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Covid-19 Diligence Briefing

Our briefing for Wednesday July 14, 2021:

  • In the United States, cases are back on the rise as the quick spreading delta variant tears through the country.  Slower vaccine rates and Fourth of July gatherings are also factors in the rising case numbers. According to data from John Hopkins University, the number of new cases per day has doubled over the last three weeks. Dr. James Lawler, a leader of the Global Center for Health Security at the University of Nebraska Medical Center in Omaha, says the US is headed for the same position as the UK. "The descriptions from regions of the world where the delta variant has taken hold and become the predominant virus are pictures of ICUs full of 30-year-olds. That's what the critical care doctors describe and that's what's coming to the U.S.," he said.
  • In Canada, Prime Minister Justin Trudeau said plans for domestic vaccine passports will be left to the provinces. “Different provinces will be doing different things, where the federal government has a role to play and where we are looking is in terms of vaccine certification for international travel,” he said in a news conference on Tuesday. Provinces of Quebec and Manitoba have already announced their plans for an internal vaccine passport, while provinces of Alberta and Saskatchewan have said they won’t have passport requirements.
  • In the United Kingdom, masks will still be required on London’s transport network, according to the city’s mayor. Sadiq Khan said that he will not put users of the subway, buses and trams at risk by eliminating face covering rules. Face masks have already been mandatory on public transit for the past year, but as of next Monday, face masks will no longer be required by law. This means that enforcement officers can deny access or eject passengers who are not wearing masks, but police won’t be able to get involved. “What would have been far better is for the national rules to apply across the country, not just in London but across the country,” Khan said. “That would have provided clarity in relation to what the rules are.”
  • South Korea continues to battle its worst-ever outbreak of the virus, as new cases on Tuesday soared to 1,615, the highest number since last Friday. The ongoing surge in new cases is largely attributed to the delta variant, which accounted for 30.7% of all new cases from July 4-10. Although new case numbers are on the rise, there are less serious cases and deaths in this outbreak as opposed to previous ones, with more of the older and more vulnerable population now vaccinated.
  • France has opened its border to Canadian travellers and anxiously awaits Canada to do the same in return. The Canadian border remains closed to foreign travellers until at least July 21st.  Ambassador Kareen Rispal, the representative of President Emmanuel Macron’s government, says the Canadian border should open to the French as soon as possible. She warned that relations between the two countries could suffer if not. “Canada is a green country,” she said, referring to the colour system France uses to determine where the virus is under control. “We would be very happy if the French could return to Canada without constraints other than being doubly vaccinated, taking tests, etc. We aren’t asking to return to Canada in a haphazard way.”
  • Australia has extended a lockdown in Sydney for at least another 14 days. New South Wales State Premier Gladys Berejiklian says restrictions must be in place until at least July 30th after announcing 97 new locally transmitted cases. She has repeatedly said the lockdown will be in place until community case numbers are down significantly. According to authorities, more than 65,000 people came forward for testing in the last 24 hours. “I appreciate people are stressed and upset about what is going on, myself included,” Berejiklian said. “None of us want to be in this situation.”

Covid-19 – Due Diligence And Asset Management

Moderna Joins the Biotech Elite as Value Reaches $100 Billion

Brief : Moderna Inc. briefly soared above a $100 billion valuation on Wednesday as vaccinations against the Covid-19 virus continue to ramp up across the globe. Shares of the drug developer rose as much as 6.1% to $249.50 amid a broader rally in the stock market. Moderna has surged more than 220% over the past 12 months as drugmakers raced to develop a vaccine against the coronavirus. The first shots were advanced in record time with Moderna’s inoculation getting emergency use authorization in the U.S. in December, just a week behind the first approval for Pfizer Inc. and BioNTech SE’s vaccine. The breakthrough has helped vault the biotech firm to a household name as Americans identify the jab they received by the company name, “Pfizer” or “Moderna.” In late June, Moderna’s shot was cleared for importation in India where the delta variant has taken hold. Other vaccines authorized in the South Asian country include ones from AstraZeneca Plc, Bharat Biotech International Ltd. and Russia’s Sputnik V.

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Hedge Fund Confidence at Highest Level “In Many Years” as Industry Enjoys Renaissance Among Investors

Brief: The latest Hedge Fund Confidence Index – published jointly by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel – shows industry optimism continued to grow in the second quarter of 2021, having earlier surged 40 per cent in Q1. The data shows hedge funds’ optimism for the coming 12 months is now at “the highest it has been for many years”, AIMA, Simmons & Simmons and Seward & Kissel observed. The AIMA Hedge Fund Confidence Index (HFCI) is a quarterly measure of hedge fund firms’ confidence in the economic prospects of their business over the next 12 months. Roughly 300 hedge funds, collectively managing some USD1 trillion in assets, are quizzed on their capital-raising, revenue-generation and cost-managing prospects, along with the overall performance outlook of their funds for the coming year. They then score their confidence levels on a scale of +50 (the highest level of economic confidence) to -50 (the lowest), with 0 indicating a neutral level of confidence.

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Prices of U.S. Hotel Stays Recover to Pre-Pandemic Level

Brief: The cost of hotel and motel accommodations in the U.S. surged 7.9% in June from a month earlier, the second-largest gain on record, the Labor Department’s consumer price index data showed Tuesday. That marked the fourth straight monthly advance and pushed the price index back above where it was before the pandemic. The government figures jibe with industry data showing revenue per available room, which combines occupancy and prices, is finally surpassing pre-Covid levels. So-called RevPar increased 43% in Phoenix during the week ended July 3, compared with the same period in 2019, the highest among major markets, according to data from lodging analytics firm STR. New Orleans and San Francisco notched the steepest declines. “There’s really not much in the way of discounts for hotels, especially the ones people want to stay in,” said Lukas Hartwich, an analyst at Green Street. “There’s a lot of pent-up demand for leisure hotels. ”U.S. hotels recorded the lowest occupancy rates on record in 2020, as the pandemic kept travelers at home and ate up lodging industry profits.

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JPMorgan CEO Jamie Dimon: Coronavirus in 'Rear-View Mirror' For Consumers

Brief : JPMorgan Chase & Co. CEO Jamie Dimon said COVID-19 appears to be "in the rear-view mirror" for American consumers, who are emerging from the pandemic with more money in their pockets and the desire to spend it. During his second-quarter earnings call with investors on Tuesday, Dimon was asked for his take on how things look today amid talk of "peak inflation" and "peak growth" compared to 2011 or so as the U.S. emerged from the financial crisis from a few years prior. "I think they are completely different, fundamentally," Dimon replied, saying, "coming out of the '09 crisis, the world was massively over-leveraged…the consumer was over-leveraged, companies were over-leveraged." The CEO said that is not the case today."The pump is primed," Dimon said on the call. "The consumer, their house value is up, their stock values are up, their incomes are up, their savings are up, their confidence is up, the pandemic is kind of in the rear-view mirror – hopefully, nothing gets worse with it."

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With Latin American Equities Poised for Outperformance, Investors Are Turning to These Research Providers

Brief: After an unprecedented year, what one word best sums up the equity markets of Latin America? “Busy,” according to Carlos Sequeira, head of research at BTG Pactual. While the region as a whole was largely impacted both socially and economically by Covid-19, each country from Brazil to Chile reacted very differently to the pandemic. This is in part due to global monetary policy, as well as each country’s individual government stimulus plans. With just as varied economic recoveries — despite virus surges — throughout the region, there is cautious optimism across the investment chain in Latin America. But another looming election cycle means there is no downtime for the region’s sell side — or their clients. “From a market perspective, the countries in Latin America rebounded quite quickly from the shutdowns during the pandemic with tons of transactions,” Sequeira said. “Clients, as well as us, have been very busy with all of the IPOs coming to market.”

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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 July 13, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) is prepared to meet on July 22nd where COVID-19 safety will be at the top of the list. The announcement by the CDC comes one day after the fact sheet for Johnson & Johnson’s COVID-19 inoculation was revised by federal regulators to note a “small possible risk” of an auto immune disease. In a statement on Monday, America’s Food and Drug Administration (FDA) added the warning after 100 reports of Guillain Barre Syndrome were made among the roughly 12.8 million Americans that were given the one-dose vaccine. 

  • In Canada, as of Tuesday, more than 50% of Canadians have been fully vaccinated against the coronavirus. Prime Minister Justin Trudeau has defended the country’s vaccination strategy noting, mixing and matching vaccines is “bearing out” with increasing take-up and steadily declining new infections. The prime minister felt the need to defend the strategy after Dr. Soumya Swaminathan of the World Health Organization (WHO) noted the data of mixing and matching coronavirus vaccines is “a bit of a dangerous trend”. Health experts in Canada say the comments made by Dr. Swaminathan were taken out of context and that mixing and matching COVID-19 vaccines under public health guidelines is safe and effective. Prime Minister Trudeau noted by continuing this strategy, the country is on track to have everyone who is eligible fully vaccinated against COVID-19 by the end of the summer.

  • In the United Kingdom, leading scientists are urging Prime Minister Boris Johnson to end the mixed messaging on face masks, working from home and vaccine passports as lockdown restrictions are expected to be fully lifted less than a week from now. The scientists, who include Professor Graham Medley, chairman of the modelling advisory SPI-M group, are warning of the dangers of a third wave that could last six weeks after legal restrictions are abandoned on July 19th. Professor Medley noted the evidence that face masks help reduce the spread of the virus, but only if everyone does it, rather than 70% or so – noting he wants the prime minster to reconsider the ditching of mandatory face coverings on public transport and enclosed public spaces. 

  • German Chancellor Angela Merkel said the country will not follow the UK’s lead in dropping restrictions next week and urged more Germans to get the COVID-19 vaccine. Chancellor Merkel noted the more people get the shot, “the more free we will be again.” Vaccination rates have slowed in recent weeks with about 58.7% of the population receiving at least one shot and 43% fully vaccinated. Germany’s Robert Koch Institute, the government run disease control agency, said last week the country should aim to vaccinate 85% of people ages 12-59 and 90% of people over 60 to prevent the delta variant from causing a resurgence of coronavirus cases this fall and winter.

  • France’s President Emmanuel Macron’s pressure to get vaccinated to save the summer season and French economy seems to have worked. More than one million French citizens made COVID-19 vaccine appointments on Tuesday – a new record since the country rolled out coronavirus vaccines in December. President Macron’s announcement on Monday of special COVID-19 passes that will be required starting in early August to enter restaurants and shopping malls and to get on trains and planes raised questions and worried French residents and foreign tourists on what the logistics will look like and what will be expected. 

  • In Australia, government officials on Tuesday announced added financial supports for businesses and households in Sydney negatively affected by the region’s latest coronavirus lockdown. “The New South Wales outbreak has proved to be more severe, more dangerous, and it’s in the national interest that we now put in place an upgraded set of arrangements for cooperation with the states and territories,” said Prime Minister Scott Morrison of the disaster funding deal. New South Wales state Premier Gladys Berejiklian said she would announce on Wednesday whether Sydney’s 5 million residents would remain locked down beyond the three-week mark, which is set to be on Friday.

Covid-19 – Due Diligence And Asset Management

Goldman Says Pandemic is Shaping a More Productive U.S. Economy

Brief : The Covid-19 pandemic is fueling a productivity boost for the U.S. economy by speeding up workplace digitization, according to an analysis by Goldman Sachs Group Inc. Since the crisis began, annualized growth in output per hour has risen 3.1%, compared with 1.4% in the previous business cycle, Goldman economists wrote in a note. “Stronger productivity growth has been one of the silver linings of the pandemic,” they said. Those gains are most visible in sectors that can take advantage of virtual meetings, and where in-person expenses such as travel and entertainment have scope to decline. The gains are being led by sectors including information technology, professional services and wholesale trade, while online shopping has lifted productivity in the retail sector. Figuring out how to boost productivity among workers and companies is often identified as one of the biggest obstacles for global growth. The ability to work from home has been singled out as one area where gains are obvious, with a recent study estimating a productivity lift in the U.S. economy of 5%, mostly because of savings in commuting time. However, that study found gains were disproportionately available to the highly educated and well-paid, with many lower-paying jobs -- such as in food preparation and other essential industries -- unable to be done remotely.

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US and UK Lead the Way as Most Attractive Countries for Post-Covid PE and VC Investment

Brief: The United States remains unparalleled as a magnet for investors, according to the 10th anniversary edition of the Venture Capital (VC) and Private Equity (PE) Country Attractiveness Index.  The index ranks 125 countries according to the quality of their investment environment for adventurous VC and PE investors. The countries are analysed and ranked according to thousands of weighted data points covering six key drivers: economic activity, depth of capital markets, taxation, investor protections and corporate governance, human and social environment, and finally entrepreneurial culture and deal opportunities. Based on its strong performance in all six areas, the United States continues to be the index benchmark with a score of 100. It is followed by the United Kingdom, Japan, Germany, and Canada to round out the top five. Within the top 10, the most remarkable gains were seen for China, South Korea and France, who entered the top 10 for the first time. All top-ranked countries are expected to make swift recoveries from the COVID-related recession, especially China (now 7th), where GDP growth is already recorded.

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Women Push Against Being Left Behind Amid Pandemic Recovery

Brief: Proponents of women’s progress on Tuesday launched a political push in Rome to ensure that global pandemic recovery efforts won’t leave women lagging even farther behind, with the chief of the European Union's executive arm lamenting the scarcity of women in political leadership positions. Advocates are using Italy’s current leadership of the G-20 grouping to campaign for pay equality, greater involvement in decision-making and elimination of cultural stereotypes that hinder women’s advancement. “At the next G-20 summit in Rome, I could be the only woman in the group” of leaders, European Union Commission President Ursula von der Leyen told a forum examining where women lag behind and how they can catch up to men. Italy holds a summit of G20 leaders until the end of October. While von der Leyen didn't elaborate, she appeared to be referring to the prospect that Angela Merkel would no longer be leading Germany's government after elections in September. “There could be no better reminder of how long the road towards gender equality still is,” von der Leyen said, speaking by video message at the opening of the three-day forum.

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75% of Asset Management Firms do not Want to Return to Pre-Covid Working Arrangements

Brief : Three-quarters of asset managers want to embrace the new normal, with only 25% desiring to return to the pre-Covid work environment, according to a survey from Magellan Advisory Partners. Three-quarters of asset managers want to embrace the new normal, with only 25% desiring to return to the pre-Covid work environment, according to a survey from Magellan Advisory Partners. The Post-Pandemic Working Environment study spoke to management teams across 62 fund houses globally, with assets under management ranging from under $1bn to more than $1trn and found that 75% want the post-Covid hybrid working environment to be permanent. There is an overwhelming preference for three days in the office per week to become the norm, with almost 60% of respondents opting for this balance. Regionally, there was some divergence, with asset managers in the Middle East and Africa and the US  leaning towards a four-day office week, while employees in Asia-Pacific may find themselves in work just two days out of five.  When not in the office, the majority of firms do not mind where their employees base themselves, with 56% stating they would allow staff to work from anywhere in the world that is not their home address.

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B.C. Sees Record Capital Raising and Market Capitalization During COVID-19 Pandemic

Brief: The total market value of B.C.’s  public companies grew nearly 50 per cent in 2020 to reach record highs, despite the impact of the pandemic on global financial markets, according to a new report from the British Columbia Securities Commission (BCSC). The BC Capital Market Report 2020 shows that the total market value of B.C.-based companies grew 47 per cent in 2020 to $286 billion, compared to 2 per cent growth in the previous year. “COVID-19 rattled B.C. investment markets in the first quarter of 2020, but they rebounded quickly, demonstrating their resilience and strength even during a global pandemic,” said John Hinze, the BCSC’s Director of Corporate Finance. “Not only did B.C. public companies finish the year with a record market capitalization, they also reported record capital-raising, including filing a record number of prospectuses with the BCSC.” The annually produced report provides a snapshot of the province’s capital market activity in the calendar year, detailing how much money was raised by B.C. companies and investment funds as well as how much was raised from B.C. investors.

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Private Equity Firms Set ‘Frenetic’ Pace for 2021

Brief: Based on performance in the first half of the year, 2021 is shaping up to be a record-breaking year for private equity. In deals, exit activity, and fundraising, the industry its set to outpace previous highs, according to new data from PitchBook. In the second quarter of 2021, private equity deal making “continued at a frenetic pace,” the report said, with funds closing 3,708 deals worth an estimated total of $456.6 billion. For context, the entire year of 2020 saw 5,734 deals with a combined value of $711.6 billion. “We are running out of metaphors to describe record-breaking deal, exit, and fundraising activity,” said Rebecca Springer, PE analyst at PitchBook and co-author of the study. The report attributed the staggering levels of deal activity to various factors, including a partially vaccinated population, high investor confidence in the equity markets, a “frenzied” demand for high-yield debt, and the regulatory nature of the Biden administration. June’s club buyout of Medline Industries, a medical supply company, was cited as an example of the “risk-on” environment for dealmaking.

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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 July 12, 2021:

  • In the United States, Pfizer plans to meet with officials from the Food and Drug Administration (FDA) after stating Covid-19 boosters will be needed within 12 months. US President Joe Biden’s Chief Medical Advisor Dr. Anthony Fauci says it’s very possible that a booster shot will be needed in the future, but it is too soon for the government to make any recommendations.  “Right now, given the data and information that we have, we do not need to give people a third shot,” he said. Other leading vaccine experts don’t necessarily agree with Pfizer, saying more data is needed to justify a booster shot. 
  • Reopening is the common theme across Canada, as more provinces loosen their pandemic restrictions.  On Sunday, Saskatchewan became the second province, following Alberta, to scrap their remaining rules, meaning masks and physical distancing are no longer required. Premier Scott Moe says falling case numbers show that the province is in a good place. While masks are still mandatory in Quebec, the province will reduce the required distance between two people from different households to one metre.  Sports venues are now allowed to accommodate up to 50 people indoors and 100 people outdoors, and the customer capacity for retail spaces will also increase.
  • In the United Kingdom, Prime Minister Boris Johnson is set to announce the final step to reopening, the removal of all legal restrictions by July 19th.  But Junior Health Minister Edward Argar says people will still be given “clear and strong guidance” about wearing masks, even as the restrictions loosen. “When we move to step four we will see the falling away of all legal obligations and legal restrictions towards personal and corporate responsibility,” he said. Covid-19 cases continue to soar in the UK, with case numbers reaching over 30,000 per day.
  • In France, the country’s health minister says the delta variant will most likely become the new dominant strain. President Emmanuel Macron is expected to announce a new law requiring healthcare workers to get vaccinated. France’s top health advisory body made the recommendation on Friday, saying vaccines should be mandatory for anyone who comes into close contact with Covid-19. Although officials have warned of a new wave of infection, they say new lockdown measures aren’t likely. Approximately 40% of the population of France is vaccinated.
  • New Zealand will operate repatriation flights for citizens who are in Sydney grappling with the latest Covid-19 outbreak. Air New Zealand said within fifteen minutes of being put up for sale, seats on all nine emergency flights had been sold out.  Prime Minister Jacinda Ardern said the government would make quarantine facilities available for approximately 1000 people, as passengers booked on the flights will have to quarantine for 14 days after arriving. New Zealand has had success at eradicating community spread of the virus, while Australia is currently fighting its worst outbreak in over a year.
  • On Sunday Australia reported its first Covid-19-related death of the year and 77 new cases, a record number for 2021. State Premier Gladys Berejiklian says she expects cases will continue to rise in the coming days. “I’ll be shocked if it’s less than 100 this time tomorrow, of additional new cases,” she said. The recent outbreak in Australia has seen a total of 566 cases, the majority of them in and around Sydney. It is highly likely that the current three-week lockdown will be extended, as the country battles the highly infectious delta variant amid a slow vaccine rollout.

Covid-19 – Due Diligence And Asset Management

Cyber-attacks biggest threat to growth, warn financial services CEOs

Brief : Chief executives in financial services rank cyber-attacks as the greatest threat to future growth prospects – more than a pandemic or over-regulation – according to a PwC survey. Executives at some of the world’s biggest banks, insurers and asset managers were asked to choose from a list of potential business, economic, policy, social and environmental threats to growth. They ranked cyber-attacks top (56 per cent), followed by pandemics (51 per cent) and over-regulation (50 per cent). The prospect of financial institutions being subject to a cyber-attack has grown considerably in recent years. Only 33 per cent of CEOs considered cyber threats the biggest concern for their business five years ago in 2016.

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Strong Sovereign performance provides liquidity and stability to Governments through the pandemic

Brief: Invesco today released its ninth annual Global Sovereign Asset Management Study, which details the views and opinions of 141 chief investment officers, heads of asset classes and senior portfolio strategists at 82 sovereign wealth funds and 59 central banks, who together manage USD19 trillion in assets. With Covid-19 top of mind, impacting both operations and investment strategies, the impact of the ongoing pandemic is a major theme running throughout this year’s report. In response to Covid-19, governments rushed to implement policy measures designed to prop up their economies and public services such as health, as well as providing support for businesses and households at a time when tax revenues retreated with depressed economic activity.

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Pace of recovery rises in the world’s leading economies

Brief: The growth-cycle outlook is steadily increasing for the world’s leading economies with the gradual lifting of lockdown measures and progress in vaccinations, the OECD said. The organization’s Composite Leading Indicators, which tend to precede economic turning points by about six months to nine months, continue to expand for the group’s 38 members as a whole and in some large emerging-market economies. The OECD cautioned that despite the improvements in containing the spread of Covid-19, its measures should still be interpreted with care and may say more about the signal than the degree of actual economic growth.

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Business trips are coming back faster than expected in the U.S.

Brief : In-person conferences are back sooner than anticipated in the U.S., a sliver of good news for industries like airlines and hotels that are relying on corporate travel for a full recovery. About half of attendees at a large annual meeting of accountants are expected to make the trip to Las Vegas this month, substantially more than the organizers anticipated at the start of the year. And some conferences planned in the fall have a full pre-pandemic flavor, with almost all of the speakers and attendees planning to be on site rather than over Zoom. “We are offering digital-only tickets, but are expecting about 95% of our attendees to be in-person,” Jon Weiner, founder and chief executive officer of health-care conference HLTH, said via email. “Attendee sales are trending as they were for our last in-person event (2019) and sponsorships are selling out quick.” This year’s gathering takes place in Boston in October.

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Hedge fund managers who are mothers saw weaker performance during pandemic-related school closures.

Brief: Across industries, mothers bear the burden of household labor and childcare, a trend that translates into weaker performance at work compared to their male counterparts and other women without children. For mothers in the hedge fund industry, the Covid-19 pandemic exacerbated these disparities. According to new academic research, on average, female managers with young children — aged 12 and younger — missed a 7 percent excess return compared to male-only funds during the months of pandemic-related school closures. This cost increased with the proportion of mothers in a firm. In contrast, fund performance was not significantly affected for managers who are fathers or women without children.

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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 July 9, 2021:

  • In the United States, White House officials announced on Thursday that all Covid-19-related hospitalizations and deaths are occurring among unvaccinated people.  White House Coronavirus Response Coordinator Jeff Zients said in a press briefing that cases will continue to rise as the highly infectious delta variant takes hold. Although case numbers are going up, vaccines are still effective against the delta variant. “The bottom line is, there’s simply no reason that anyone 12 or older should be severely impacted by this virus,” Zients said. About 48% of the US population is fully vaccinated, while just over 67% have received one dose.

  • In Canada, vaccine uptake has slowed, according to Chief Public Health Officer Dr. Theresa Tam. While Canadians have been especially focused on getting their second doses, the number of people coming forward to get their first dose has stagnated, Tam says. She notes that reaching those who are unvaccinated is priority across all levels of government, and those more reluctant to come forward for a shot include young people, marginalized populations and certain smaller communities. Infectious disease experts are still divided over whether mask requirements should be relaxed in Canada. British Columbia and Alberta have already relaxed their rules, while Saskatchewan’s mandatory mask policy is set to expire on July 11th.

  • In the United Kingdom, a leading academic has warned that higher Covid-19 case numbers will risk overwhelming the National Health Service (NHS) test-and-trace system. Jon Deeks, professor of biostatistics at the University of Birmingham, says at least 660,000 tests are going to be needed each day if there are going to be 100,000 daily infections this summer. This would be almost three times the current level of testing in the UK, and more than double the highest volume achieved at any point throughout the pandemic. The system is already showing signs of strain, with positive tests up 71% during the last week of June.   

  • In Japan, surging Covid-19 case numbers have caused the International Olympic Committee to ban all fans from Olympic venues. A state of emergency imposed by Prime Minister Yoshihide Suga will go into effect on Monday until August 22nd.  Organizers are still holding out some hope that they might be allowed spectators at the Paralympic games which don’t open until later in August. Tokyo announced 896 new daily infections on Thursday. The Olympic games are scheduled to run between July 23rd and August 8th despite opposition from medical experts.

  • South Korea will raise coronavirus restrictions to their highest level yet in the Seoul area, as authorities warn the record rise in cases has reached “maximum crisis level.” The new restrictions come into effect on Monday and will last for two weeks. New restrictions include bans on gatherings of more than two people after 6 PM, school closures and the shutting down of all entertainment establishments. Health authorities have said people in their twenties and thirties, who are not eligible for vaccinations, are driving up the numbers.

  • In Australia authorities pleaded with Sydney residents to stay home, warning that a three-week lockdown could be extended as they struggle to control their latest Covid-19 outbreak. On Thursday New South Wales reported 38 new coronavirus cases. Premier Gladys Berejiklian says ending the lockdown by next Friday is still possible, “as long as everybody does the right thing.” Berejiklian insists case numbers will have to go down before lockdown measures can lift. “For us to think that we can control a very contagious variant without having a certain proportion of the population vaccinated would be an unrealistic assumption, and that is why it is really important for all of us to do the right thing.”

Covid-19 – Due Diligence And Asset Management

Banks in U.S. poised for weaker results after pandemic windfall

Brief : In the upside-down world of global banking, getting back to normal is bad news for the bottom line. Wall Street churned out massive windfalls during the pandemic, but the economic reopening made possible by widespread vaccinations means this year’s earnings will look weaker by comparison. The big down arrow will be trading revenue, which is expected to show a 28% tumble for the top U.S. investment banks when they begin reporting second-quarter results next week, according to analysts’ estimates. Trading isn’t the only soft spot. Loan growth is still proving elusive as consumers and companies, still flush with cash from trillions of dollars of government stimulus, have yet to demand more bank financing. Total loans for the commercial banks probably fell a combined 3% in the quarter, analysts predict.

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Hedge funds generate strongest first half returns in more than two decades

Brief: Hedge funds gained more than 10 per cent in the six months of 2021, the industry’s strongest first half performance in 22 years, despite June seeing a shift in market sentiment which moderated the sector’s monthly returns. Now, managers are positioning for a “dynamic performance environment” heading into the second half of the year, shaped by ongoing Covid concerns, as well as energy and tech trends. Hedge Fund Research’s main Fund Weighted Composite Index – a monthly measure of more than 1400 single manager hedge funds’ performance across all strategy types – gained 0.4 per cent in June, putting the benchmark up 10.03 per cent over the six-month period starting in January. That January-to-June advance is the hedge fund industry’s best first-half performance since 1999, HFR said. It is also the longest run of consecutive monthly positive returns – which together totals 22 per cent – since the index registered 15 months of consecutive gains ending in January 2018.

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DN Capital, Early Backer of Auto1, Shazam and OLX, Launches New $350m Fund to Shape Post-pandemic World

Brief: DN Capital, one of Europe’s most established Venture Capital firms, today announces the launch of its latest $350m (£220m, €300m) fund. In a year which has already seen four of the DN Capital portfolio reach billion dollar-plus valuations, the firm’s Fund V will back the most ambitious early stage entrepreneurs across Europe, the UK and the US, who are creating businesses built on the pandemic-accelerated surge in digital adoption, and developing technologies critical to the global recovery. Under the leadership of private equity and VC stalwarts Nenad Marovac and Steve Schlenker - who head up a senior team with a combined 100 years-plus of investment experience - DN’s predominantly young and ambitious team has a consistent track record of partnering with some of Europe’s most promising startups, long before they became market leaders.

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Slide in coronavirus-sensitive stocks suggests growing worries over delta variant

Brief : Diverse reasons are driving the rotation in stocks and a slide in bond yields, but weakness in travel, leisure and other COVID-19-sensitive stocks suggest that fears of the Delta variant are doing their part. Declines in the shares of companies tied to the reopening trade have broadly outpaced those of other so-called value stocks, which have been battered on worries that economic growth will be slower than expected in coming months. Shares of cruise stocks Carnival Cruise Lines and Norwegian Cruise Line Holdings have slumped 10% and 9%, respectively, in July, while American Airlines Group dropped 4% and United Airlines Holdings was off 5%. MGM Resorts International has fallen 5.5%, while Expedia Group has dropped 1.3%.

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U.S. Hotels Finally Surpass Pre-Covid Levels as Travel Surges

Brief: Red-hot demand from leisure travelers boosted a key lodging industry metric higher than it was during the same period in 2019, marking the first time since the pandemic began that U.S. hotels outperformed pre-Covid levels. Revenue per available room, which combines occupancy and prices, increased 5.7% last week compared to the same period in 2019, according to data from lodging analytics firm STR. RevPar in Phoenix increased 43% from 2019, the highest among major markets, while New Orleans and San Francisco notched the steepest decline. Hotels in New York City also continue to struggle.

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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 July 8, 2021:

  • In the United States, health experts are concerned about the rapid spread of the delta variant, which now accounts for more than half of all new Covid-19 infections in the country. The federal government continues to push for people to get vaccinated as quickly as possible. As of Wednesday, less than half of the US population is fully vaccinated. Some experts are even concerned about potential new variants, asking whether it might be time to start testing vaccinated people just to be sure the vaccine is still effective. The US has the highest number of Covid-19 related deaths at 606,000.
  • In Canada, infectious disease specialists have said a fourth wave of Covid-19 is not necessarily inevitable. Considering the UK’s current position, Canadians may be able to avoid the same as long as they continue to get their vaccines as quickly as possible. Dr. David Naylor, co-chair of Canada’s Covid-19 immunity task force, says the UK has been a good example for Canadians as they’re often a few steps ahead with infections rising and falling.  Even though the UK’s vaccination program outpaced Canada’s early on, Canadians have been more cautious about waiting to lift restrictions until more people are vaccinated. “That may help us mitigate the risks of a big Delta wave,” Naylor said.
  • In the United Kingdom, Prime Minister Boris Johnson continues to defend his government’s approach to easing lockdown restrictions. At the same time, Covid-19 infections are soaring, with cases exceeding 30,000 for the first time since January.  Johnson says the latest wave can be attributed to the delta variant, though he also says the link between infection and serious disease and death has been “severed.” The government’s chief scientific advisor Sir Patrick Vallance is not as optimistic, saying vaccines have “weakened the link between cases and hospitalizations, but it’s a weakened link, not a broken one.”
  • In Germany, calls for more creative ways to reach people who haven’t been vaccinated yet are growing. This comes as the country’s vaccination rates are beginning to ease off. Despite relatively low case numbers, the government wants people to get vaccinated because of the risks posed by the delta variant, which accounts for approximately 59% of all cases in Germany. Germany’s disease control center says 40.8% of the population is fully vaccinated, while 57.6% have received at least one shot. Health Minister Jens Spahn says the pace of vaccinations will determine whether remaining coronavirus restrictions are lifted. 
  • South Korea recorded its highest one-day case total of the pandemic so far, with cases reaching 1275 in a 24-hour period. This marks the second consecutive day above 1200 and breaks the previous record of 1240 set Christmas Day. More than 1000 of the infections were in the greater Seoul area. Complacency and slow vaccination rates have contributed to the growing wave of new cases in the region, which can also be linked to the delta variant. Currently only 10% of people in South Korea are fully vaccinated, while 30% have received one shot, the majority of them being over 60.
  • In Australia, Sydney has recorded its highest one-day jump in Covid-19 cases in months, despite being under lockdown for nearly two weeks. Authorities extended the lockdown earlier this week as case numbers are not dropping – they have been steady at 18-35 new infections per day. The delta outbreak has caused public anger over the federal government’s slow vaccine program. Prime Minister Scott Morrison encouraged residents to get their second dose of AstraZeneca after two months rather than three, as a way to address the growing cluster of infections. Though AstraZeneca was initially recommended for all adults, it is now only recommended in Australia for adults over 60.

Covid-19 – Due Diligence And Asset Management

US jobless claims tick up to 373,000 from a pandemic low

Brief : The number of Americans filing for unemployment benefits rose slightly last week even while the economy and the job market appear to be rebounding from the coronavirus recession with sustained energy. Thursday's report from the Labor Department showed that jobless claims increased by 2,000 from the previous week to 373,000. Weekly applications, which generally track the pace of layoffs, have fallen steadily this year from more than 900,000 at the start of the year. The four-week average of applications, which smooths out week-to-week volatility, is now 394,500 — the lowest such level since the pandemic erupted in March of last year. The rollout of vaccinations is driving a potent economic recovery as businesses reopen, employers struggle to fill jobs and consumers emerge from months of lockdown to travel, shop and spend at restaurants, bars, retailers and entertainment venues.

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London-based fintech firms secure record VC funding in H1 2021

Brief: London-based fintech firms have already raised more VC investment in the first six months of 2021 than any other year, according to new research from Dealroom.co and London & Partners. London’s strong performance has also helped to drive record levels of investment into Europe’s fintech sector, with European fintech firms raising USD13.9 billion, up 51 per cent on full year 2020 investment levels. London was at the heart of this growth, with its fintech firms accounting for over a third of all European fintech funding. The bumper start to the year for VC funding sees the UK capital further cement its position as a global fintech hub, with investors pumping USD5.3 billion into London-based fintech companies – an increase on all previous full year investment figures for London’s fintech sector and over 2.5 times more VC investment than any other European city. Investment into London’s fintechs in the first half of 2021 is 2.4 times greater than during the same time period in 2020, showing investor confidence returning as the UK economy starts to recover from the global pandemic. London ranks second on the worldwide list for fintech VC investment so far this year, slightly ahead of New York (USD5.2 billion) and behind San Francisco in first place (USD7.2 billion).

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Job cuts not planned by most U.K. firms as furlough ends

Brief: Eight in 10 U.K. companies do not expect to make redundancies in the next three months, an indication the labor market could avoid a severe shock as government job support is wound down. The finding is contained in the latest batch of high-frequency indicators from the Office of National Statistics, which said only 1% of firms definitely planned to shed staff when they were asked late last month. Nineteen percent were not sure. The furlough program, which has paid the wages of workers at firms forced to close during the pandemic, was still supporting 2.4 million jobs at the end of May. Employers are now having to contribute to the cost ahead of the program ending altogether in September. That’s led to fears of job cuts at businesses that are continuing to struggle, despite the lifting of lockdown restrictions. The figures painted a generally upbeat picture of the labor market, with online job listings reaching 135% of pre-pandemic levels.

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The Asset Management Industry Has Surpassed $100 Trillion —And There’s Still Room to Grow

Brief : Despite economic uncertainties rising from the pandemic, the asset management industry has surpassed the centi-trillion mark to reach $103 trillion in assets under management at the end of 2020, an increase of 11 percent from the previous year, according to Boston Consulting Group’s annual report on the industry expected to be released Thursday. Of the total, institutional investments represented 59 percent at $61 trillion, while retail portfolios comprised 41 percent of the global assets, or $42 trillion. North America was seen as the main driver of growth and held the lion’s share of assets at $49 trillion. As the end of the pandemic draws near and remote-working models become “permanent fixtures,” BCG called on asset managers to seek growth opportunities in private markets and data and analytics, which it said will be crucial to everything from client engagement and distribution to customized investment products.

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Private equity emerges from pandemic in bullish mood

Brief: More than two-thirds (67 per cent) of private equity professionals expect to achieve higher returns this year than in 2020, with just 3 per cent expecting lower returns, according to Investec’s annual GP Trends survey. The research, which analyses the views of 219 private equity professionals around the world, reveals an industry upbeat as we emerge from the pandemic, eager to deploy capital and sanguine about the threat of SPACs. When the pandemic struck last year, GPs made significant downward adjustments to their return expectations. This year, optimism has flooded back, with the overwhelming majority (97 per cent) expecting their returns to exceed (67 per cent) or match (31 per cent) those achieved in 2020. This is especially true of smaller funds: 70 per cent of those managing funds smaller than GBP1 billion expect to improve on last year’s performance, compared to 55 per cent of those managing funds larger than GBP1 billion.

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Hedge fund short sellers dented by Sainsbury’s rebound, as UK supermarket giant sees sales surge

Brief: Hedge funds betting against Sainsbury’s have taken a dent after the UK supermarket giant’s share price rose this week on the back of strong Q1 sales numbers, prompting the FTSE 100-listed firm to revise its profit outlook upwards. A number of well-known hedge funds – including BlackRock, Marshall Wace and Citadel – have built negative wagers against Sainsbury’s lately, while the likes of Pelham Capital and Third Point continue to hold longer-standing bearish bets, according to regulatory disclosures made to the FCA. The UK’s second biggest supermarket chain – which is one of the ‘Big Four’ grocers alongside Tesco, Asda, and Morrisons – has been a popular short among hedge funds over the past 18 months. Panic-buying during the initial coronavirus outbreak saw its value slide to around 179p in March 2020, and the company continued to lag competitors last summer amid warnings of increased costs, with several high-profile hedge funds - including AHL and GLG Partners, Man Group’s systematic and discretionary hedge fund units – registering short positions.

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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 July 7, 2021:

  • In the United States, new data from the Centres for Disease Control and Prevention shows the delta variant is now the dominant strain of coronavirus in the United States. The World Health Organization said Tuesday that the delta variant is predicted to become the dominant variant globally. US President Joe Biden said the rise in delta variant cases “should cause everybody to think twice.” He encouraged all Americans to protect themselves by getting vaccinated when speaking at the White House on Tuesday. He also said the White House is working closely with state and local partners to support vaccine drives in communities where the uptake has been slow. 

  • In Canada, Prime Minister Justin Trudeau is facing increased pressure to ease travel restrictions across the Canada-United States border. Now that vaccine rates are soaring and case numbers are dropping, border communities, industry groups and long-separated families are criticizing Canadian officials for not at least laying out a detailed reopening plan. Earlier, Trudeau said that restrictions would ease after 75% of Canadians had received one dose of vaccine and 20% were fully vaccinated. But Canada had already achieved that goal before the border closure was extended to July 21st

  • In the United Kingdom, coronavirus case numbers are on the rise. Britain reported 28,773 new cases on Tuesday, up from 27, 334 on Monday and the highest number since January 29th. Health Minister Sajid Javid said Britain is entering “uncharted territory” with their decision to scrap lockdown rules on July 19th. Javid told MPs that modelling suggests case counts could reach as high as 100,000 per day later on in the summer. Javid says these numbers won’t overwhelm the healthcare system because the vaccine program has created a “wall” against mass illness and deaths.

  • In Japan, Tokyo reported 920 new coronavirus cases, the highest since mid-May. Prime Minister Yoshihide Suga says he will consult with a panel of experts before making a final decision on Thursday over whether to extend a state of emergency. An extended state of emergency in Tokyo ahead of the Olympic games will determine whether spectators can attend Olympic events. Medical experts have previously recommended having no spectators as it is the least risky option. Organizers have already banned spectators from overseas and put a cap in place for domestic spectators at 50% capacity.

  • In New Zealand, medical regulators have approved use of the Johnson & Johnson coronavirus vaccine, although the country will still focus primarily on using Pfizer. Prime Minister Jacinda Ardern has said the country will not follow the UK’s lead of “living with” the virus, explaining that the level of death proposed by Boris Johnson would be “unacceptable.” New Zealand may even consider putting Britain on a no-fly list if case numbers get out of control. “The priority for me is how do we continue to preserve what New Zealand has managed to gain and give ourselves options, because this virus is not done with the world yet,” Ardern said.

  • Australia has extended a two-week lockdown in Sydney for another week. Health officials have said the extension happened largely because vaccine rates aren’t where they’re supposed to be. Currently only about 9% of adults in Australia are fully vaccinated. Gladys Berejiklian, the Premier of New South Wales, said the extension was the only way to prevent future lockdowns, until the vast majority of citizens are vaccinated. Sydney and its surrounding communities are the only part of Australia still in lockdown. Sydney residents were warned by health officials that case numbers are expected to rise in the next 24 hours and urged to stay at home.

Covid-19 – Due Diligence And Asset Management

KKR Breaks Its Loan Record With Property Market ‘Roaring Back’

Brief : KKR & Co. has committed to $8 billion in commercial-property loans so far in 2021, more than double its previous full-year record, as the pandemic reopening stokes demand for financing. “The market is just roaring back from a volume perspective,” Matt Salem, KKR’s head of real estate credit, said in an interview. “Pipelines are very big across the board.” Demand for new loans has revived as construction picks up, debt matures and low interest rates spur refinancing on favorable terms. Total debt on U.S. commercial and multifamily properties increased to $3.93 trillion as of March 31, up 1.1% in the first three months of this year, according to the Mortgage Bankers Association. That growth continued as trillions of dollars in stimulus money flowed into the economy and vaccination campaigns fueled a revival of commerce and real estate investors’ appetites for risk.

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ESG criteria crucial for outperformance and resilience – especially in crisis year 2020, says LFDE

Brief: ESG criteria is an outperformance factor and an essential prerequisite for companies' resistance to crises, according to the latest "SRI & Performance Study by LFDE," conducted by French asset manager La Financière de l'Echiquier (LFDE) for the third consecutive year. "The exceptional year of 2020 in particular, with its rapid market collapse and equally rapid recovery, has shown how resilient SRI investments are during crises," says Coline Pavot, Head of SRI Research at LFDE. During 2020, the portfolio with the best ESG scores (Top 40) posted a 15 per cent return, outperforming the portfolio with the worst ESG scores (Flop 40) by a factor of 68. At the same time, the MSCI Europe SRI Index (+1.4 per cent) outperformed the Flop 40 portfolio (0.2 per cent) and the MSCI Europe Index (-3.32 per cent).

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Office workers fled Toronto's financial district — but they'll be back, Metrolinx CEO says

Brief: Toronto’s financial district has been quiet ever since banks sent their employees home at the beginning of the coronavirus pandemic. That may be about to change. New cases of COVID-19 are down more than 95 per cent in Toronto compared with three months ago. About half of adults there are now fully vaccinated, and schools are preparing to reopen in two months. To Phil Verster, the chief executive officer of Metrolinx, the agency that runs commuter rail and bus service in Canada’s largest metropolitan area, that means many workers will go back to the office at least part of the time. “I am very optimistic that we are going to see a resurgence of travel — very much so starting in September and October,” Verster said in an interview, noting that he sends out Metrolinx staff to speak with business leaders about how their return-to-office plans are evolving. “What we’ve seen in our ridership is that considerations about whether children can go back to school or not are critical.”

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Covid-19 Pushed 22 Million Out of Job Market in Major Economies

Brief : Labor markets in developed nations have recovered only half of the loss of employment they suffered in the pandemic, with the young and low-skilled hurt most. That’s the conclusion of a 400-page study by the Organization for Economic Cooperation and Development, which found that about 22 million jobs disappeared by the end of 2020 in industrial nations. The Paris-based institution said a full recovery to pre-pandemic levels of employment won’t come until the end of next year. The findings indicate that the coronavirus crisis accelerated a number of trends that started over the past decade, including growing income inequality, a shift toward more technically demanding jobs and fewer secure employment opportunities for lower-skilled workers. “Failing to address inequality and exclusion now is likely to result not only in deeper social divisions but will have negative ramifications for productivity and economic recovery,” said Stefano Scarpetta, the OECD’s director for employment, labor and social affairs.

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Digital Health Startups Raised $14.7 Billion In First Half Of 2021, Already Surpassing Total 2020 Funding

Brief: Digital health funding continues to smash new records each quarter, as venture-backed companies raised $14.7 billion in the first half of the year. That sum already surpasses the total venture funding raised in all of 2020, according to a new report from venture firm Rock Health. The Covid-19 pandemic has fueled the adoption of new digital health technologies, which already set an all-time high venture funding record of $6.7 billion in the first quarter of 2021. Rock Health’s CEO Bill Evans says that while even he was a bit surprised by such a huge increase compared to last year, the fundamentals checked out. “We saw pace increase and size per round increase,” says Evans. This translated to an average of 11 digital health deals totaling $548 million each week in the first six months of the year, compared to an average of 7 deals totaling $285 million in the second half of 2020

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Hedge Fund Optimism Is Rising as Managers Deliver Their Best Performance in Years

Brief: Hedge fund managers have grown even more optimistic about their business prospects over the next 12 months.On a scale ranging from -50 to +50, hedge funds rated their economic confidence at +19.5, up from an average of +18.4 the previous quarter, according to the second quarter Hedge Fund Confidence Index from AIMA, Simmons & Simmons, and Seward & Kissel. Confidence is also up significantly from +13.8 in the fourth quarter, according to the index.In a survey of more than 300 hedge funds around the world accounting for approximately $1 trillion in assets, respondents were asked to consider three factors for determining their outlook: “their firm’s ability to raise capital, their firm’s ability to generate revenue and manage costs, and the overall performance of their fund(s).”

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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 July 6, 2021:

  • As the United States get back to work after their Independence Day long weekend, President Joe Biden’s administration is looking to do the same against the coronavirus. After failing to reach his own vaccination goal for the Fourth of July, President Biden is having federal, state and municipal health officials narrow its focus on boosting vaccination availability in places such as doctor’s offices and work settings. CNBC also reported the Biden team is looking to increase vaccinations for 12–18-year-olds before they head back to school in the fall. According to the Centers for Disease Control and Prevention (CDC) latest data, currently 157 million people in the country are fully vaccinated, which is less than half of the total population.
  • In Canada, border restrictions started to loosen on Monday, but the federal government remains tight-lipped on when further reopening will happen. As of July 5th, Canadians and permanent residents who have completed their two doses of a COVID-19 vaccine approved for use in Canada are now able to forego the 14-day quarantine. The quarantine requirement had been in place since March 2020. Despite this, the travel restrictions between Canada and the United States preventing all non-essential trips are to remain in place until at least July 21st. When pressed by reporters on Monday on when more border restrictions would be loosened, Prime Minister Justin Trudeau would only say that steps toward reopening the longest undefended land border in the world would be rolled out over the next few weeks.
  • United Kingdom Health Minister Sajid Javid is making plans to get the country back to normal even though admitting on Tuesday that new coronavirus cases could rise to 100,000 a day over the summer. The number comes as the country continues to prepare to relax most of its existing pandemic rules on July 19th. On Tuesday, Javid announced a plan that as of August 16th, “anyone who is a close contact of a positive case will no longer have to self-isolate, if they have been fully vaccinated.” Javid also noted the same rule would apply to those under the age of 18, who are not currently being vaccinated.
  • Israel and South Korea have agreed on a COVID-19 vaccine swap deal. Under the deal, Israel will send 700,000 coronavirus vaccine doses to South Korea this month to inoculate more of its citizens. South Korea will reciprocate in September, sending the same number of doses to Israel. The Prime Minister for Israel, Naftali Bennett, noted the deal as being win-win and that the agreement would “reduce the holes” in the vaccine’s availability. Both countries are experiencing a surge in new infections but are in much different stages of their vaccination campaign due to the size of each country. South Korea has only administered first doses to 30% of its population while Israel has fully vaccinated 5.3 million of its population of 9.3 million.
  • Australia and China are in yet another political conflict – this one over COVID-19 vaccine diplomacy. Australia denied on Tuesday the allegations from the Chinese government and state media that it was interfering in a rollout of Chinese vaccine in Papua New Guinea. In March, Australia became the first country to provide Papua New Guinea – a former Australian colony and the country’s nearest neighbour – COVID-19 vaccines. Just a few weeks ago, the Papua New Guinea government accepted 200,000 doses of the Chinese-made Sinopharm vaccine. Chinese newspaper, the Global Times accused Australia of “planting Australian Consultants” in Papua New Guinea to “undermine China’s vaccine cooperation with Pacific Island countries.” Australia and China’s relationship has continued to deteriorate since last year after Australia called for an independent investigation into the origins of and responses to COVID-19.
  • Brazil’s President Jair Bolsonaro popularity has fallen to its lowest level since assuming office, according to the latest poll. The outspoken leader of Latin America’s most populous country has seen his approval rating plummet to 34%, down from 44% in February, according to an MDA poll published on Monday. Bolsonaro’s weakening position is due to a slow COVID-19 vaccination campaign and more than half a million deaths due to the pandemic. The situation only got worse late last week for the president when Luis Miranda, a government-allied lawmaker, said he had personally warned Bolsonaro about possible irregularities in the purchase of vaccines. A Supreme Court justice has now authorized an investigation into the case.

Covid-19 – Due Diligence And Asset Management

Credit Markets May Not Be So Forgiving Post-Pandemic

Brief : Investors looking to make a buck on corporate distress can only hope the post-pandemic world is more accommodating. Rock-bottom interest rates, a reopening economy and yield-starved investors mean all but the most-troubled businesses have managed to borrow their way out of trouble. Credit markets may not be so friendly if the projections underlying that borrowing prove too rosy once post-Covid results come out, according to Phil Brendel of Bloomberg Intelligence. “The market will shift from pricing on projections and start looking more at actuals,” Brendel said in an interview. “We’re at credit bubble levels of distressed debt. So credit markets are vulnerable to a significant correction.” The pile of distressed debt outstanding, which totaled almost $1 trillion at the height of the pandemic, has sunk to about $60 billion, data compiled by Bloomberg show. By one measure, the proportion of high-yield bonds outstanding that is trading at distressed levels is the lowest since the run-up to the 2008 financial crisis, Brendel said.

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FCA says Firms’ Assessments of Value Lack Credibility

Brief: Fund management firms in a sample study were not implementing rules that should demonstrate how much value they provide to clients. The Financial Conduct Authority (FCA) said most of the 18 firms it reviewed had not implemented Assessment of Value (Avon) arrangements that met FCA standards. Avon rules were brought into force in 2019 and require firms to justify their fund fees by demonstrating value based on certain criteria such as performance, costs and savings from economies of scale. The findings will be a disappointment to the FCA which has increased scrutiny of asset managers in recent years and whose Avon regime is expected to set the standard elsewhere in Europe. However, the firms have escaped any tough regulatory action, such as fines. Reporting on its review, which happened between July 2020 and May 2021, the FCA said “too many” of the fund managers often made assumptions that could not be justified when challenged by the regulator, and that this undermined the credibility of their assessments. Many firms did not consider what the fund’s performance should deliver when set against the investment policy, investment strategy and fees.

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Number of H1 2021 UK IPOs Exceeds Number for the Whole of 2020

Brief: The UK IPO market has continued its resurgence throughout H1 2021 with the number of new listings on the London Stock Exchange already exceeding the number that listed in the whole of 2020, according to research from law firm Pinsent Masons. As of 28 June 2021, 45 companies have listed on AIM and the Main Market and six more say they intend to list this year. That compares to 31 companies that listed in the whole of 2020. There was more IPOs in Q1 2021 (20) on the London Stock Exchange than in any previous first quarter of the year since 2007. Companies have been eager to exploit the renewed investor optimism so far this year. Healthcare companies (6), tech companies (11) and online retailers (7) make up 53 per cent of the businesses to have listed so far in in 2021. Companies from those sectors see now as an ideal time to float as, in many cases, Covid has provided a strong tailwind to help their sales growth. Julian Stanier, head of Corporate Finance at Pinsent Masons says, “This has been the busiest period for London Stock Exchange IPOs for about 15 years.

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Schroders Institutional Investor Study: Optimism Surges for Investment Returns

Brief : The annual Schroders Institutional Investor Study, which polls 750 industry professionals in 26 locations across the globe, showed an average expectation return of 6.4%, up from 5.6% a year earlier. Almost half of respondents estimate that their average annual total return will be above 6% over the next five years, with 13% expecting returns of more than 9%. These expectations are higher than last year, when only 35% of global investors thought they could return over 6% and 5% believed they could top 9%. Keith Wade, Chief Economist, said: “Clearly, confidence is rising. This is due to a combination of vaccine success, increasing consumer demand across the globe, and indications that the global economic recovery from Covid-19 could be relatively swift. “However, expectations are even higher than before the pandemic hit, indicating a more sustained shift in confidence. It could be that even professional investors are being swayed by the strong real returns achieved by both equity and bonds in the past decade. Understandably, they’re feeling more optimistic. The reality is that, to achieve decent returns, investors will need to navigate a number of challenges, from low rates to demographic shifts to technological disruption.

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European Buyout Industry Bounces Back to Pre-Crisis Levels After Portfolio-Focused Pandemic Hiatus

Brief: The European private equity industry rebounded strongly in the 12 months to 30 June 2021 following the initial shock of Covid-induced lockdowns, according to the first provisional half-yearly data announcement from CMBOR, the Centre for Private Equity and MBO Research, since its re-establishment within Nottingham University Business School last month with support from Equistone Partners Europe. CMBOR’s latest report has found that the volume of private-equity-backed acquisitions in Europe fell to its joint-lowest level since mid-2009 during the first wave of the pandemic. But after just 102 transactions were completed in Q2 2020, the industry quickly recovered to pre-Covid activity levels. The 791 buyouts that took place in the past 12 months, with a cumulative value of EUR116.6 billion, exceed the corresponding figures for 2019 (716 deals with an aggregate value of EUR112.4 billion) and approach the post-2008 high-water mark set in 2018 (811 deals valued at EUR124.7 billion). The resurgence in deal-making since Q3 2020 was also in evidence in exit activity, as private equity investors made 354 realisations totalling EUR98.9 billion in value, compared to 360 exits with a value of EUR73.7 billion in 2019. This too followed a decade-low exit volume of just 46 sales in Q2 2020.

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Asset Managers’ Dash to Digital Accelerates Amid Rising Pressure From Clients

Brief: Asset management firms are accelerating their digital transformation, with almost half planning to boost their digital spend in the coming year. The push to digitalise been driven by the rise of low-cost passive investing and digital-first challenger banks, which have squeezed the margins of traditional asset managers. Alpha FMC recently surveyed 36 asset managers with a collective USD25 trillion in assets under management, and found that almost all, 97 per cent, regard going digital as a top priority. Most managers, 69 per cent, are already undergoing or recently completed a significant digital transformation. However, most believe they are not yet fully meeting their clients’ and customers’ ever-shifting digital expectations. Nearly half of asset managers, 45 per cent, plan to increase spending by between 5 and 20 per cent over the next year.  This is on top of budget rises over the last year, as the coronavirus pandemic forced all areas of business to be conducted online, remotely. “Across the board we have seen managers progress well in shifting to digital and remote ways of delivering services to clients, to respond to the global pandemic,” says Kevin O’Shaughnessy, head of Digital and Agile Transformation at Alpha FMC.  O’Shaughnessy says that asset managers are now thinking about digital as a “core and critical function within the firm”.

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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 June 30, 2021:

  • In the United States, health officials are growing more concerned about the Delta variant as it now accounts for more than 25% of the coronavirus cases in the country. While the overall numbers are significantly better compared to previous waves of the virus, there are still close to 300 people dying per day in the United States due to the coronavirus, which US Surgeon General Dr. Vivek Murthy says is still “just far too many”. Federal health officials are struggling to get vaccination rates up in certain states, which is a breeding ground for the Delta variant to take hold. For instance, in Mississippi, where just 29.7% of the population are fully vaccinated, unvaccinated people have accounted for 90% of the COVID-19 cases and deaths in the past month.

  • Bloomberg is reporting Canada’s economy shrank less than expected during a spring surge of coronavirus cases that saw many provinces head into strict lockdowns. According to estimates from Statistics Canada released on Wednesday, the country’s GDP contracted by 0.3% in April and by a similar amount in May. The resilience shown by the economy is expected to fuel a strong rebound heading into the summer months. Canada’s most populous province – Ontario – moved into its second stage of reopening on Wednesday, which allows for more outdoor activities and more indoor services, such as haircuts to resume. The reopening comes on the same day Ontario reported its lowest single-day case number the province has seen since September 10th with just 184 new cases.

  • In the United Kingdom, over 26,000 new COVID-19 cases were recorded on Wednesday – the highest number since January. While the higher case load isn’t good news, the silver lining is that the vaccines are having an effect in driving down deaths. For instance, when the numbers were as high as they were on Wednesday – January 29th – 1,245 COVID-19 deaths were recorded; compared to just 14 now. Prime Minister Boris Johnson’s official spokesperson said the increase had been anticipated and that the country remained in “good position” to continue with lifting of lockdown restrictions in a matter of weeks.

  • France’s leading scientific adviser said on Wednesday that the country is likely to have a fourth wave of the COVID-19 virus, due to a resurgence of cases caused by the Delta variant. The wave – expected to hit sometime in September or October – though may be similar to what the UK is experiencing with the rollout of COVID-19 vaccines helping mitigate the effect. “I think we will have a fourth wave, but it will be much more moderate than the previous three waves because the level of vaccinations is different compared to before,” said Professor Jean-Francois Delfraissy to French radio. Earlier in the week, French Health Minister Olivier Veran said the Delta variant, first discovered in India, now accounts for around 20% of the coronavirus cases in the country.

  • Singapore is changing the way it reports on progress against COVID-19. Looking to shift away from its “Covid-Zero” strategy of trying to crush the virus entirely through stiff border controls, aggressive contact tracing and social distancing, the Ministry of Health will instead focus on key trends and the number of severe cases. The “Covid-Zero” strategy has kept the caseload in the city-state well below that of its Southeast Asian neighbours, but serving as a financial hub, risks being left behind as other financial capitals start to reopen. Government officials are drawing up a roadmap for the city’s economic future that works on the assumption COVID-19 won’t go away for several years.

  • Australia continues to battle the latest coronavirus cluster with seven Australian cities now in lockdown to try and contain the spread of the more highly contagious Delta variant. The only area spared currently seems to be Melbourne, which went through its own outbreak earlier this month. Otherwise, Sydney, Brisbane and Gold Coast to the east, Townsville and Darwin towards the north, Alice Springs in the central and Perth to the west are in some form of a lockdown. The seven cities account for nearly half of the population – 12 million – that are under stay-at-home orders. Across the country on Wednesday, state leaders said they were facing a “pressure cooker situation” as new cases emerged.

Covid-19 – Due Diligence And Asset Management

Kaplan says Fed Will Avoid 2013 Taper Tantrum This Time Around

Brief : The Federal Reserve’s tapering of its asset purchases, which he hopes will start “soon,” will run smoother this time around because investors already know that a move is being discussed, said Federal Reserve Bank of Dallas President Robert Kaplan. “I want it to get out into the market, and I think this debate we’re having at the FOMC, some of it publicly, is good,” Kaplan said Wednesday in an interview with Michael McKee on Bloomberg Television, referring to the Federal Open Market Committee. “People are on notice that these adjustments are coming, the only question is when.” Kaplan said the Fed learned a number of lessons in 2013, when it first announced a slowing its purchases of Treasuries and mortgage-backed securities following the global financial crisis. The news caused a violent spasm in financial markets as investors sold riskier assets for the safety of bonds in an episode dubbed the “taper tantrum.” The central bank has been purchasing $80 billion of Treasuries and $40 billion of MBS monthly since last year to support the U.S. economy during the pandemic. Chair Jerome Powell said earlier this month that the taper debate was getting into gear and would continue at coming FOMC meetings.

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Event Driven Hedge Funds Latch Onto M&A Boom, as Potential for Returns Has “Never Been Better”

Brief: Event driven hedge funds are making hay amid soaring levels of corporate activity, with new stats showing these managers raked in their best first-quarter returns in almost 30 years, as a number of newly-launched strategies look to get a piece of the M&A action. Event driven managers – which seek to capitalise on stock mispricings and other valuation anomalies stemming from mergers and acquisitions, bankruptcies, takeovers and other corporate events using activist, merger arbitrage and special situations strategies – posted a first quarter composite return of 7.3 per cent, according to new research by bfinance, their strongest Q1 showing since 1993. M&A activity has rapidly picked up momentum since the third quarter of 2020, and since the start of 2021 volumes have risen to more than USD2.4 trillion globally, as economies look to recover from Covid-19 and deals put on hold during the pandemic are kickstarted. Against that backdrop, event driven strategies advanced 11.7 per cent in the first five months of 2021, according to data published by Hedge Fund Research, outflanking HFR’s industry-wide Fund Weighted Composite Index, which was up 9.92 per cent over the same period.

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Warren Buffett says Pandemic’s Impact Still Hard to Predict

Brief: Billionaire Warren Buffett says the one constant throughout the coronavirus pandemic has been that it has been difficult to predict how it would affect the economy, but clearly it has devastated many small businesses and individuals while most big companies have fared OK. “The economic impact has been this extremely uneven thing where I don’t know how many but many hundreds of thousands or millions of small businesses have been hurt in a terrible way, but most of the big, big companies have overwhelmingly have done fine, unless they happen to be in cruise lines or, you know, or hotels or something,” Buffett said in an interview that aired on CNBC Tuesday night. Buffett and Berkshire Hathaway Vice Chairman Charlie Munger touched on a variety of topics during the interview. Munger said China had the right approach to the pandemic by essentially shutting down the country for six weeks. “That turned out to be exactly the right thing to do,” Munger said. “And they didn’t allow any contact. You picked up your groceries in a box in the apartment and that’s all the contact you had with anybody for six weeks. And, when it was all over, they kind of went back to work. It happened they did it exactly right.”

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Substantial Corporate Changes for one in two Trusts Since Onset of Pandemic

Brief : Almost one in two investment trusts from the Association of Investment Companies (AIC) has undergone corporate activity in the past five years, new data has revealed.  While a degree of corporate action is regular in the investment company space, since the onset of the pandemic more substantial changes have become the norm as boards are under increasing pressure to prove shareholder value. The figures showed 47% of investment companies have undergone a manager change, merger, fee change, policy change or liquidation since the beginning of 2016, with some undergoing multiple changes. In the last 18 months alone, 11 companies have changed their manager, with two more currently undergoing strategic review, compared to 18 in the previous four years. Additionally, 11 companies have been liquidated, 12 have seen policy change and there have been three mergers.  "Since the onset of the pandemic, investment company boards have been particularly proactive in addressing performance and other issues such as liquidity," said Annabel Brodie-Smith, communications director at the AIC.

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The Global Economy Could Lose $4 Trillion Due to Covid-19’s Impact on Tourism

Brief: The pandemic-related collapse in international tourism could cost the global economy as much as $4 trillion for the years 2020 and 2021, according to a new United Nations report. The estimated losses have been caused by Covid-19's direct impact on tourism as well as its ripple effects on other sectors closely linked to it. The steep drop in international arrivals led to a $2.4 trillion loss in 2020 and the UN's report warns that a similar loss could occur this year with the recovery largely dependent on the uptake of global Covid-19 vaccines. The report states that while tourism losses are falling in most developed countries, the situation is deteriorating across much of the developing world due to vaccine inequality. While the industry is expected to rebound faster in countries with high vaccination rates such as the France, Germany, Switzerland, the United Kingdom and the United States, experts don’t expect a return to pre-Covid-19 international tourist arrival levels until 2023 or later.  The report bases its loss estimates for 2021 on three scenarios involving different drops in tourism arrivals as well as varying vaccination rates. The most severe scenario involves a 75% reduction in tourism arrivals which would lead to a $2.4 trillion loss this year.

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Lazard to Allow Dealmakers to Work From Home Twice a Week

Brief: Lazard Ltd. said any employee working in its U.S. offices must be fully vaccinated against the coronavirus by July 6, and North American financial-advisory bankers will have the option of working from home two days a week. The investment bank encouraged more employees to return to offices, calling the experience “vital” for younger workers, according to a memo to staff obtained by Bloomberg and confirmed by Lazard. Individuals can work remotely, subject to client needs, on Monday and Friday if they choose.

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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 June 29, 2021:

  • According to a report from the Financial Times (FT), talks between the United States and United Kingdom regarding a travel corridor between the two countries are increasingly unlikely to reach a conclusion by the end of July. Citing officials familiar with the talks, the FT reported the added rise of the Delta variant in Britain, the complexities of the United States political system and uncertainty over the AstraZeneca vaccine in America, where it is not yet approved, are all reasons for the talks to extend into August and even September. Earlier this month, United States President Joe Biden and United Kingdom Prime Minister Boris Johnson met during the G7 Summit where the discussion of opening the transatlantic corridor was discussed.
  • In Canada, a new report from the Royal Society of Canada is noting the number of Canadians that died because of the COVID-19 pandemic could be likely double of what is shown in official numbers. The disturbing report, which looked at excess deaths, suggests that largely racialized communities and essential workers were the demographics that took the brunt of the unreported COVID-19 deaths – often dying at home. Using the numbers from the study, instead of 26,000 deaths due to the pandemic as reported, it could be as many as 52,000. Canadians were led to believe most of the deaths occurred primarily in long-term care homes, which may have distracted from other communities also in need.
  • In the United Kingdom, Prime Minister Boris Johnson has echoed the sentiment of his new health minister, telling Cabinet that he is “increasingly confident” that Britain can fully reopen on July 19th and that citizens will learn to “live with” the COVID-19 virus. Prime Minister Johnson told his colleagues that the latest data was looking good and that although cases were continuing to rise because of the Delta variant, the number of hospitalizations and deaths were not rising at the same pace. According to the latest numbers, 84% of adults have at least one dose of a COVID-19 vaccine. New Health Secretary Sajid Javid issued an upbeat assessment of prospects for opening the economy on July 19th in his first statement in the Commons.
  • The European Union (EU) is having a hard time coming to a consensus on travel restrictions, especially when it comes to the UK and Delta variant. Portugal and Spain are the latest countries to either impose a quarantine or ask UK residents to show proof of full vaccination or a negative PCR test. Germany and Chancellor Angela Merkel, often seen as the leader of the 27 member EU bloc of nations, has suggested the entire EU should coordinate closely and be more cautious about allowing entry to travelers from external countries. Germany already has a ban on most travel from the UK, which it describes as a “variant area of concern.”
  • In the United Arab Emirates (UAE), the capital city of Abu Dhabi will restrict entry to public spaces and schools to people who have been vaccinated. As of August 20th, people who wish to access universities, schools, nurseries, gyms and shopping centres in Abu Dhabi must have been inoculated with a COVID-19 shot. The decision won’t apply to those exempt from taking a vaccine and to children aged 15 and under. Abu Dhabi officials made the move after noting on social media that 93% of target groups have been vaccinated.
  • Japan is asking Olympic athletes from India and five other countries hit hard by the Delta variant to agree to daily virus tests for seven days before leaving for the Games. Currently, all overseas athletes are being asked to have coronavirus tests twice during a four-day period before they arrive in Tokyo. Two members of Uganda’s team tested positive last week upon arriving in Japan, heightening concerns about the spread of infections during the Olympic Games. Japanese Olympic Committee president Yasuhiro Yamashita has already conceded there was “no way” to ensure zero coronavirus cases among teams arriving for the Tokyo Games, set to begin July 23rd.

Covid-19 – Due Diligence And Asset Management

Top Executives Freed From Quarantine in England

Brief : Senior executives who have traveled to England can temporarily leave quarantine if their work is likely to bring major benefits to the U.K. economy, the government announced on Tuesday. The exemption from isolation rules for newly arrived travelers applies to multinational executives who are visiting British branches of their firms. Critics of the decision questioned why it wasn’t also extended to smaller businesses. Top executives of foreign companies can also be released from the quarantine requirement if they are looking to make an investment in a British business or set up a new company in the U.K, the government said. “Many other countries have introduced similar exemptions and it’s important the U.K. public don’t lose out on prospective major investment,” Prime Minister Boris Johnson’s spokesman Max Blain said on Tuesday. “This is about making limited exemptions when people can prove they are looking to make significant major investments.” The Telegraph newspaper reported last week that JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon skipped visiting England on a recent trip to Europe due to quarantine restrictions.

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Bridgepoint Seeks $2.8 Billion Value in Rare Buyout Firm IPO

Brief: Bridgepoint Group, the buyout firm spun out of Royal Bank of Scotland Group in 2000, will go public in one of the biggest listings of a U.K. private equity firm in decades. The firm plans to raise about 300 million pounds ($416 million) and list at least a quarter of its shares, according to a statement Tuesday. The offering, which is expected to value the company at about 2 billion pounds, will also include the sale of about 200 million pounds from existing holders, said a person familiar with the matter. The buyout firm, which focuses on middle-market companies across Europe and owns stakes in Burger King franchises in the U.K. and a motorbike racing business, is seizing on an ebullient stock market that Bridgepoint’s own chairman said earlier this year was showing signs of being near a top. Unlike the U.S., where firms like Blackstone Group Inc. and KKR & Co. went public more than a decade ago, British buyout groups have tended to remain small private partnerships still dominated by their founders or immediate successors. Closely held firms have been grappling with how to provide exits for founders, while also ensuring rising stars can monetize their stakes.

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Moderna Jumps to All-Time High as Delta Variant Fear Deepens

Brief: Moderna Inc. climbed to a record high amid growing concern about a more contagious variant of Covid-19 in nations including India, which cleared the import of its vaccine. The shares rose as much as 6.9% to $238.40, breaking through the prior intraday record set earlier this month. Trading volume was about 1.2 times the 10-day average as of 12:16 p.m. in New York. Moderna said its vaccine produced protective antibodies against the delta variant, which emerged in India and has been spreading throughout the world. India’s drug regulator approved the import of the shots for restricted emergency use on Tuesday. The world’s second most-populous country trails richer nations with a little more than 4% of the population fully vaccinated, compared with almost half in the U.S. Some analysts had expressed concern about Moderna’s recent surge, which has pushed the Cambridge, Massachusetts-based company’s market value past $95 billion. Moderna continues to be driven by momentum, and today’s study results are “clearly showing good coverage of variants with their vaccine,” Michael Yee at Jefferies said in an email.

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European Equity Commissions Surge on Pandemic Volatility and Renaissance of Active Strategies, says Bloomberg

Brief : Market volatility caused by the pandemic is set to increase European equity commissions by 19 per cent from 2019, after five years of decline, according to the latest European Institutional Equity Trading Report published Bloomberg Intelligence (BI). The report is based on data from 87 European institutional equity head, and senior traders. Equity commissions are anticipated to increase by 8.8 per cent in 2021 to GBP2.3 billion after climbing 9.2 per cent in 2020. According to the study, a majority (53 per cent) of traders believe that their overall commission payments will rise this year, and more than two-thirds forecast improvements in trading volumes. The Bloomberg Intelligence report notes that, if predictions come true, 2021 will be the second year in a row to see brokerage commissions improve following a decline of a third in 2015-19. Currently, the average blended commission rate is at 3.46 basis points. This period saw a shift from active management strategies to more quantitative and passive strategies put pressure on turnover and fees and a switch to less expensive trading channels. Survey respondents view algorithms as the most important broker service, followed by high and low touch services.

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Private Equity Invests in Record 566 CEE Companies in 2020

Brief: Private equity firms invested in a record 566 companies in Central and Eastern Europe in 2020, as the industry supported dynamic SMEs and start-ups that will fuel the recovery from the impact of Covid-19 and underpin long-term economic and social development across the region. Invest Europe, the association representing Europe’s private equity, venture capital and infrastructure sectors, as well as their investors, today released its 2020 Central and Eastern Europe Private Equity Statistics. The report shows that the number of companies receiving private equity investment increased by 15 per cent on the previous year’s record and beat the five-year average by 46 per cent. Venture capital was the driving force for company investments in 2020 as firms backed 474 start-ups and scale-ups with total investment of EUR358 million – just 4 per cent below the all-time high achieved in 2019. Overall private equity investment slipped to EUR1.7 billion in 2020, mainly due to the absence of large buyout transactions involving equity commitments exceeding EUR300 million during the period. Poland was the leading destination with a quarter of the region’s total investment value (ER431 million)  and home to almost a fifth of the companies receiving funding.

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Real Estate Tech is Bouncing Back From its Pandemic Slump

Brief: The pandemic had a tumultuous effect on the real estate industry. On the one hand, offices stood empty, hotel occupancy rates plummeted and construction was halted for many months. At the same time, demand for residential housing intensified as people were looking for more space to work and study. As a result, 2020 global VC deal flow into commercial real estate technologies fell nearly 80% compared with 2019. Meanwhile, venture investment into residential real estate tech dropped by less than 10% in that time, according to PitchBook data. As pandemic-related shutdowns are phasing out, both segments are seeing renewed interest from venture capitalists. Roughly six months through the year, VC deal activity in residential real estate tech has already reached an annual record of $6.2 billion, according to PitchBook data through June 18. And with $2.6 billion in funding, the commercial segment is on track to make 2021 the second-most valuable year for venture activity. Unlike in previous years, when the buzziest companies in the sector served commercial clients, much of the venture dollars are going to startups focused on disrupting the scorching-hot residential market.

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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 June 28, 2021:

  • In the United States, as plan “A” for President Joe Biden’s administration and its vaccination goal for July 4th were thrown off-stride, they are now moving onto plan “B”. The Associated Press is reporting the Biden administration is sending its A-list officials across the country, devising advertisements for niche markets and enlisting community organizers to persuade unvaccinated people to get the COVID-19 shot. The focus is on what health officials call the “moveable middle” – a group of about 55 million Americans – most under the age of 30. “We’re not just going to do the mass vaccination sites,” said Health and Human Services Secretary Xavier Becerra. “It’s door to door. It’s mobile clinics. We’re doing vaccinations at church, the PTA meeting, the barber shop, the grocery store.” It’s unclear how well the administration’s plan “B” is working with vaccination rates now dropping below one million a day and no sign yet of a turnaround.

  • In Canada, Ontario is claiming to set a new North American record for most vaccinations at a single site in one day. Over the weekend, health officials set-up shop at Toronto’s Scotiabank Arena – home normally to professional sports teams like the Toronto Maple Leafs and Toronto Raptors – to administer doses of Pfizer and Moderna. According to the facility’s owner – Maple Leafs Sports and Entertainment Ltd (MLSE)– 26,771 COVID-19 shots were administered on Sunday. MLSE said the previous record for a single day in North America was thought to be more than 17,000 shots at The Texas Motor Speedway back in April. Canada’s vaccination rate got off to a slow start compared to its southern neighbours with only 3% of residents fully vaccinated by the middle of May. However, vaccinations have picked up steadily and government officials hope to have 75% of Canada’s population fully vaccinated by late July or August.

  • In the United Kingdom – Health Secretary Matt Hancock stepped down from his position over the weekend in a way British tabloids would even have a hard time making up. Hancock quit on Saturday after it was revealed he was caught breaking COVID-19 rules by kissing and embracing an aide in his office. The move enraged colleagues and the public who have been living under lockdown and is the latest scandal to rock the Boris Johnson government – which has seen many – since the pandemic began in March 2020. On Friday, The Sun newspaper published photos of Hancock embracing a woman who he had appointed to a taxpayer-funded role to scrutinize his department. “Those of us who make the rules have got to stick them and that’s why I’ve got to resign,” said Hancock via a video message on Twitter.

  • In a race against the Delta variant, Germany is expecting drugmaker Moderna to deliver its COVID-19 vaccines faster than expected over the coming months. Speaking over the weekend, German health minister Jens Spahn said the supply of vaccines will soon outstrip demand, which will allow it to offer shots to passers-by in city centres and places of worship. Moderna will increase its deliveries to 1.33 million doses a week from July; up from the 733,000 previously expected, raising the figure to 2.57 million in August and 2.95 million a week in September. Germany has 53% of its population with a first dose of a COVID-19 vaccine and 35% are fully vaccinated.

  • The United Arab Emirates (UAE) have confirmed most of the new coronavirus infections in the Arab state are from the more infectious variants. UAE, with a population of about nine million, had one of the world’s fastest vaccination campaigns, but cases have risen to more than 2,000 new infections a day and over the weekend, suffered its highest single-day death toll since March. The National Emergency Crisis and Disaster Management Authority (NCEMA) said the increase in deaths was due to the Beta variant, first discovered in South Africa and the Delta variant, first discovered in India.

  • Australia’s health authorities are claiming the country is in its most dangerous stage since the pandemic earliest days because of several COVID-19 clusters now circulating. Sydney to the east and Darwin in the north were in lockdowns on Monday. Perth in the west has made masks compulsory for three days and warned a lockdown could follow after a resident tested positive after visiting Sydney a week ago. Meanwhile Brisbane and Canberra have or will soon make wearing masks compulsory. Australia has had to depend on fast and harsh lockdowns to contain clusters of cases as the nation’s coronavirus vaccine rollout has been slow with only 5% of the population fully vaccinated. Sydney’s two-week lockdown began on Monday.

Covid-19 – Due Diligence And Asset Management

KKR Dealmakers Pause for Breath After $60 Billion Pandemic Binge

Brief : A relentless global deal binge totaling nearly $60 billion has KKR & Co.’s leadership taking stock -- and a breather. When the pandemic hit, shortly after Philipp Freise and Mattia Caprioli took over new roles in Europe, the buyout house started deploying as much capital as possible while most rivals held back. More than a third of the total was spent in Europe, and KKR started working on a new fund dedicated to the region just a year after closing the last one. The breakneck pace of deals took its toll. KKR is now echoing the gentler tone adopted by investment banks like Goldman Sachs Group Inc. after employees balked at the work-till-you-drop culture. The biggest challenge to high performance in the buyout industry is “constant exhaustion,” Freise, 47, said in an interview. “As new-generation leaders, our job is to really temper,” said the German dealmaker, who’s co-head of KKR’s European private equity business with Caprioli. “It is almost like conducting an orchestra where the whole thing has gone into ‘Ride of the Valkyries’ -- we have to slow down a little bit to protect the human element from crashing.” The unusually open tone by leaders in the cutthroat buyout industry comes as workplace cultures come under increasing scrutiny and employers seek ways to retain a younger generation of workers.

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EU’s Economic Guardians Are Split on Post-Pandemic Strategy

Brief: The European Union’s top economic policy makers are exposing a gulf in their views on how to run the economy after the pandemic. European Central Bank Executive Board member Fabio Panetta said on Monday that monetary officials should retain the “unconventional flexibility” they granted themselves during the crisis, keeping borrowing costs low until government spending helps push up inflation. Hours later, his policy-making colleagues Jens Weidmann and Robert Holzmann said the ECB’s emergency powers are temporary and must end once the emergency is over. Panetta also said the ECB should consider retaining the flexibility ingrained in its 1.85 trillion-euro ($2.2 trillion) pandemic emergency bond-buying program when it expires. An older quantitative-easing program is tied to limits on how much of a country’s bonds can be bought.

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Global Economic and Earnings Growth is Approaching its Peak. Now What?

Brief: The global economy has recovered from the pandemic sooner than most expected, with diversified investors benefiting from financial markets. But with growth now expected to be at its peak, U.S. asset managers, in particular, must now grapple with new concerns surrounding interest rates, inflation, and valuations. According to Nuveen’s mid-year outlook released Monday, “a booming economy brings with it new opportunities — and risks.” While asset growth improved from 2020, yields are still “frustratingly” low, which means returns may be fewer and far between in the second half of 2021. Moving into the second half of the year, the asset manager recommended clients consider differentiating between short- and long-term inflation risks and diversifying income and asset classes. “Both the level of output and its first derivative (growth) remain quite strong. It’s the second derivative — the change in the rate of growth — that has started to fall, presenting a challenge for investors and policymakers alike (not to mention those charged with making economic forecasts),” the report stated.

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Asset Managers Mull Upgraded US Inflation Expectations

Brief : Asset managers are weighing the impact of upgraded inflation expectations on financial markets, as the Federal Reserve moves up its timeline for interest rate hikes and bond tapering. An array of buoyant economic data from the US resulted in the Federal Reserve upgrading its inflation expectations and moving up its timeline for raising interest rates, with the first hikes now expected in 2023.  The Federal Reserve now predicts that inflation will climb to 3.4 per cent this year. This is a marked shift in tone from the FOMC’s meeting in March, which projected 2.4 per cent yearly inflation, and no rise in interest rates until 2024.  Earlier this month, Russell Investments found that 70 per cent of fixed income managers expect inflation in the next year will exceed 2 per cent. Meanwhile, average allocations to bonds are currently at a three-year low, according to Bank of America’s fund manager survey in June. US 10-year Treasury yields rose to 1.55 per cent on Friday, twelve basis points higher than the end of last week. BlackRock Investment Institute sees the Federal Reserve’s new guidance as “more balanced”, with two interest rate hikes projected for 2023. “We view this upgrade as the Fed catching up with the restart dynamics.” 

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Should Real Estate Equities Investors Be Worried About Inflation?

Brief: Inflation, having been off the menu for so long, now seems to be the hottest of topics. How worried should investors be given recent inflation fuelled market wobbles and how can they protect themselves if it does become a problem in reality? One answer could be found in real assets, which generally benefit by economic growth that causes inflation.  Certain types of real assets, like property and infrastructure, can also rise in price when their input costs rise, as the replacement cost of building similar buildings or structures rises. However, for most investors infrastructure or commodity investments can be too niche or volatile, and the liquidity mismatch of direct property funds throws up additional risk. As such many investors look to REITs (real estate investment trusts) or funds of REITs for long term capital appreciation, a robust income stream and inflation protection, as rental incomes general include inflation uplifts. Most investors would invest in REITs that focus on commercial property, but more specialist REITs and residential REITs are available.

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Property Investors Eye South America Haven in Return-to-Work Bet

Brief: A group of Uruguay’s top real estate investors is planning to raise $165 million to wager that demand for office space is about to take off as foreigners flock to the nation known as the Switzerland of South America. Investors including architect Ernesto Kimelman and construction executive Eduardo Campiglia are seeking to sell hybrid securities through a real estate trust, Fideicomiso Financiero Platinum. The cash raised through the sale will go toward building two office towers and a 98-unit apartment building expected to house locals and newcomers to the nation of 3.5 million people. “We’re in the middle of a region that unfortunately has lots of issues. There are problems in Chile, in Argentina, in Peru. Things aren’t good in Brazil,” Kimelman said in an interview. “That probably means many companies or independent workers view Uruguay as a place” to do business. Wedged between Argentina and Brazil, Uruguay has leveraged its economic and political stability to persuade companies like chemicals producer BASF SE and oil-trading giant Trafigura Group to open local offices. The government is also offering generous tax breaks to attract skilled immigrants, and revive investment and the broader economy.

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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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