. The investments come as employers are increasingly seen as customers for these startups. Consulting firm McKinsey reported last month that 52% of companies offer mental-health and bereavement counseling. Sleep and mediation app Calm, which raised $75 million last week, said one primary driver for its business was from employer partnerships. It was valued at $2 billion, making it the top valued mental health startup, according to PitchBook. Mental health and wellness platform Modern Health on Tuesday said it raised $51 million, with a valuation above half a billion dollars. Its services are offered through employers as well. Founder and Chief Executive Alyson Watson said since the onset of the pandemic, Modern Health doubled the number of customers to over 190 enterprises. “The way that we think about this is the fourth pillar,” said Watson, adding that employers are increasingly offering mental health care in addition to medical, dental and vision benefits.

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How Global Macro Hedge Funds Can Capitalise on the “Looming” Economic Normalisation

Brief: Global macro hedge funds from across the emerging market, systematic and discretionary spectrum may be well-placed to capitalise on prevailing equity valuations amid economic “normalisation”, Lyxor Asset Management strategists said this week. While discretionary global macro funds offer a tactical bias, which appears relevant “at the trough of the business cycle”, emerging market-focused macro managers benefit from stronger credit profiles of energy and metal exporters amid rising commodity prices. Risk assets have been setting new records in the US recently, Lyxor said in a note this week, with the S&P500 now up 13 per cent since the end of October, before the results of the Pfizer/BioNTech Covid-19 vaccine were announced. But the vaccine roll-out, and the subsequent economic “normalisation”, is preventing investors from being too defensive, despite rich equity valuations, strategists explained. Against this backdrop, certain alternative strategies which offer both performance and diversification would prove attractive. “Global macro strategies can deliver on both fronts,” senior strategists Philippe Ferreira and Jean-Baptiste Berthon, and hedge fund analyst Pierre Carreyn, wrote in the market commentary. “Global macro strategies are quite heterogeneous, from pure fixed income players to multi-asset strategies, discretionary or systematic, invested in developed or emerging markets, or both.” Splitting the universe into EM, systematic and discretionary, Lyxor’s analysis noted that strategies normalised their equity market beta at “higher levels but in moderate proportions”, particularly for discretionary funds.

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Credit Suisse Cuts Asset Management Headcount by 10% in Revamp

Brief: Credit Suisse Group AG cut 10% of the staff at its asset management business this year as it seeks to turn around a unit that has been hit by fund implosions in the wake of the pandemic. Switzerland’s second largest lender, which oversees 438 billion Swiss francs ($494 billion) in assets at the fund business, made the reductions as it closed some investment vehicles and wrote down the value of others, Eric Varvel, head of Credit Suisse asset management, said at the bank’s investor day. Varvel said that the unit has had a difficult year, with setbacks including a scandal involving a large client and a $450 million impairment to its stake in York Capital Management this quarter. He’s pledging to add 10 billion francs of net new assets in higher-fee alternatives and private markets offerings over the next two to three years while increasing sales to wealth-management clients. The business has 1,100 employees, according to a presentation on Tuesday.

Last week, the lender announced that two reinsurers it had backed through the asset management unit would stop underwriting new business after investors decided to pull their money from the funds. The bank has also shuttered a quantitative strategy and took a 24 million-franc charge on seed capital for a U.S. real estate vehicle in the third quarter. In addition, a joint venture with the Qatar Investment Authority is closing two groups of funds and returning capital to investors.

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The Asset Manager Arms Race Has Only Just Begun

Brief: For years, the asset-management industry has braced itself for shocks. In 2018, $369 billion poured out of long-term mutual funds in favor of exchange-traded funds, a record at the time. In 2019, the case for traditional actively managed mutual funds became even harder to make when Charles Schwab Corp. jump-started a race to the bottom among online brokerages by eliminating commissions for ETFs along with U.S. stocks and options. If those were tremors, 2020 will go down in history as an earthquake. Even before Covid-19 roiled global markets and brought the Robinhood crowd and Dave Portnoy of Barstool Sports into the Wall Street zeitgeist, there were already signs of seismic change. On Feb. 18, just a day before the S&P 500 Index set a pre-pandemic record, Franklin Resources Inc. announced a deal to acquire asset manager Legg Mason Inc. for almost $4.5 billion, a move that would bring its combined assets under management to $1.5 trillion. For both Franklin, an iconic investment manager that started in 1947, and Legg Mason, whose precursor firm dates to the 19th century, it was a tacit admission that they could no longer compete with BlackRock Inc. and Vanguard Group Inc. on their own. The global pandemic could only constrain this consolidation for so long. In early October, Morgan Stanley announced it was acquiring Eaton Vance Corp. for about $7 billion. Bringing in the Boston-based company’s more than $500 billion in assets meant Morgan Stanley Investment Management would manage about $1.2 trillion, finally reaching Chief Executive Officer James Gorman’s goal to join the $1 trillion club.

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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.

Our briefing for Monday December 14, 2020:

  • In the United States, the bipartisan group of US lawmakers will unveil their $908 billion coronavirus pandemic relief plan with the hopes Congress will pass it this week. The latest bid, which shows how much the two sides are divided, has two separate bills. The one proposal is for $748 billion in spending will include all provisions other than state and local aid and liability protections for employers. The second bill has two provisions – $160 billion in state and local aid allocated through a needs-based system, and liability protections. According to Bloomberg, a source close to the negotiations said it is unlikely all members who worked on the plan would sign off on both measures.

  • Similar to the United Kingdom last week, Canada celebrated their version of “V-Day” on Monday with the first person inoculated with the Pfizer vaccine. Anita Quidangen, a personal support worker at a long-term care centre in Toronto was the first person to receive the shot in Canada. Quebec – the hardest hit province in the country is expected to launch their vaccination efforts on Monday as well. Quebec’s first doses will be given in long-term care homes while Ontario are set to offer their shots in designated hospitals in Toronto and the nation’s capital – Ottawa.

  • According to the United Kingdom’s Health Minister, a new variant of COVID-19 has been identified in southeast England. Health Secretary Matt Hancock made the revelation on Monday while announcing London would return to the UK’s strictest version of a lockdown this week. Hancock said more than 1,000 cases with this new variant have been identified and the World Health Organization has been notified because similar variants had been identified in other countries in recent months. “I must stress at this point there is currently nothing to suggest that this variant is more likely to cause serious disease, and the latest clinical advice is that it’s highly unlikely that this mutation would fail to respond to a vaccine,” said Hancock.

  • Germany announced another hard lockdown over the weekend, causing economists to fear a likely double-dip recession to Europe’s largest economy. Chancellor Angela Merkel said the hard lockdown will begin on Wednesday as officials have conceded they have lost control over containing virus spread. As of Wednesday, non-essential stores will close, employers urged to close workplaces, and school children encouraged to remain at home. Stricter curbs such as a ban on gatherings over the New Year and drinking alcohol in public will remain in place until January 10th. Germany was receiving rave reviews for the handling of the first wave of the pandemic but have struggled with this second wave. The outbreak has been less severe than France, UK and Spain, but the government’s plans to help bend the curve haven’t worked. 

  • “The Most Beautiful Winter in the World” is the United Arab Emirates (UAE) tagline as it looks to encourage local travellers and promote desert winters in its attempt to recover from the coronavirus pandemic. The program which comes with an $11 billion USD price tag was launched via a tweet over the weekend from Vice President and Prime Minister Sheikh Mohammed Bin Rashid Al Maktoum. The UAE relies on energy and tourism to fuel its economy and both took a severe hit in 2020. The region is hoping the potential full public use of a China-backed COVID-19 vaccine could allow for a re-opening of the economy.

  • A quarantine free travel bubble for Australia and New Zealand could begin as early as 2021. New Zealand Prime Minister Jacinda Ardern addressed the possibility with reporters after a Cabinet meeting and said it would be dependent on levels of COVID-19 in both countries not getting worse. Australia and New Zealand already have a limited travel corridor, but anyone returning from a trip to Australia, must quarantine for 14 days upon their return. Prime Minister Ardern said the travel bubble could begin in the first quarter of 2021 once final details have been worked out.

Covid-19 – Due Diligence And Asset Management

EQT Offers to Buy Recipharm of Sweden in $2.1 Billion Deal

Brief: Private equity firm EQT AB has offered to take over Swedish pharmaceuticals company Recipharm AB for $2.1 billion, marking the latest in a string of deals underpinning demand for health-care targets. EQT is offering shareholders 220 kronor in cash per share, compared to Friday’s closing price of 179 kronor. It’s also proposing to give holders of Recipharm’s senior unsecured convertible bonds 1.43 billion kronor ($170 million) in cash per 1 million kronor in aggregate principal of the convertible bonds, according to a statement on Monday. The bid comes just two days after AstraZeneca Plc agreed to buy Alexion Pharmaceuticals Inc. for $39 billion in cash and shares. Other deals announced recently include Gilead Sciences Inc.’s $1.4 billion purchase of German hepatitis drug maker MYR GmbH and Boehringer Ingelheim’s 1.2 billion-euro acquisition of NBE-Therapeutics. EQT’s bid also follows news from Recipharm that a molecule it’s developing, Erdosteine, appeared to help Covid patients recover after they were discharged from hospital. The company, whose biggest shareholder is the Swedish state with a roughly 16% stake, has seen its share price gain about 36% this year. Stockholm-based EQT has already secured ownership of about 25.7% of the shares and 74.3% of the votes in Recipharm through its chairman, Lars Backsell, and Thomas Eldered, its chief executive. The deal is worth 17.9 billion kronor, or about $2.1 billion.

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Gammon Capital Up 449% is Betting on New Wave of Market Turmoil

Brief :A New York hedge fund that’s gained 449% in this year’s pandemic roller-coaster is betting on a new wave of volatility in the event Congress fails to extend a key bank provision in any new stimulus bill. As time runs short on breaking the legislative impasse, Gammon Capital LLC has been loading up on bearish stock options to wager on the prospective market fallout. One big risk: An accounting provision in the Cares Act that lets U.S. banks suspend the recognition of some coronavirus-related loan changes is due to expire by the end of the year. Without an extension, banks’ financial results would look worse, according to Michael Mescher, founder of the $22 million fund, with the potential to hit the economic recovery and stock rally. “In the absence of stimulus getting extended, all of this treatment ends,” Mescher said. “We’re adding more left-hand tail risk because it’s clear the market doesn’t realize this.” The 39-year-old former Barclays Plc trader is referring to measures that allow banks to defer labeling Covid-related loan modifications as troubled debt restructuring, as well as the temporary easing of capital requirements for community banks. The rising number of U.S. coronavirus cases combined with the risk of tougher lockdowns under an incoming Biden administration also make it more likely bearish wagers will pay off, he added.

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Investment Companies Hit All-Time Record For Assets Despite Dip in Fundraising

Brief: Investment companies recovered from pandemic lows to hit a fresh all-time high in assets, totalling GBP221.4 billion at the end of November, according to data from the Association of Investment Companies (AIC). Nevertheless, fundraising for existing investment companies fell to GBP5.7 billion over the year, which was 22 per cent lower than the previous year’s total of GBP7.3 billion.  “Despite the disruption and uncertainty caused by Covid-19, 2020 has seen the continuation of long-running themes in the investment company industry: healthy asset growth, strong fundraising from existing companies and falling fees,” says Ian Sayers, the AIC’s chief executive. Out of the year-to-date total, GBP1.3 billion was raised in the Renewable Energy Infrastructure sector, the highest-raising sector of the year. “Investment companies in the Renewable Energy Infrastructure sector continue to be in high demand for their attractive yields and their ability to contribute to a greener future.” The largest fundraising by individual company was by Hipgnosis Songs Fund, which raised GBP426 million for its royalties fund which includes songs by Mariah Carey, Fleetwood Mac, and Blondie.  Greencoat UK Wind followed with a raise of GBP400 million in the Renewable Energy Infrastructure sector, and then Smithson raised GBP349 million in Global Smaller Companies sector. There were also six IPOs of new investment companies, raising a total of GBP855 million. Investment companies returned an average of 10.2 per cent in the year to date, with many also making their fee structures more attractive for shareholders such as lowering management fees, introducing tiered fees and removing performance fees.

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Deutsche Bank Strategist Hasn’t Seen Investors Agree This Much in 25 Years

Brief: With the massive coronavirus vaccination campaign underway, the market is feeling bullish. The S&P 500 index (^GSPC) continues to climb near all-time highs and 2021 outlooks are sanguine. This has given some strategists — even bullish ones — a bit of pause. Deutsche Bank strategist Jim Reid wrote in a note to clients Monday that a key takeaway for the market in 2021 is that this risk-friendly, U.S. equities-heavy approach is “extremely consensus for the next 12 months.” The consensus felt so extreme that Reid wondered if this bullish case for 2021 S&P forecasts was the “biggest consensus in history.” “It’s fair to say that in the 25 years I’ve been doing this I can’t remember a time when so few (if any) disputed the central narrative,” Reid wrote. “Is this a warning sign or a reflection that the vaccine news has been uniformly positive and game-changing over the last 5 weeks?” In the last Deutsche Bank monthly survey of over 900 market professionals, 48% of respondents said they thought the stocks in both the U.S. and Europe would be higher in three months. This is as bullish as it was last month, Deutsche Bank strategists, led by Reid, wrote. The 12-month expectation was the second-most bullish of the year, also at 48%. The growth in the market has not converted many bulls to bears.

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Coronavirus Woes Supersede Longevity Risks in Asia for Now

Brief: The coronavirus pandemic has made it even tougher this year for Asia-Pacific governments to grapple with unprecedented longevity risks to retirement savings, analysts say. Governments' focus on "cushioning the economic effects of the coronavirus" has pushed demographic challenges from the headlines even as the window of opportunity to address issues — such as how to finance retirements that will stretch over 20 to 30 years — is closing, said Michaela Grimm, a Munich-based senior economist with Allianz Group. Ms. Grimm helped author the Allianz Pension Report 2020 the company issued in May. The pandemic "has distracted us," shifting the focus of governments in the region from the threat longevity poses for retirement savings even as a number of countries here get old "at a pace never seen on earth before," agreed Ashley Palmer, Hong Kong-based regional managing partner, Asia retirement and investment, with Aon Hong Kong Ltd. The U.S., U.K. and Europe took 80 years to transition from "aging societies," with 7% of their populations at 65 years of age or over, to "super-aged societies" with 20% in that age bracket. But that's happening "in about 10 years in some Asian markets," Mr. Palmer noted. Asset owners called that shift in government focus this year understandable even if steps to provide immediate relief for workers have sometimes undercut programs designed to ensure they won't outlive their savings.

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Boutique Firms Steal the Show on Year’s Top Health-Care Deal

Brief: Boutique advisory firms are taking most of the limelight on the year’s biggest health-care deal. AstraZeneca Plc tapped Evercore Inc. and Centerview Partners as lead financial advisers on its $39 billion takeover of Alexion Pharmaceuticals Inc. This deal helped Evercore jump three places higher in the mergers and acquisitions league tables, to No. 9 globally, while Centerview moved up five spots to No. 12, according to data compiled by Bloomberg. Morgan Stanley and JPMorgan Chase & Co. were listed as financial advisers as well as lead debt underwriters to Astra, while Goldman Sachs Group Inc. was also one of the main banks helping fund the deal.  Astra’s boutique-heavy lineup was reminiscent of another big U.K. transaction this year, the $40 billion sale of British chip designer Arm Ltd. In that deal, smaller advisory firms Zaoui & Co. and Raine Group led the discussions for Arm’s owner, SoftBank Group Corp. Goldman Sachs also had a role with the Japanese company. In contrast to Astra, Alexion did have a Wall Street bulge-bracket firm in its corner, hiring Bank of America Corp. to advise on the transaction. They know Alexion well, having worked with the company last year on its takeover of Achillion Pharmaceuticals Inc. as well as the purchase of Swedish drugmaker Wilson Therapeutics AB in 2018. One notable name missing from this latest deal was Robey Warshaw LLP, the U.K. boutique that advised Astra when it was the target of Pfizer Inc.’s abortive takeover bid in 2014 -- a deal on which Centerview and Evercore were also present. London-based Ondra LLP, which works on a retainer basis, did show up as it provided advice to Astra as part of its ongoing work with the company.

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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.

Our briefing for Friday December 11, 2020:

  • In the United States, the Food and Drug Administration (FDA) will move rapidly toward issuing an emergency authorization for Pfizer’s COVID-19 vaccine after a key panel endorsed the drug on Thursday. The Biological Products Advisory Committee voted 17-4 with one abstention to recommend the vaccine for emergency use. According to CNN, most governors have informed Operation Warp Speed that they will exhaust their Pfizer vaccines within days of receiving the first shipment. Warp Speed officials have said additional shipments of the vaccine should arrive on a weekly basis. 
  • Canada’s Public Health Agency has released their latest COVID-19 modelling, which forecasts projected cases and it is not looking like it will be a very happy holiday season. Speaking at a news conference on Friday, Chief Public Health Officer Dr. Theresa Tam said if Canadians maintain their current contact levels, more than 12,000 new cases will be recorded daily by January. Canada is currently at around 6,000 cases a day so far this week. According to the modelling sheets if Canadians increase their contacts, which is entirely possible over the holiday season, the numbers could surge to 30,000 cases by January. “We have yet to see the kind of sustained decline in daily case counts that would indicate we are bringing the pandemic under control,” said Dr. Tam.
  • The United Kingdom government said on Friday they would cut the self-isolation period from 14 days to 10 days and will apply to both those presumed to have been in contact with someone who had COVID-19 and those arriving from abroad. The shorter self-isolation period will begin on Monday December 14th, and will apply in England, Scotland and Northern Ireland. The shorter isolation period is already in effect in Wales. The Chief Medical Officers in the UK released the following statement on the move: “After reviewing the evidence, we are now confident that we can reduce the number of days that contacts self-isolate from 14 days to 10 days.”
  • The European Union agreed to an historic $2.2 trillion budget and stimulus package, but it didn’t come without a little controversy. The deal was agreed on Thursday after Hungary and Poland angrily protested a clause in the agreement that tied funding to upholding democratic norms. The rule-of-law mechanism both countries objected to will remain in place. The seven-year budget includes a $909 billion USD pandemic relief package that will be financed by joint debt and is badly needed as the coronavirus tears through the European bloc of nations for a second time this year.
  • Philippines Food and Drug Administration (FDA) confirmed on Friday that UK based drug firm AstraZeneca withdrew its application to conduct COVID-19 vaccine trials in the country. FDA Director General Eric Domingo clarified that even without holding clinical trials in the Philippines, AstraZeneca can still supply the country with coronavirus vaccines once they are approved for use. The FDA didn’t disclose what made the UK drug company change their mind after it had passed separate evaluations by a panel of vaccine experts last week. In October, Chinese state-owner Sinopharm also called off plans to hold vaccine trials in the Philippines stating they were only interested in supplying vaccines and not in clinical trials anymore.
  • In Australia, the University of Queensland and pharmaceutical company CSL have pulled the plug on their COVID-19 vaccine candidate after an unusual result occurred in clinical trials. The COVID-19 vaccine candidate was abandoned after several participants returned “false positives” for HIV during testing. The University and CSL assured there was no possibility the vaccine could lead to HIV infection but didn’t want to progress for fear it would interfere with existing HIV testing procedures and dent public confidence in using the vaccine even if it were to eventually work. The Australian government has already entered into agreements to purchase vaccines from Pfizer/BioNTech, Novavax and AstraZeneca/University of Oxford.

Covid-19 – Due Diligence And Asset Management

Buyout Firms Bet Smaller is Better With Covid Trimming Deals

Brief: Private equity bosses have found a way to keep deals flowing during the economic crisis: going small. With blockbuster buyout activity hit by the pandemic early in the year, the industry has turned to smaller acquisitions that are aimed at expanding their stable of companies. These purchases are another tool in the arsenal that private equity firms have to build their portfolio companies before selling for a profit. Add-on transactions from firms including Cinven and HarbourVest Partners comprised 51% of global buyouts in the third quarter, a new high, according to data compiled by PitchBook. These transactions, where private equity-backed firms acquire businesses using their owner’s capital, are also on pace for a record year. “You’re seeing most investors working more closely with their existing relationships, focusing on assets and segments they know,” Brian Gildea, head of investments at alternative asset manager Hamilton Lane, said in an interview. Cinven of London has been among the most active European firms in this arena this year. The 34 portfolio companies in its fifth and sixth funds have made more than 300 add-on deals since the funds began, according to a company spokeswoman. In October, Cinven almost doubled the size of Dutch ingredient distributor Barentz International with the purchase of Maroon Group, a North American supplier of specialty chemicals.

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A Hedge Fund Vet Makes a Fresh Start in the Pandemic

Brief : It’s been a good 2020 for John Thaler, who decided to stage a comeback in January after shutting down JAT Capital in 2015. After delivering eye-popping returns so far this year, Thaler’s new firm, Hampton Road Capital Management, is forming a strategic relationship with Leucadia Asset Management, the asset management division of Jefferies Financial Group. Leucadia will invest capital in Hampton Road’s long-short equity strategy, which is focused on technology, media, telecommunications, and consumer sectors globally. According to an investor letter distributed early Friday and obtained by Institutional Investor, Hampton Road is up 39.4 percent net year-to-date through December 10. The fund has garnered $250 million in assets under management so far, according to sources. “Leucadia will be beneficial to us as we scale our business over time and will allow us to concentrate on investing,” Thaler said in a statement. “Our team is very excited about the opportunities we are seeing in our core sectors on both the long and short side. We are pleased with the results we have delivered in our strategy this year and are optimistic about the future.” Thaler returned to fund management early this year, joining Wexford Capital as a portfolio manager of the Wexford Core Equities Fund. In August he spun out the fund and renamed it Hampton Road Capital Management. Thaler has ties to Julian Robertson Jr.’s Tiger Management through his work at Shumway Capital, a firm founded by a former Tiger analyst. He launched JAT Capital in 2007, specializing in the kinds of tech and media stocks popular with Tiger alumni.

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Institutional Investors’ Long-Term Forecasts Brighter than a Year Ago Despite Covid-19, says State Street Study

Brief: Despite the impact of Covid-19, State Street's survey annual Growth Readiness Study reveals that more than two-thirds of European institutional investors (67 per cent) were able to meet or exceed their investment performance targets over the last 12 monthsConfidence in the one-year growth outlook has dropped ten per cent since 2019, with 44 per cent of respondents now optimistic about meeting their growth objectives over the next 12 months. Long-term forecasts are also bright, with just over three-quarters (76 per cent) optimistic about achieving their growth targets in the next five years, representing a 10 per cent increase from 2019 – even though the majority believe that new regulations or taxation as a result of Covid-19 or an economic recession and vendors’ financial vulnerability will likely hinder expansion plans moving forward. Somewhat surprisingly, only 34 per cent of European respondents are worried about geopolitical tensions being a top threat to growth, compared to 40 per cent globally.

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COVID-19 Concerns Won’t Spring Jailed State Street Exec

Brief: A former State Street Corp. vice president convicted of tacking on unauthorized charges to huge international transactions will not be able to get out of prison five months into his 18-month sentence, as a judge ruled Thursday he does not face a substantial COVID-19 risk. Ross McLellan had sought compassionate release from the minimum security prison camp in central Massachusetts where he is serving his term, citing Type 2 diabetes and obesity as factors that put him at a heightened risk should he contract the virus. But U.S. District Judge Leo T. Sorokin denied the request, saying that the novel coronavirus is not a pressing concern at the prison camp in question and that McLellan has not met the standard for early release. "The camp is presently less than half full and has no active COVID-19 cases among its inmates," Judge Sorokin wrote. "Nothing in the record suggests that McLellan is currently exposed to unduly harsh or excessively risky conditions of confinement." The judge also wrote that "McLellan committed a serious crime for which he has served less than a third of his sentence — and less than the amount of time his less culpable co-conspirator served as a result of a sentence also imposed by this court." A jury convicted McLellan in 2018 of wire and securities fraud for supervising a scheme in which pennies per share were tacked on to massive international transactions for huge foreign clients without their knowledge.

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Asset Management Deals Are About to Get More Interesting

Brief: In 2020, asset managers joined up together to survive the Covid-19 downturn and industry pressures that had been mounting for years. Next year, tie-ups might be driven by more strategic motivations and new business initiatives, one firm predicted in a report issued Thursday.  The shift comes as a number of recent deals haven’t rewarded the acquiring asset manager with a higher stock price, even though the transactions have resulted in successfully integrated firms, concluded PricewaterhouseCoopers in its 2021 outlook on asset and wealth management deals. Even when some firms have reduced costs and increased earnings, they’ve still watched their price-to-earnings multiples decline in the aftermath of deals, according to PwC.  “As the Street may be downplaying the value of cost reduction, we’re already seeing a shift from deals driven by cost-cutting to deals driven by potential revenue synergies,” wrote Greg McGahan, deals leader for U.S. financial services and asset and wealth management, one of the report's authors. “These moves to broaden product offerings and expand distribution are designed to drive top-line growth, rather than expanding profit margins by reducing expenses.”  McGahan noted that both Morgan Stanley’s $6.8 billion purchase of Eaton Vance and BlackRock’s $1 billion deal for Aperio are examples of what might be in store for 2021. Aperio and Parametric Portfolio Associates, owned by Eaton Vance, both offer what's called direct indexing, which allows individuals or institutions to design a custom portfolio where they hold the individual securities. It’s an alternative to an index fund that is customized. 

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Wall Street Sees World Economy Surging in 2021 From Rocky Start

Brief: Wall Street’s biggest banks are predicting the coronavirus-hit world economy will crawl through the early days of 2021 before bouncing back as vaccines and more fiscal stimulus flow into it. After a year which saw the unanticipated shock of the deepest recession since the Great Depression, economists are bracing for a shaky start to the new year as 2020 ends with a spike in infections and further rounds of restrictions. The most upbeat are the analysts at Morgan Stanley, who predict an expansion of 6.4% in the coming year and maintain their call for a V-shaped recovery. Less confident are the economists at Citigroup Inc., who predict growth of 5%.Both would be dramatic improvements on the 4.4% contraction the International Monetary Fund has penciled in for 2020.

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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.

Our briefing for Thursday December 10, 2020:

  • In the United States, the number of COVID-19 deaths in a single day surpassed 3,000 for the first time on Wednesday. The one-day death toll exceeded the number of lives lost from the terror attacks on America during September 11th, 2001. Healthcare experts are pleading with Americans not to gather this holiday season. “No Christmas parties. There is not a safe Christmas party in this country right now,” said Dr. Michael Osterholm, a member of President-Elect Joe Biden’s COVID-19 advisory board. With America hoping to have two vaccines signed up for approval in a matter of weeks, President-Elect Biden has set a goal of vaccinating 100 million people within the first 100 days of his administration. 

  • In Canada, another day, another record for Ontario. The country’s most populous province recorded 1,983 new COVID-19 cases on Thursday with over half of those happening in the heavily restricted areas of Toronto and Peel Region. Elsewhere in the country, Quebec recorded 1,842 new cases with Premier Francois Legault threatening fines for those who don’t follow the rules. “We cannot allow a minority of people to put the majority at risk,” said Legault. Earlier in the week, the other hotspot in the country, the province of Alberta, imposed tougher restrictions including a mask mandate and ban on social gatherings to get their numbers down. Alberta had 1,460 new cases on Wednesday – only about 500 less than Ontario on Thursday even though they have three times less of a population.

  • In the United Kingdom, London Mayor Sadiq Khan has warned his residents the England capital could be subject to the country’s toughest COVID-19 restrictions due to its high case rate. The UK’s tier 3 restrictions include the closure of pubs and restaurants for in-person service. The latest weekly data as of December 6th from Public Health England shows London has a rate of 191.8 cases per 100,000 of the population, the highest of any region in England.

  • Germany on Thursday reported a daily record of 23,769 new COVID-19 infections, prompting health officials and government leaders to sound the alarm. The president of the Robert Koch Institute told journalists people need to reduce their contacts by 60% or “other measures” will have to be considered. The president of Germany’s government organization for disease control went on to add the restrictions that have been in place since November 2nd are working when implemented correctly as noted by numbers in certain regions. Chancellor Angela Merkel has called on a full lockdown to be implemented after Christmas – for potentially as long as two weeks in order to bring down infection rates.

  • France will lift a six-week-long nationwide lockdown on December 15th, but it won’t be business as usual upon exit. A curfew from 8 PM will be imposed and that will include New Year’s Eve, but Prime Minister Jean Castex said families would be allowed to travel to celebrate Christmas together. Museums, theatres and cinemas will remain closed for an extra three weeks past the December 15th lockdown exit. France’s COVID-19 rate has improved since the country entered its second lockdown on October 30th with new infections dropping from nearly 50,000 a day at the start to around 10,000 now. 

  • Reuters is reporting India, the world’s largest vaccine maker, is getting set to enter the COVID-19 vaccine race. India manufactures more than 60% of all vaccines sold across the globe, but its $40 billion pharmaceutical sector has been quiet so far with no role in the production of the Pfizer and Moderna COVID-19 vaccines. Indian companies though are set to produce eight more affordable vaccines, including AstraZeneca’s Covishield. “There are many vaccines being produced in countries around the world, but there’s only one nation that has the manufacturing capacity to produce sufficient quantities to satisfy the demands of citizens in every country, and that’s India,” said Australia’s ambassador to India, Barry O’Farrell.

Covid-19 – Due Diligence And Asset Management

Hedge Fund Citadel’s Commodity Investments Up More Than $1 Billion This Year

Brief: Hedge fund Citadel’s investments in commodities returned more than $1 billion this year, according to three people familiar with the matter, helping to drive strong overall performance for one of the world’s largest funds. Citadel, led by Chicago billionaire Ken Griffin, benefited from gains across the commodities business in oil, power, natural gas and agriculture markets this year, the people said. Citadel’s flagship Wellington fund, which practices a multi-strategy array of investments on stocks, bonds, commodities and other securities using teams of traders, is up by 21.2% this year through November, putting it on track to have its best year since 2012, one person familiar with the matter said. All five of the fund’s core investment strategies have positive returns for the year, the person added. A spokesperson for the company declined to comment. Energy markets swung wildly this year as the coronavirus pandemic crushed global fuel demand and created distortions, allowing trading opportunities for hedge funds, oil majors and commodities merchants.

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Private Credit Manager Notches Up 55% Return on Pandemic Fund

Brief : AlbaCore Capital LLP is closing the $1 billion fund and managed accounts it set up to invest in beaten-up credits during the pandemic after the strategy yielded a 55% gross return through the end of last month. The turmoil caused when the first wave of Covid-19 infections shook markets in March meant many fundamentally strong borrowers fell into the target price range for its vehicle, known as AlbaCore Investment Opportunities, the London-based firm said in a statement. The strategy paid off as the market rallied strongly when the U.S. Federal Reserve announced purchases of corporate debt and the European Central Bank launched its emergency quantitative easing program. AlbaCore’s managers took a relatively cautious approach, allocating most of their investments to industries such as software, telecommunications and consumer staples that were spared the worst impact of the pandemic, David Allen, the firm’s founder, said in an interview. “We bought a lot of senior secured debt and investment grade securities as low as 60-70 cents on the dollar,” said Allen. “Around 80% of our buying activity was in the safest parts of the market.” Finding an appropriate benchmark to measure Albacore’s fund against is tricky. The firm uses a blend of the S&P European Leveraged Loan Index and Bloomberg Barclays Pan-European High Yield (Euro) Index as a proxy, which generated 1.7% in the year through Nov. 30, according to the statement. The fund does not employ a typical hedge fund strategy and far outstrips the 1.01% returned year to date by an index of credit hedge funds tracked by Bloomberg.

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Mnuchin Questioned on Treasury Loan to Apollo-Backed Firm

Brief: Treasury Secretary Steven Mnuchin faced questions on Thursday from a congressional oversight panel over his department’s decision to extend a $700 million loan to a trucking company backed by private equity firm Apollo Global Management Inc. The Treasury Department approved a loan to YRC Worldwide Inc., a Kansas-based shipping company, drawing on funds from the March Cares Act that were intended to help bolster companies critical to national security. The watchdog has raised concerns that the loan could put taxpayer money at risk and that YRC, which ships supplies between military bases, isn’t critical to national security. Congress and outsiders “encouraged us to take losses” on the program, Mnuchin said Thursday at a Congressional Oversight Commission hearing about the national-security loans. “We are not saying this is a market loan. Had it been a market loan, Treasury would not have been involved.” “Fortunately, we’ve made a significant profit” on the YRC deal, Mnuchin said. “I am going to recommend that next year whoever is Treasury secretary seriously look at selling this loan and recovering what I think will be a profit to taxpayers, because this was a success.” Representative French Hill, an Arkansas Republican on the panel, said that taxpayer money is at risk because he didn’t believe that the collateral pool backing the loan was worth as much as Treasury estimates.

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Manufacturers Hunt for Deals Amid Pandemic Wreckage

Brief: The COVID-19 pandemic has been a disaster for many U.S. manufacturers, but it is also creating acquisition opportunities. Cary Wood, chief executive of Grede Holdings LLC, saw business plunge 90% earlier this year as the auto plants and heavy equipment producers that use his metal parts shut down, followed by a bumpy recovery. But he’s upbeat these days and, in the last two months, he’s opened negotiations aimed at acquiring seven smaller foundries. “I can wait out the cycle,” Wood said, “but many of these guys can’t. Grede, carved out of publicly traded American Axle & Manufacturing Holdings Inc last year, is backed by a private equity firm and was already hunting for acquisitions before the crisis hit. But Wood said the rate of deal talks is far higher than a year ago, when he was running the foundry company that merged with Grede as part of the buyout. And it is similar to a wave of restructuring he saw just after the 2008-2009 financial crisis. A similar story is playing out across the U.S. economy. A recent survey of leaders of companies with over $250 million in sales found 65% of manufacturers said they planned to make acquisitions in response to economic conditions created by the pandemic. Other sectors show a similar push for acquisitions, though not to the same degree. Only 36% of consumer goods companies said they were looking for acquisitions, while 41% of health care companies said they were on the hunt.

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Oil Ascends From Covid Abyss Six After Falling Below Zero

Brief: Oil futures in London blew past $50 a barrel for the first time since the pandemic ground the global economy to a halt in a remarkable rally that few predicted would happen this soon. The return to prices levels not seen since March while the pandemic grinds on represents a startling turnaround for a market that just months ago was brought to its knees by an unprecedented loss of demand. With places to store unused oil running out and low prices pushing U.S. shale drillers into bankruptcy, OPEC and its partners collaborated to stanch outflows and stabilize markets while the world awaited a vaccine. Announcements last month from Pfizer Inc and others that safe vaccines could be rolled out by spring, lending a crucial boost to global demand for fuels, provided the boost that was needed to send crude spiraling above $40. Futures in London rose as much as 4.5% Thursday. Asia continues to lead the rebound in physical demand with robust purchasing by China’s private refiners. A top Indian processor has issued multiple tenders to acquire oil. The U.S. dollar also weakened, which raised the appeal for commodities priced in the currency. Still it appears the suddenness of Thursday’s rally caught some oil watchers off guard. “I am a bit surprised that it happened now,” said Bart Melek, the head of global commodity strategy at TD Securities. “I have been advocating $50+ Brent, but I thought that would happen after we see inventories and demand look better.”

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Omers Tells Staff They Can Remotely Work Through March

Brief: Ontario Municipal Employees Retirement System, the pension fund for local government workers in Canada’s largest province, told staff they may continue working remotely until March 31. The policy applies to employees who have the ability to do their jobs from home. “We recognize and thank our colleagues whose roles require them to be on site and who’ve been going into the office for the duration of the pandemic,” said a memo signed by Rodney Hill, Omers’s chief risk officer, and Dean Hopkins, chief operating officer of its real estate investment arm, Oxford Properties Group. “Ultimately, we’re an office-based culture,” the two executives said, adding that Omers plans to reopen its office when conditions allow. The Toronto-based pension fund managed C$109 billion ($85 billion) as of the end of 2019. Canada became one of the first countries to approve a vaccine from Pfizer Inc. and BioNTech SE on Wednesday, but will have limited quantities at first. Prime Minister Justin Trudeau has said the government expects a majority of the population will be able to get a vaccine by September. “We continue to monitor our approach, adjust as needed, and expect to work this way until at least March 31, 2021, when we will re-evaluate based on conditions,” Omers spokesperson Neil Hrab said. Financial institutions on Wall Street and beyond have delayed return-to- office plans as coronavirus cases have spiked. Some, including Deutsche Bank AG and Nomura Holdings Inc., are weighing or have decided on making flexible work arrangements permanent.

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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.

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