Sign In
sign up
Menu
Sign In
sign up
shutterstock_1629512083

Covid-19 Diligence Briefing

Our briefing for Wednesday March 24, 2021:

  • A senior United States official expects the World Health Organization’s (WHO) investigation into the origins of the coronavirus pandemic to require further study, perhaps even a return trip to China. Marc Cassayre, charge d’affaires at the U.S. mission to the U.N. in Geneva, hopes the WHO investigation, expected to be released later this week, will be based on science and a real step forward in order to prepare for future pandemics. The WHO’s probe into the pandemic origins back in January was hampered by delays, concerns over access and bickering between Washington and Beijing on where/how the coronavirus pandemic started.
  • In Canada, an Ontario infectious disease doctor believes the third wave of COVID-19 infections will be worse than the first two. “I think it’s impossible to avoid a third wave that’s likely going to be worse than the first two,” said Dr. Abdu Sharkawy, an infectious disease specialist. “Many of us felt that this was an inevitability. This is pretty much the trap that this pandemic has proven its ability to present to us. That’s why we call them waves, you get lulled into a sense of complacency and then cases start picking up.” Ontario’s top doctor earlier in the week declared the province is entering its third wave, even as sections of the economy start to reopen, while Alberta and British Columbia have not made that declaration yet but have seen their infection rates continue to increase.
  • The United Kingdom and European Union (EU) are said to be working on steps to create a “win-win situation” and avoid a vaccine war with one another. In a joint statement, the UK and EU stated: “We are all facing the same pandemic and the third wave makes co-operation between the EU and UK even more important. We’ve been discussing what more we can do to ensure a reciprocally beneficial relationship between the UK and EU on COVID-19.” The joint statement came just hours after Prime Minister Boris Johnson addressed parliament and didn’t think blockades of vaccines, medicines or ingredients for vaccines was sensible. Earlier on Wednesday, AstraZeneca denied “stockpile” claims saying 29 million vaccine doses at an Italian plant are for EU and developing countries. There had been reports that doses were “hidden” in the plant, just outside of Rome, and destined for the UK.
  • Germany’s response to the latest wave of the coronavirus is definitely not going as smoothly as the first. For the third time in three days, Chancellor Angela Merkel had to address lockdown restrictions – this time admitting fault and dropping plans for a five-day shutdown in Germany over Easter, which prompted confusion and criticism. “This mistake is my mistake alone,” Merkel told reporters. “A mistake must be called a mistake and above all it must be corrected – and if possible, that has to happen this time.” Chancellor Merkel said that, even without the Easter shutdown, decisions that have been taken with the 16 state governors offer a “framework” to beat back the new wave of coronavirus infections.
  • Philippines President Rodrigo Duterte has warned officials against jumping the vaccine queue, saying the country risks losing their donated doses from the COVAX initiative if health workers aren’t prioritized. In a televised news briefing on Wednesday, President Duterte said five mayors and a local celebrity’s son have been asked to explain and may face charges for being inoculated ahead of priority groups. At the same news briefing, the country’s health secretary said the Philippine’s available vaccines can only inoculate 30% of the nation’s 1.7 million health workers.
  • Brazil recorded more than 3,000 COVID-19 deaths in a single day for the first time on Tuesday and that grim statistic finally seems to be making President Jair Bolsonaro change his tune, albeit not very much. In a four-minute presidential address on TV and radio, Bolsonaro said his government will make 2021 the year of the vaccination of Brazilians. However, even in that subtle tone shift, President Bolsonaro never addressed the 3,251 deaths due to the virus on Tuesday and said Brazilians will “very soon return to normal life”, which considering the dire situation, doesn’t seem very realistic. President Bolsonaro has constantly downplayed the coronavirus pandemic in Brazil and even late last week, appealed to the Supreme Court to invalidate curfews enacted by two states and federal district. The top courts had previously ruled governors and mayors have the power to adopt such restrictions.

Covid-19 – Due Diligence And Asset Management

Private Equity Piles on Debt to Pull Cash From Health-Care Firms

Brief : Health-care companies are taking on more debt to pay dividends to their private equity owners, just a year after the start of a pandemic that plunged the industry into crisis. At least five U.S. health-care firms have borrowed heavily in part to fund hundreds of millions of dollars of such payouts in the first quarter, according to a report to be released Wednesday by the nonprofit Private Equity Stakeholder Project. The practice, known as dividend recapitalization, is gaining steam as investors hunt for yield with interest rates near historic lows. Meanwhile, health-care companies are on a stronger footing, with patient visits rebounding and the government unleashing unprecedented economic stimulus. Health-care firms have already borrowed about $3.7 billion in 2021, partly to fund payments to private equity owners, more than double the amount issued all of last year, according to data from S&P Global Market Intelligence. At the current pace, it would be the industry’s most active year for borrowing since 2015.

Read more...


Blackstone Invests in Mental Health App at $1 Billion Value

Brief: Blackstone Group Inc. is leading a $100 million funding round in on-demand mental-health company Ginger, accelerating a push into fast-growing technology startups. The funds will come out of the investment firm’s growth equity arm, Blackstone and Ginger said Wednesday. The stake values the San Francisco-based service at about $1 billion, vaulting it to unicorn status. Demand for resources provided by Ginger, which connects users to behavioral health experts and services such as coaching via a mobile app, is surging in the Covid-19 pandemic. The company’s revenue has tripled in the past year. “There’s a widespread prevalence of mental health issues in this country,” said Ram Jagannath, who heads health-care investing for Blackstone Growth Equity. “Like other sectors of health care, the pandemic exacerbated the underlying trends and accelerated people’s adoption of digital platforms.”

READ MORE...


Goldman Sends Indian Employees Back Home as Local COVID-19 Cases Rise

Brief: Goldman Sachs told all but critical staff at its operation in Indian IT capital Bengaluru to return to working from home on Wednesday, reversing moves to get staff back to one of its biggest global offices as coronavirus infections in the city grew. India earlier reported a new variant of the coronavirus as new infections and deaths nationwide hit the highest this year, prompting the imposition of new restrictions in some states. Bengaluru reported 1,280 new infections on Tuesday, according to city data, and several sources at Goldman told Reuters that teams had been told to return to working from home ahead of an all-office townhall call at 2 p.m. local time on Thursday. In March so far, nearly 14,000 new cases have been reported, more than twice the number recorded in February.

Read more...


Bank Lending to Fossil Fuel Industry Down 9% in COVID-hit Year

Brief: The world’s biggest banks cut lending to fossil fuel firms by 9% in 2020 as a result of the pandemic, although funding has still risen over the past five years, a report showed on Wednesday. The 60 largest banks lent more than $750 billion to 2,300 fossil fuel companies in 2020, down from $824 billion in 2019, according to a report by Rainforest Action Network, Reclaim Finance, Oil Change International and other non-governmental organisations (NGOs). But the report said the fall, driven by record low levels of industry investment in the second half of 2020 as the pandemic hammered fuel demand, followed annual rises of 4.4%-5.5% since 2016, the year after the Paris climate accord was signed. It also followed a surge in demand from fossil fuel companies raising cheap financing in the first half of 2020, the report said after assessing the roles of banks in lending and underwriting debt and equity issues.

READ MORE...


Moody’s Sees Quicker Business Travel Recovery in Developing Regions

Brief: Prospects for the recovery of business travel by air are highly uncertain, but it is expected to grow more quickly in developing regions than in advanced economies, said Moody’s Investors Service. “This will continue the trends seen since the global financial crisis, when growth in business travel in advanced economies lagged the overall market, with demand for leisure flying leading. “An increased focus on near-shoring of supply chains after the pandemic is likely to increase intra-regional or short-haul international business travel at the expense of long-haul trips,” the rating agency said in a note today. Moody’s said the recovery in business travel would be driven by the gradual reopening of workplaces and a latent demand to make business trips, although companies’ duty of care to employees to safeguard against Covid-19 infections before vaccinations becoming widespread would partially restrict business travel.

Read more...


Dan Zwirn Invested Like a Crisis Was Coming – And Then Covid-19 Arrived

Brief: Dan Zwirn thought markets were frothy for at least five years before the pandemic. His credit shop, Arena Investors, underwrote investments as if a crisis was on its way and diversified so any one deal wouldn’t have an outsize impact on the portfolio.  “Frankly a lot of stuff that got hurt was very overdone going into Covid. But people didn’t let us into those clubs in the first place,” Zwirn said in an interview. “There were no 18 percent office loans available, so we were not exposed. That gave a lot of people comfort that this is what the downside looks like.” So far, his approach has worked out, according to the Arena CEO and chief investment officer’s latest letter to clients. “Covid was a great stress-test of our approach, and we were left in a position to quickly shift to playing offense once we had taken stock, battened down the hatches, and appropriately assessed the small impact to our book,” Zwirn wrote in the investor letter.

Read more...


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 March 23, 2021:

  • In the United States, AstraZeneca’s COVID-19 vaccine has hit yet another stumbling block. Multiple media outlets are reporting the drugmaker will publish up-to-date results from its latest COVID-19 vaccine trial within 48 hours after American health officials questioned the shot’s efficacy rating as it may have not been based on all the available data. Dr. Anthony Fauci, the head for the U.S. National Institute for Allergy and Infectious Diseases (NIAID) said the whole issue was an unfortunate unforced error. “This is very likely a very good vaccine and this kind of thing does… nothing but really cast some doubt about the vaccines and may contribute to the hesitancy,” said Dr. Fauci. The public rebuke by the NIADI is the latest setback for the AstraZeneca vaccine that has been hit by questions over its effectiveness and possible side effects ever since it started getting use throughout the world a few months ago. 

  • In Canada, the federal Conservatives are calling on the leading Liberals to unveil a national plan to reopen the country. “The president of the United States and the prime minister of the United Kingdom have both released public plans for reopening. But [Prime Minister Justin] Trudeau refuses to give Canadians clarity on whether and when regular social life will be able to resume, and under what circumstances and conditions,” said Leader of the Opposition, Erin O’Toole on Tuesday. O’Toole cited national business organizations and one of Canada’s largest unions, agreeing with them that it is “unsustainable” to rely on lockdowns while waiting for COVID-19 vaccines to be widely administered.

  • In the United Kingdom, media has seen a government document that plans to have nursing home workers in England legally required to have a COVID-19 vaccination. According to details of a paper submitted to the COVID-19 operations cabinet subcommittee last week and leaked to the Telegraph, Prime Minister Boris Johnson and Health Secretary Matt Hancock have agreed to the proposal. Upon getting wind of the leak, a government spokesperson insisted “no final decisions have been made”. If the change is approved, it would affect most of the 1.5 million workers in England adult social care sector and likely cause some workers to either quit and/or file lawsuits on human rights grounds.

  • Reuters is reporting the European Union (EU) will extend powers to potentially block COVID-19 vaccine exports to the UK and other countries. The move is expected to be made on Wednesday by the European Commission and will focus on countries with much higher vaccination rates, and to cover instances of companies backloading contracted supplies. An EU official said all vaccine makers could be affected if they don’t comply with delivery timetables. Shipments could also be withheld if vaccine-producing countries such as the United States and the UK don’t allow exports of vaccines to the EU.

  • Germany has doubled down on their coronavirus restrictions with Chancellor Angela Merkel and state leaders agreeing to a hard lockdown over Easter. As noted in Castle Hall’s COVID-19 Diligence Briefing on Monday, Chancellor Merkel and Germany’s 16 regional leaders agreed to extend current lockdown restrictions until April 18th as per media reports. In the hard Easter lockdown, all stores will be shutdown as of April 1st for five days, expect for food stores, which will reopen on April 3rd. Germans will be encouraged to remain at home, private gatherings limited to one other household and a maximum of five people with public meetings banned. Chancellor Merkel said in a news conference after a 11-hour meeting of tense talks with her regional leaders that the Easter lockdown is necessary to try and defuse a third wave of COVID-19.

  • India’s health experts are concerned after seeing a spike in coronavirus cases in recent weeks. The country of close to 1.4 billion people, recorded 260,000 new coronavirus cases last week – one of the worst weekly increases since the pandemic began early last year. The western state of Maharashtra – home to the country’s financial capital – Mumbai – has accounted for nearly 70% of the national caseload. India’s health experts blame poor adherence to safety protocols and potentially circulating variants as reasons for the current spike. “People had falsely assumed that India had reached the threshold of herd immunity but that is not the case,” said Dr. A. Fathahudeen, a critical care expert, who has treated thousands of COVID-19 patients, according to the BBC. More than 40 million people in India have received at least one of dose of a coronavirus vaccine so far, but that’s less than 4% of the country’s population.

Covid-19 – Due Diligence And Asset Management

Dimon, Solomon Join CEOs Urging New York to Reject Tax Hikes

Brief : Jamie Dimon, David Solomon and scores of other New York business leaders warned Governor Andrew Cuomo that proposed tax hikes would risk the state’s economic recovery and worsen the exodus of residents to lower-tax locations. The chief executive officers of JPMorgan Chase & Co. and Goldman Sachs Group Inc. added their names to a list of roughly 250 others who argued in a letter sent Tuesday that higher taxes aren’t needed, given federal stimulus programs approved by Congress and higher-than-expected tax receipts in 2020. The CEOs said they were compelled “to express alarm at plans to enact the largest spending and tax increases in the state’s history,” adding that the proposals “will jeopardize New York’s recovery from the economic crisis inflicted by Covid-19.” Cuomo has long-resisted taxes on the wealthy, favored by the growing progressive wing of his party, but the three-term governor has recently become more amenable to them. Multiple scandals, including claims of sexual harassment and accusations his administration covered up Covid-19 nursing-home deaths, have prompted calls by dozens of lawmakers for him to resign, saying his ability to govern is in question. Cuomo has denied the claims and said he won’t step down.

Read more...


Zoom to Zen – Citi Unveils Zoom-Free Fridays to Beat Remote Working Stress

Brief: In a move to combat fatigue triggered by remote working during the COVID-19 pandemic, Citigroup Inc has declared “Zoom-Free Fridays” and encouraged employees to limit calls outside work hours. While Wall Street is known for its tough work culture, the remote working during the pandemic has been particularly gruelling for most employees, taking enormous toll on their health and mental wellbeing. “I know from your feedback and my own experience, the blurring of lines between home and work and the relentlessness of the pandemic workday have taken a toll on our well-being,” Chief Executive Officer Jane Fraser said in a memo seen by Reuters on Tuesday. “It’s simply not sustainable.” Any internal meetings on Fridays would happen as audio-only calls, according to the memo. The CEO also encouraged employees to take their vacations, while the company announced a firm-wide holiday on May 28. Citigroup also said that post-pandemic, a majority of the roles at the bank would be designated as “Hybrid”, allowing employees to work from the office at least three days a week and from home for up to two days a week.

READ MORE...


Private Equity Firm Thoma Bravo to Acquire Software Firm Calabrio from KKR

Brief: Private equity firm Thoma Bravo LP said on Tuesday it has agreed to acquire workplace software firm Calabrio Inc from KKR & Co Inc. Terms of the deal were not disclosed but people familiar with the matter said the deal values Calabrio at more than $1 billion, including debt. KKR paid $200 million to acquire Calabrio in 2016. Minneapolis, Minnesota-based Calabrio provides a cloud-based software that allows companies like Netflix Inc and Shopify Inc track and analyze customer service data generated from their contact centers. Calabrio grew its recurring revenue to nearly 80% of total revenue, up from just 30% about four years ago when it was acquired by KKR, Thomas Goodmanson, its chief executive officer said in an interview. The increase has in part been driven by the shift to remote work due to the COVID-19 pandemic. “The pandemic has really shifted a focus to the cloud, in our industry where we help companies take care of their customers, they had to send their contact center agents home and our software was in a perfect place to help them,” Goodmanson said.

Read more...


IMF Considers Creating $650 Billion in Reserves After Yellen Nod

Brief: The International Monetary Fund is considering a plan to create as much as $650 billion in additional reserve assets to help developing economies cope with the pandemic, with an eye on finalizing a decision next month, according to two people familiar with the plan. The institution’s executive board is discussing the staff proposal informally on Tuesday, and one of the priorities will be to consider how much to issue in the units known as special drawing rights, according to the people, who spoke on condition of anonymity because the talks are private. Attention is now focused on a $650 billion issuance, according to the people, after previous talk of $500 billion. The IMF press office declined to comment. IMF Managing Director Kristalina Georgieva is expected to release a statement after the meeting, one of the people said. Momentum has been building for the injection of funds after U.S. Treasury Secretary Janet Yellen leaned toward supporting the action, reversing opposition last year under President Donald Trump. Her predecessor, Steven Mnuchin, blocked the move in 2020, saying that because reserves are allocated to all 190 members of the IMF in proportion to their quota, some 70% would go to the Group of 20, with just 3% for the poorest developing nations.

READ MORE...


DunPort Launches EUR50m Fund to Support Covid-19 Impacted SMEs

Brief: DunPort Capital Management (DunPort) has launched a EUR50 million fund to provide tailored and flexible capital solutions to Irish small and medium sized enterprises whose businesses have been directly impacted by the Covid-19 pandemic.  The fund, backed by a EUR50 million commitment from the Ireland Strategic Investment Fund (ISIF), will seek to support well-established, historically profitable Irish SMEs with annual turnovers of between EUR5 million and EUR50 million and funding requirements of between EUR3 million and EUR15 million. Capital from the fund may be used to address Covid-19 related challenges while allowing investee companies to retain existing financing relationships and avoid material shareholder dilution. “The significant impact of Covid-19 on businesses of all sizes in Ireland will be long lasting,” says Pat Walsh, Executive Director of DunPort. “To ensure that Irish businesses can exit this challenging period with financial stability and poised for recovery and growth, company balance sheets will require restructuring to transition the build-up of unsustainable short term liability balances into manageable longer-term obligations. DunPort is therefore very pleased to offer, with the backing of ISIF, a suitably structured, patient capital solution to businesses in Ireland that most need it.” 

Read more...


One Year On: How Covid-19 Has Impacted Private Equity

Brief: Over the past year or so, we’ve all become familiar with a whole host of terms we knew nothing about at the start of 2020. “Lockdown”, “rate of transmission”, and “social distancing” all entered our collective vocabularies. At the same time, we had to get used to new ways of working and doing business.  That’s as true for private equity (PE) as it is for any other sphere of business. And, initially, it looked like the economic devastation wrought by Covid-19 would hit global private equity markets incredibly hard. But after falling off a cliff in April and May, deal and exit value snapped back vigorously in the third quarter. Even as the mass rollout of vaccines around the globe brings a glimmer of hope that life may return to some semblance of normal, it’s likely that the conditions of 2020 will be with us for some time to come. It’s therefore imperative that private equity firms, their investors, and the firms they fund use the lessons of 2020 to inform their approach going forward. 

Read more...


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 March 22, 2021:

  • In the United States, the latest data shows new COVID-19 cases rose 5% last week to 394,000, the first increase after declining for nine straight weeks. With the rising numbers, the White House is calling on governors, as well as the private sector, to maintain or reimpose coronavirus restrictions. However, it might be too late in that regard, with some states already lifting restrictions on restaurant capacity and other retail businesses in recent weeks and others going as far as relaxing mask mandates. Senior COVID-19 adviser Andy Slavitt reiterated that the White House believes “it’s a mistake to get rid of mask mandates” and that the administration is doing “concerted” outreach to the private sector.
  • In Canada, the vaccination drive is expected to gear up this week as the country’s health agency prepares to accept delivery of the largest number of doses since their launch of the immunization effort. Nearly 1.2 million doses of the Pfizer vaccine, along with 846,000 doses of the Moderna shot are expected to arrive this week, with at least one million doses of the Pfizer vaccine being shipped per week for the foreseeable future. The uptick in vaccines comes on news late last week that Canada was looking to finalize a deal with the United States to see a shipment of 1.5 doses of the Oxford-AstraZeneca vaccine before the end of March. 
  • United Kingdom Prime Minister Boris Johnson tried to play down fears of a vaccine war with the European Union (EU) while admitting that the country will likely be affected by a third wave of the virus. Prime Minister Johnson said that he expects the latest wave in the EU to “wash up on our shores as well,” but said the government still planned to “bash on” with the road map out of lockdown already set out. The prime minister also added the need for international cooperation on vaccines as the EU escalated their language on threatening to block vaccine exports to the UK due to AstraZeneca not fulfilling contractual obligations to supply the bloc. Johnson is expected to call EU leaders this week and urge them to dismiss the proposal.
  • Pandemic-weary Germans received some bad news on Monday with Chancellor Angela Merkel and regional leaders agreeing to an extension on current coronavirus restrictions. Chancellor Merkel and Germany’s 16 state leaders decided to prolong coronavirus restrictions until April 18th after contagion rates have nearly doubled in the past month. Restrictions in place include a partial closing of non-essential stores, along with shutdowns of hotels, restaurants, gyms and cultural venues. Chancellor Merkel and regional officials agreed to reconvene on April 12th to discuss the next steps, according to sources.
  • The United Arab Emirates (UAE) are expanding their COVID-19 vaccination program after having covered the majority of at-risk citizens. Over the weekend, state-run media, citing the Ministry of Health, said those eligible for vaccination, including citizens and residents aged 16 and above, can now get inoculated for free at any of the 205 vaccination locations. The UAE have administered more than 7 million vaccine doses to its population of about 10 million.
  • Australia is prepared to ramp up its vaccination drive this week, but mother nature may have other plans. The country’s largest state – New South Wales - has been hammered by heavy rains – causing the government to declare many areas a natural disaster in what is being called ‘once in 100 years’ floods. Finance Minister Simon Birmingham made the rounds on media shows over the weekend stating the weather is likely to cause disruptions to freight and logistic services across the state with vaccine deliveries likely to be impacted. Starting on Monday, anyone aged 70 and above, people with underlying health issues and members of Australia’s indigenous population over 55 years of age– all of these groups accounting for about 6 million people – are now eligible to receive the vaccine.

Covid-19 – Due Diligence And Asset Management

Black Exits Apollo Ahead of Schedule and Cedes Chairman Role

Brief : Leon Black, the Wall Street billionaire who appeared to be a main client of disgraced financier Jeffrey Epstein, is stepping down as chief executive officer of Apollo Global Management Inc. months ahead of schedule. Black’s departure from that role had been announced in January, though the firm said at the time that he would leave by July 1. A statement Monday confirmed his immediate exit from the position as well as the chairmanship he’d been expected to keep. Co-founder Marc Rowan has taken over as CEO, Jay Clayton was named non-executive chairman, and Apollo added two more independent directors to its board, according to the statement. It’s an abrupt turn for Black, 69, a Wall Street legend who built Apollo into one of the most fearsome -- and profitable -- names in American finance. He cited unspecified health issues for himself and his wife in announcing his exit. “Marc has seamlessly transitioned into the CEO role and I am confident Apollo will soar to new heights under his leadership,” Black said in the statement. Black and Apollo have been dealing with the fallout from his extensive links with convicted sex offender Epstein, which brought unprecedented scrutiny and unsettled clients and shareholders.

Read more...


What We Have Learned in the 12 Months Since ‘the Bottom’

Brief: No one really likes a look back, especially when talking about the stock market. The past is done, it happened, and there’s no money to be made there. The juice to squeeze is the potential, the future, the edge, the unknown. But even though we know how the dice rolled, taking a moment to see whether we’ve learned anything is fair — and may sharpen our abilities for the future. While the future has no obligation to behave like the past, that doesn’t mean it doesn’t have anything to teach. Plus, it’s been a wild 12 months, with a tiny recession, massive government response, and the craziest roller coaster of a chart the S&P 500 has ever seen. DataTrek’s Nicholas Colas, former hedge fund manager, has spent the year writing about the “2009 playbook,” a way of viewing the parallels between 2020-2021 and 2008-2009. For him, the biggest lesson learned was that “every crisis is the same.” “Markets implode, sending a signal to policy makers. Policy makers respond. The size of the response informs the size of the market bounce-back,” Colas said.

Read more...


Global Equities Stall, Bonds Gain as Europe COVID Cases Rise

Brief: Global equities stalled and safe haven assets such as U.S. Treasuries rallied Monday as investors weighed rising coronavirus cases in Europe against a break in the recent run-up of bond yields sparked by concerns of higher global inflation. An unsettled day on global markets saw risk assets such as oil and emerging market stocks rally alongside safe havens such as Treasuries, while Turkish assets took a beating after a shock weekend decision to replace the country’s hawkish central bank governor. A third wave of COVID-19 across Europe due to highly contagious coronavirus variants is increasing concerns of another round of economic restrictions, with Paris going into a four-week lockdown late last week. “The number of new COVID-19 cases is rising rapidly, and an extension of the lockdown inevitable for many European countries. No one will be surprised by such a decision,” said Milan Cutkovic, market analyst at Axi.

Read more...


Nonprofit Investors Cautious About Stock Market in 2021, but Confident in Long-Term Prospects

Brief: Commonfund, a prominent investment manager for nonprofit institutions, has released the results of its survey of nearly 300 sophisticated institutional investors from endowments, foundations, healthcare organisations, family offices and public pensions in attendance at the recent 23rd Annual Commonfund Forum. Investors attending the conference represented USD1.1 trillion in total assets. The survey results underscore the themes that drove discussion at the event, including the dual-track economic recovery, ESG and environmentally sustainable investments, and the evolving opportunity set in private capital. When asked about their expectations for US stock market returns in 2021 versus the 10-year average annual return of 13.6 per cent for the S&P 500 Index, the majority (58 per cent) believe this year’s returns will be lower than average, while just 10 per cent expect that they will be higher. These investors are similarly apprehensive about the US economic recovery, with 76 per cent of respondents ranking the prolonged impact of Covid-19 among their top three concerns for 2021, followed by bubbles/narrowness of stock market valuations (60 per cent) and the expanding US deficit (5 per cent).

READ MORE...


U.S. Air Travelers Top 1.5 Million for First Time Since March 2020

Brief: The number of U.S. air passengers screened topped 1.5 million Sunday for the first time since March 2020, as air travel continues to rebound from a pandemic-related drop, the U.S. Transportation Security Administration (TSA) said Monday. COVID-19 devastated air travel demand, with U.S. airline passengers down 60% in 2020. But with a growing number of Americans getting vaccinated, demand and advanced bookings have started to rise in recent weeks. TSA said it screened 1.54 million people Sunday, the highest single day since March 13, 2020 and the 11th consecutive day screening volume exceeding 1 million per day. Screening refers to security checks on passengers entering airports. Still, U.S. air travel demand was down Sunday about 30% versus pre-COVID 19 levels. International and business travel demand both still remain weak. For the last week, trade group Airlines for America said passenger demand was down 47% over pre-pandemic levels, while international travel demand was down 68%. The United States bars most non-U.S. citizens from travel who have been in Brazil, South Africa, China and most of Europe and many countries still restrict entry by Americans.

Read more...


Pandemic Puts Rocket Under Healthcare Assets as Investors Scramble for Foothold

Brief: The global pandemic has placed health and wellbeing at the forefront of everyone’s minds, leading to a near-explosion in demand for healthcare property assets as investors and developers scramble to get a foothold in the sector. The search for yield is also driving infrastructure investors to expand beyond typical core assets into capital-heavy healthcare assets such as hospitals and diagnostic imaging. Healthcare assets share many characteristics with core infrastructure assets, particularly if investors think outside the box in relation to barriers to entry. Major listed players in the sector include Dexus, Centuria, HomeCo, Elanor Investments and Charter Hall, while QIC has teamed up with Nexus and the Singaporean sovereign fund GIC has joined forces with NorthWest Healthcare Properties. Andrew Hemming, managing director of the $1 billion Centuria Healthcare fund, said the scalable and quality assets now available to seed the funds and high-quality developments had underpinned the demand for the sector. Mr Hemming said the arrival of COVID-19, the vaccine rollout and the need for preventative medical care were also catalysts to investment in the sector.

Read more...


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 March 19, 2021:

  • Just 58 days since being elected as President of The United States, Joe Biden has reached his goal of vaccinating 100 million people. The news comes a day after the U.S. agreed to loan surplus vaccines to Canada and Mexico. Awaiting authorization from domestic health authorities, the U.S. has already secured tens of millions of doses of the Astra-Zeneca vaccine, which has been approved for use by the World Health Organization. The U.S. is currently administering an average of 2.2 million doses of coronavirus vaccines a day and that number is likely to increase in the near future as the Astra-Zeneca vaccine is approved and supply chains widen. While American vaccination efforts are improving, the number of American deaths stemming from the virus has already surpassed 530,000 in the country to date.

  • Roughly a third of Canada’s long-term care workers have not yet received a Covid-19 vaccine, despite being eligible since December. According to the Ontario Ministry of Long Term Care, nearly 95 per cent of long-term care residents have received at least one shot of two coronavirus vaccines, while only 67 per cent of workers have received their first shot. The discrepancy is being blamed on a number of factors including long wait times, changing public health guidelines and economic factors. However, as Sharleen Stewart, president of SEIU Healthcare, a union representing staff in many of Ontario's long-term care homes says, the “number one” reason for workers not receiving the vaccine is the lack of sick days allotted to healthcare workers. "These very low-wage earners, predominantly women ... they cannot afford to lose, you know, $200, $300 a paycheque by having to stay home for a couple of days to rest after their vaccination.

  • The United Kingdom has announced today over 1.7 million doses of a Covid-19 vaccine must be retested before they are able to be administered to public. While U.K. is leading Europe in vaccination rates, they are expecting less vaccines to come into the country in April than they did in March. Prime Minister Boris Johnson has said that the rollout of vaccines will be slower in the coming month, it will still be better than what was expected in February. Many countries around the world are feeling the crunch to have their citizens vaccinated as soon as possible, which is negatively effecting supply chains. Johnson avoided putting blame on India, where the majority of vaccines destined for Britain are being produced, saying “there is a delay as there often is, caused for various technical reasons, but we hope to continue to work very closely with the Serum Institute [of India], and indeed with partners around the world.”

  • The European Union has announced a proposal to create a Digital Green Certificate to indicate whether an individual has been vaccinated against Covid-19, received a negative test result, or has recovered from the virus. It will be issued in the form of a QR code, or in paper format to allow free passage within member states of the union. Commissioner for Justice, Didier Reynders, said “with the Digital Green Certificate, we are taking a European approach to ensure EU citizens and their family members can travel safely and with minimum restrictions this summer.” While the certificate will be valid throughout the bloc, individual member states will still have the authority to decide which travel restrictions to abide by when screening entry into their jurisdictions. Reynders continued by stating that the certificate “will not only help us to gradually restore free movement within the EU and avoid fragmentation. It is also a chance to influence global standards and lead by example based on our European values like data protection.” 

  • A new wave of infections sweeping the Philippines have prompted government authorities to tighten restrictions in the nation’s capital of Manila on Friday. Surging infection rates have brought restaurants, arcades and bars back down to 30 per cent capacity as the city struggles to contain the virus. Just over 7000 new infections were reported on Friday, marking the highest number of cases since pandemic began. Experts in the country are suggesting that infection rates are expected to hit 11,000 a day by the end of the month unless strict action is taken to curb the outbreak. The Philippine’s drug regulator on Friday approved the administration of the Russian Sputnik V vaccine, the fourth vaccine to be approved in the country. The government has also imposed night-time curfews, and a ban on foreigners entering the country in an attempt to avoid locking down Manila as was this case earlier in the pandemic.

Covid-19 – Due Diligence And Asset Management

Borrowers hit hardest by COVID risk paying £1000s more in monthly repayments, new research from Legal & General reveals

Brief : UK borrowers who have seen their income fall due to the COVID-19 crisis may soon be paying thousands of pounds more in monthly repayments as one in three (32%) borrowers consider staying on their lender’s Standard Variable Rate (SVR) once their existing mortgage product expires, according to new research from Legal & General Mortgage Club. 32% of borrowers who have been negatively financially impacted by the pandemic say they are likely to move onto their lender’s Standard Variable Rate (SVR) rather than remortgage. These buyers could face a £2,500 annual increase in their repayments if they don’t consider their remortgage options, impacting their finances which may already be stretched. One in two (50%) homeowners are also concerned that their decision to take a payment ‘holiday’ will affect their future ability to borrow. For homeowners whose finances have been adversely impacted by the pandemic, exploring their mortgage options is essential to understanding where better alternatives are available, but the research suggests that the impact of COVID-19 is deterring thousands of borrowers with maturing loans from remortgaging. This could impact over 700,000 borrowers who will reach the end of their two- and five-year residential fixed-rate mortgages in 2021.

Read more...


How The COVID-19 Pandemic Shifts Insurtech Investment Priorities

Brief: The pandemic has had a dramatic impact on the entire economy, and the insurance business is no exception. The socially distanced environment has forced many insurers to focus on technology that can help customers purchase insurance, interact with their policies and file claims online, according to Deloitte. In addition, companies are focusing more on providing more comprehensive offerings instead of point solutions. The Insurtech Numbers: The good news for the insurtech industry is that the pandemic didn’t appear to negatively impact overall investment. In 2020, insurtech funding hit a record $7.1 billion, according to WillisTowersWatson. Total funding was up 12% and the total number of funding deals were up 20%. In the fourth quarter of 2020, property & casualty (P&C) insurtechs accounted for 67% of the $2.1 billion in funding raised.

Read more...


Easy money? Gen Z invest online to beat coronavirus woes

Brief: Juggling homework, friends and his personal YouTube channel, 12-year-old Kwon Joon is often too busy to check on his investments – not that the South Korean schoolboy is too concerned. With impressive returns of 42% since he began dabbling in the stock market last year, Kwon believes online trading can safeguard his financial future, in a world made increasingly insecure by the economic fallout from COVID-19. “To be honest, I sometimes forget to check my stock account because of my school work or when I’m playing with my friends,” said Kwon, who has made 14 million won ($12,364) in profits since he invested 25 million won in seed money last April. “I’m going to take the shares with me until I become an adult. I think this is the benefit of investing in stocks as a young person because you can invest in it for the long term,” he told the Thomson Reuters Foundation from southern Jeju Island. From South Korea to the United States, a growing number of teens and young adults born after 1996 – dubbed Generation Z – are turning to online investment platforms that offer the chance to make a living with a swipe, but often pose unforeseen risks.

Read more...


Wall Street Week Ahead: Investors got the stimulus boost, but now face tax worries

Brief: Investors are turning their attention to prospects that higher taxes could threaten the rally in U.S. stocks as President Joe Biden's administration moves forward with its agenda and seeks ways to pay for its spending plans. In recent days, investors have focused on a rise in bond yields that has pressured share prices, though indexes remain close to their record highs. Nevertheless, some worry that at least a partial rollback of the corporate tax cuts that fueled stock gains during the Trump era could eventually drag on equities, whose valuations have already grown rich by some measures. "It is an issue," said Quincy Krosby, chief market strategist at Prudential Financial. "It's going to be talked about as it becomes a reality. But the market's focus right now is clearly on getting to the other side of this pandemic." The S&P 500 has gained more than 4% this year, with Biden's newly passed $1.9 trillion coronavirus relief plan providing the latest fuel for the economy and the stock market. The pace of the economic recovery and COVID-19 vaccinations will remain in investors' focus next week, along with the rise in U.S. bond yields that has pressured tech and growth shares and further supported bank and other value stocks.

READ MORE...


Tech Leads Stocks Higher; Yields Retreat From Peak

Brief: A rebound in the technology sector pushed U.S. stocks into the green and Treasury yields retreated from the highest levels of the day as investors weighed the risk of inflation with economic growth accelerating. The yield on the benchmark 10-year Treasury had spiked earlier after the Federal Reserve let a capital break for big banks expire. Crude oil rebounded after tumbling Thursday. The S&P 500 edged higher, led by the energy and communication services sectors. JPMorgan Chase & Co. and other banks weighed on the Dow Jones Industrial Average in the wake of the Fed ruling. Facebook Inc. helped the tech-heavy Nasdaq 100 rebounded from Thursday’s 3.1% slump. Traders are bracing for quadruple witching Friday, a major expiration of options and futures contracts that can exacerbate swings in asset prices. “What we have to watch out for is a persistent rise in inflationary expectations and that’s how the rise in the 10-year Treasury could potentially get out of control,” said David Donabedian, chief investment officer of CIBC Private Wealth Management. “That’s today probably the biggest risk for the stock market.”

Read more...


Fed easy monetary policy means it's time for active management: Mohamed El-Erian

Brief: Last year, it was tough to find an asset class that was underperforming. U.S. stock benchmarks rose in 2020, after plunging at the onset of the coronavirus pandemic. Government and corporate bond prices rose as yields contracted. Bitcoin quadrupled. Gold rose 24%. That uniform outperformance has been a lot harder to come by thus far in 2021. All three major stock averages have hit highs on multiple occasions, but the Nasdaq (^IXIC) has fallen about 7% since its most recent record on Feb. 12. Bitcoin (BTC-USD) has suffered a couple of double-digit percentage pullbacks, although it remains higher year-to-date. Many of the declines in risk assets have been triggered by rapid increases in Treasury yields, reflecting markets digesting the potential for inflation and the Federal Reserve's willingness to let the economy run hot. Now one of the best-known macro strategists, Mohamed El-Erian, is saying that because of the Fed's current policy, investors should get more active. "It's going to be an environment for very active management, building portfolios from a bottom-up perspective," El-Erian tells Yahoo Finance Live.

Read more...


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 March 18, 2021:

  • Medical experts believe the United States could be in for a fourth surge of Covid-19 infections, but this time the death toll could be considerably lower. This is thanks to the number of high-risk individuals having already received vaccinations to protect against the virus. As state-leaders begin to ease restrictions across the country, including the practice of wearing masks, all signs point to case numbers rising. New infections had been declining for a number of weeks before appearing to hit a plateau earlier this week. This type of regression has previously indicated a forthcoming surge in new cases. The plateauing numbers combined with the contagion rates of new variants of the virus – which are expected to be the dominant form by late March - lead experts to believe that a fourth wave is imminent.

  • White House press secretary Jen Psaki has confirmed that Canada has petitioned the United States for any surplus doses of Covid-19 vaccines. On Wednesday, Psaki said that both Canada and Mexico had formally requested the help of the United States in securing more vaccines. Today, the United States has said that it will distribute 4 million doses via loan agreements to Canada and Mexico. As Canada begins to roll out vaccinations, a third wave of the virus is beginning to take shape in the more densely populated areas of the country. “It’s a pipe dream to believe that anything other than additional measures are going to cause this to abate,” said Dr. Andrew Morris, an infectious-diseases specialist at Mount Sinai Hospital, “our vaccination efforts are not going to simmer this down.” Meanwhile, Quebec’s premier Francois Legault has suggested that all adults in the province should have at least one dose of a vaccine by Quebec’s Fete Nationale, a provincial holiday on observed on the 25th of June.

  • The United Kingdom has announced today that the Oxford/Astra-Zeneca vaccine is safe and effective. Despite rare side-effects like blood clotting in the brain, the U.K. believes that the risks do not outweigh the positives for vaccine. Emer Cooke, executive director of the European Medicines Agency has said “[the Oxford/Astra-Zeneca vaccine] benefits in protecting people from COVID-19, with the associated risks of death and hospitalization outweigh the possible risks.” Out of the 20 million people that have tested the vaccine, there has been comparatively low instances of side-effects being seen after inoculation. "The evidence we have is, at the moment, not sufficient to conclude with certainty whether these adverse events are indeed caused by the vaccine or not," said Dr. Sabine Straus, chair of the EMA's Pharmacovigilance and Risk Assessment Committee. 

  • A new surge of Covid-19 infections in India is causing a dire shortage in vaccines that were scheduled to be exported to the United Kingdom. The rising cases in India has nearly halted the distribution of vaccines to U.K. which will result in people under 50 in Britain having to wait a up to a month longer before they will be vaccinated. India, like many other nations is citing new variants of the virus as the catalyst for the increasing cases. The Indian government has instructed the Serum Institute of India, the world’s largest vaccine producer and the largest administrator of doses for the Covax program to keep more vaccines for use domestically. India is leading the rest of the world in terms of vaccines shared, with over 60 million doses being sold or gifted to other countries thus far in the pandemic.

  • Australia will send roughly 8000 doses of its own Astra-Zeneca vaccines to Papua New Guinea to help alleviate the neighboring country of a new wave of infections. This week, Australian Prime Minister Scott Morrison said that the country will be “making a formal request to Astra-Zeneca and the European authorities to access 1 million doses of our contracted supplies of Astra-Zeneca not for Australia, but for PNG, a developing country in desperate need of these vaccines.” Earlier this month, the European Union blocked a shipment of 250,000 doses of the Astra-Zeneca vaccine to Australia saying the need for vaccines elsewhere outweighs the need for vaccines in Australia where the virus has largely been kept under control. Papua New Guinea has reached out for help with sourcing vaccines as healthcare workers in the country continue to contract the virus due to lack of resources in the developing nation.

Covid-19 – Due Diligence And Asset Management

One year on: How Covid-19 has impacted private equity

Brief : Spear Capital’s Bryan Turner reflects on the last year and analyses the impact of the pandemic on private equity. Over the past year or so, we’ve all become familiar with a whole host of terms we knew nothing about at the start of 2020. “Lockdown”, “rate of transmission”, and “social distancing” all entered our collective vocabularies. At the same time, we had to get used to new ways of working and doing business. That’s as true for private equity (PE) as it is for any other sphere of business. And, initially, it looked like the economic devastation wrought by Covid-19 would hit global private equity markets incredibly hard. But after falling off a cliff in April and May, deal and exit value snapped back vigorously in the third quarter. Even as the mass rollout of vaccines around the globe brings a glimmer of hope that life may return to some semblance of normal, it’s likely that the conditions of 2020 will be with us for some time to come. It’s therefore imperative that private equity firms, their investors, and the firms they fund use the lessons of 2020 to inform their approach going forward.

Read more...


Taper Tantrum, Inflation Becomes The New Fear of Fund Managers; Not Covid-19: BofA Survey

Brief: Since its inception and unstoppable spread of Coronavirus across the globe, the investors feared it as a “tail risk”, but not anymore! The latest survey of global Fund Managers by Bank of America (BofA) shows that the global pandemic Covid-19 is not the major cause of worry for the fund managers, instead the inflation and the “Taper Tantrum”. In the survey for March by Bank of America (BofA), Fund managers view higher-than-expected inflation (37% of the total investors) and a tantrum (35% of the total investors) in the bond market can pose a danger to the market, making the market less attractive and worrisome to investors. 220 investors with $630 billion in assets under management were polled between March 5 and 11, showing the mean cash balance increasing to 4.0% from 3.8%, hedge funds’ net exposure to equities ticks highest since June 2020, and hedge fund allocation to commodities is an all-time high. The survey says, 48% of the fund managers expect the economy of the world, which includes Indian economy, to deliver a V-shaped recovery, as compared to only 10% in the May 2020 survey.


Read more...


Analysis: Private equity investors fret over record U.S. buyout prices

Brief: Private equity firms are paying more for leveraged buyouts to keep pace with soaring valuations of acquisition targets, making some investors leery of whether the industry can keep delivering on promises of lucrative returns. The booming stock market and cheap debt financing have helped push leveraged buyout prices to a record high, driven by sectors that have grown as people work and stay at home during the COVID-19 pandemic, such as technology and business services. Private equity firms paid an average 13.2 times a company's annual earnings before interest, tax, depreciation, and amortization (EBITDA) for U.S. leveraged buyouts in 2020, an all-time high, up from 12.9 times in 2019, according to financial data provider Refinitiv. Some investors are growing concerned about whether buyout firms can deliver the 15% to 20% annual returns they target when they raise new funds. "We can tilt towards better valuations and opportunities," said David Holmgren, who oversees $3.5 billion in endowment and pension assets at Connecticut-based hospital system Hartford HealthCare. He said he has been shifting his portfolio away from private equity funds that invest in pricey buyouts to those that specialize in middle-market deals and emerging markets.

Read more...


Centaur Hedge Fund clients produce strong performance in 2020

Brief: Hedge fund clients of Centaur Fund Services performed strongly in 2020, according to data released by the independent fund administrator. The company says that increased market volatility caused by the Covid-19 pandemic, optimism over vaccines, US elections and huge government stimulus programmes created a set of opportunities for hedge funds to prove their worth, and on the whole, they responded well. Almost 10 per cent of Centaur's clients generated returns in excess of 50 per cent, with nearly 25 per cent of our clients posting gains of over 20 per cent. In addition, more than 35 per cent of our client portfolios grew between 10-20 per cent. While most strategies produced positive returns, the stand out performers tended to focus on equity long/short based strategies with strong gains in a number of sectors including technology, emerging markets and healthcare. Centaur's data set is broadly in line with published industry data.

READ MORE...


UK tech investment hits record $15bn despite COVID and Brexit

Brief: Tech venture capital investment in the UK hit a record high of $15bn (£10.8bn) in 2020 despite the economic fallout of the coronavirus pandemic and complications of Brexit, a new study revealed. According to Tech Nation's latest report, health and wellness companies raised $38bn in 2020, an increase from $28bn in 2019. The report quoted UK prime minister Boris Johnson as stating that: "In North West England we saw an increase in health tech investment of over 200%, while across the UK our digital sector continues to make an enormous contribution to fighting the pandemic: from connecting locked-down patients with their GPs to offering NHS staff free access to workplace mental health platforms." He added that 2020 was "a year in which the brutal necessity of restricting human contact has escalated the importance of tech of all kinds, from the NHS app to Zoom calls." Augmented reality, e-sports and gaming accounted for over $2.4bn of total venture capitalist investment to companies including US-based Caffeine, which raised $126m for their gaming, entertainment and creative arts broadcasting platform.

Read more...


Omers Survey Finds Dealflow Rose or Held Steady During Covid-19 For Most Canadian VCS

Brief: One year into the pandemic, research suggests that for the majority of Canadian venture capital (VC) firms deal activity has increased or remained relatively consistent, according to a recent survey conducted by OMERS Ventures. In January, OMERS Ventures, the tech-focused investment arm of OMERS, one of Canada’s largest pension funds, surveyed 99 VC firms across North America and Europe, 24 percent of which were Canadian. Given that the pandemic is likely going to have a lasting impact on the way that VCs evaluate companies for investment, OMERS said it decided to share its findings to help the community adapt. The new report, which was released today, follows OMERS’ July 2020 survey and aims to illustrate how VC behaviour and activity have changed due to COVID-19. “We felt now was a good time to conduct our study once again, to capture current sentiment around how VCs are approaching investing today, and any lasting changes we should expect to see in the deal process in a post-COVID world,” wrote Alyssa Spagnolo, associate at OMERS Ventures. Of the Canadian VC firms OMERS spoke to, 46 percent have seen the same amount of deals compared to before COVID-19, while 25 percent have seen more deals than normal. On the flip side, 21 percent have seen deals decline by at least a quarter, while eight percent have seen deals decline by at least half.

Read more...


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 March 17, 2021:

  • In the United States, Bloomberg is reporting Americans are sitting on a stockpile of savings that rivals the price tag of the latest COVID-19 relief package. According to the report, those who were lucky enough to have disposable income saved during the pandemic and nowhere to spend it, have approximately $1.7 trillion saved through January. That number is expected to rise, bolstered by the latest round of new stimulus payments. Economists at Wells Fargo and & Co. are predicting as the economy reopens, consumer spending over the next two quarters is likely to be the strongest such period in at least 70 years.

  • In Canada, former Bank of Canada Governor, Mark Carney weighed in on the country’s pandemic preparedness on Wednesday. Carney appeared on a CTV News morning show and said Canada needs to build up its manufacturing capacity for both vaccines and personal protective equipment (PPE). “We, like many other countries, thought we could buy our PPE from abroad, ultimately buy vaccines from abroad in a timely way. That just hasn’t been the case for either and we’re suffering as a consequence. We need to think about all the essential items on which we can’t rely on international markets for,” said Carney. The former Canadian banking head was hired last year by Brookfield and serves as their Vice Chair and Head of ESG and Impact Fund Investing.

  • The United Kingdom’s Department of Health and Social Care (DHSC) said on Wednesday that nearly half of all adults across the country have now received at least their first inoculation of a COVID-19 vaccine. The latest data shows between December 8th and March 16th, over 25 million have received their first dose of the Pfizer and Oxford/AstraZeneca vaccines, while close to 1.76 million are fully vaccinated. Prime Minister Boris Johnson weighed in upon hearing the numbers, calling them an “incredible achievement” and hailing the milestone as “25 million reasons to be confident for the future”, as the government prepares to ease restrictions.

  • The European Union (EU) is flexing its muscles and turning its glare towards the UK, threatening to ban exports of COVID-19 vaccines to the country to safeguard doses for its own members that are dealing with a third wave of the coronavirus pandemic. EU Commission Head Ursula von der Leyen called the current situation, “the crisis of the century” and the need to accelerate vaccination rates. Von der Leyen said the flow of vaccine exports from the United States was fine but criticized Britain over their lack of deliveries of the AstraZeneca vaccine. Ironically enough, many EU bloc nations have suspended their AstraZeneca shots on their citizens, citing pending safety checks.

  • Bloomberg is reporting vaccine nationalism is likely going to derail the efforts of the World Health Organization’s (WHO) Covax initiative. The governing health body was wanting to deliver 2 billion doses of vaccines to poorer and middle-income nations by the end of the year, but Adar Poonawalla, CEO of the Serum Institute of India, the world’s largest vaccine maker, says this is unlikely to happen. Appearing on Bloomberg Live, Poonawalla blamed wealthier nations like the United States, and larger nations like India stockpiling doses for their own citizens first. Poonawalla went on to add it will likely take two or three more months for Covax shipments to really pick up, which means hitting the 2 billion benchmark likely won’t happen until sometime in 2022. 

  • China is resuming visa processing for foreigners from dozens of countries, but there is a catch: they must have been inoculated against COVID-19 with a Chinese-made vaccine. The announcements made by Chinese embassies in 20 countries, including the United States, India and Australia, vary slightly for each country, but pledge a return to pre-pandemic visa processing for some groups to resume “people-to-people exchanges in an orderly manner.” The move has raised eyebrows about the motivations behind China’s demand as their vaccines have not been approved in many of the countries to which it has opened travel and they will not accept foreign vaccines made elsewhere, including those approved by the WHO.

Covid-19 – Due Diligence And Asset Management

Some UK Financial Firms Blame COVID for Missing Target of Women in Senior Roles

Brief : Most financial firms and institutions signed up to a UK finance ministry backed charter met their 2020 targets for women in senior management as those who fell behind blamed hiring freezes due to COVID-19, a review said on Wednesday. The fourth annual review from think tank New Financial for Britain’s finance ministry, said the Women in Finance Charter faced its biggest test yet after the COVID-19 pandemic struck in 2020. Over 70& of the 209 signatories, including the finance ministry, have met their self-imposed targets, or were on track to meet future targets, the review said. Just over 60% of the signatories have set a target of at least 33% of female representation in senior management. A group of 81 firms were due to hit their target by the end of 2020, but 44 of them failed to do so, citing deliberately ambitious targets, and recruitment or promotion freezes due to COVID, the review said.

Read more...


At Long Last, Wall Street sees Path to Return to the Office

Brief: New York City is reopening, vaccinations are accelerating and spring brings with it an air of optimism. For Wall Street’s banks, that means a return to offices may finally be in sight. At JPMorgan Chase & Co., hundreds of interns are set to work in the lender’s New York and London offices in the coming months. Citigroup Inc. is providing workers with rapid COVID tests as it sketches out its plans to safely return people to its buildings. Goldman Sachs Group Inc. has said it hopes to have more employees back by summer. One year after Wall Street sent employees home in droves to stop the spread of the coronavirus, the prospects of a broad return are starting to get clearer -- and not a moment too soon for some companies in the industry. From Zoom fatigue to the exhaustion of jobs colliding with home life, many bankers say the strains of long-term remote work are growing for bosses and underlings alike. There are exceptions, and signs of growing flexibility as companies such as Apollo Global Management Inc. consider hybrid models. But as other industries look at dramatically reshaping work in a post-COVID world, the stance of New York’s financial giants is clear: Employees should be at offices. It’s just a matter of how quickly -- and safely -- their leaders can get them there.

Read more...


U.S. Travel Spending Sank 42% in 2020 Due to the Pandemic

Brief: Travel spending by Americans plunged by 42%, or $492 billion, in 2020, according to a report by an industry group, amid social, travel and business restrictions aimed at curbing the spread of COVID-19. The U.S. Travel Association said the industry shed 5.6 million direct and indirect jobs last year, and the decline in travel dragged down total economic output to $1.5 trillion, from 2019’s $2.6 trillion. U.S. tax revenue collected from travel plummeted by $57 billion in 2020. “While the gradual progress of vaccinations has provided hope that a turnaround may be on the horizon, it is still unclear when travel demand will be able to fully rebound on its own,” said U.S. Travel Association President and CEO Roger Dow. As millions of Americans get vaccinated and travel destinations begin to reopen, the industry is optimistic that demand will return this spring. Disney said Wednesday its California theme parks will reopen April 30.

Read more...


This Is the ‘Biggest Risk of All’ for Investors, According to Howard Marks

Brief: Consumers have $1.8 trillion in extra cash to spend. That increase in disposable income since the beginning of the pandemic — combined with the Federal Reserve’s promise to keep interest rates low — is why Howard Marks, co-founder of Oaktree Capital Management, is feeling pretty optimistic about the economy. “A related positive to consider is that market tops usually occur with the economy several years into the up-leg of the cycle and vulnerable to recession,” Marks wrote in a new investor letter. “This time, however, we have strong markets at the beginning of what may prove to be a long economic recovery.” In this latest memo, Marks focused on how the markets behaved in 2020 and what investors should do this year. This included addressing the disappointingly brief window in 2020 to buy assets at huge discounts, investors’ fears of missing out, and re-energized buying after the initial market downturn in March. All that led to the market hitting new highs later in the year, he said.

READ MORE...


Suspended Property Funds Collect £40m in Management Fees over 2020

Brief: Investors trapped in suspended open-ended property funds have paid out more than £40m in management fees over the course of 2020, with some still paying fees in 2021 as £2.8bn of investor capital remains locked away across three funds. According to Investment Week calculations utilising fee and fund size data from Morningstar Direct and share class classifications from FE fundinfo, investors have shelled out approximately £40m in management fees across nine suspended property funds over the course of 2020, with the total figure likely larger than this, as data for St James's Place, Aviva Investors and Canlife's property funds were unavailable. The costs calculated only apply to the management fees of the fund, with various other fees such as property, transaction and dealing costs that comprise the total ongoing charge not included. From Morningstar Direct, the fees were taken from the firm's MiFID files and total fund size was based on "surveyed figures obtained from the firm" on a month-to-month basis. Main share classes have been selected according to the methodology employed by FE fundinfo.

Read more...


HSBC Closes Main Hong Kong Office After Multiple Covid Cases

Brief: HSBC Holdings Plc’s main Hong Kong office was closed until further notice after three people working in the building tested positive for COVID-19 amid a renewed wave of infections among the city’s business and expatriate community. The Center for Health Protection has published a formal notice requiring visitors who stayed at the building for more than two hours between March 3 and 16 to undergo a mandatory test at a government-approved center by March 19, according to an internal memo. The move means staff and customers will have no access to the lender’s biggest branch in the city. “It is our understanding that HMB can return to normal business when virus testing of colleagues and deep cleaning of the facility are complete,” HSBC wrote in the memo distributed on Wednesday. “The exact timing is yet to be confirmed.” In a statement, a spokeswoman for HSBC said the bank is following the guidelines from the authorities and taking all necessary measures to reopen as soon as practicable. “For banking services, we have well-developed contingency measures that ensure our services and critical processes continue to be maintained,” she said.

Read more...


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 March 16, 2021:

  • In the United States, while the vaccination drive continues to pick up speed, there is more than just the virus standing in the way: politics. Recent polls have found vaccine hesitancy falling overall, but opposition among Republican voters is still notably strong. A poll from the Associated Press found that 42% of Republicans say they probably, or definitely will not get a COVID-19 inoculation, compared with 17% of Democrats – a 25-point split. “This is going to be the big issue,” said Ashish Jha, Dean of the Brown University School of Public Health. “And if we get stuck at 60 or 65% vaccinated, we are going to continue to see significant outbreaks and real challenges in our country…”
  • While countries in Europe continue to have their doubts on the AstraZeneca COVID-19 vaccine, Canada seems to be moving in the opposite direction. The country’s National Advisory Committee on Immunization (NACI) has now expanded its recommendation for the use of the AstraZeneca vaccine to include people 65 years of age and older. When pressed in a news briefing on Tuesday to address the possible impact on vaccine confidence from the change in guidance in such a short period of time (AstraZeneca was approved in Canada last month), NACI chair Dr. Caroline Quach-Thanh said the following: “It’s not that we’re flip-flopping, it’s just that we try to monitor the evidence. It’s always easier if Health Canada and NACI agree, but it doesn’t have to be…” 
  • In the United Kingdom, The Guardian is reporting senior doctors, government scientific advisers and a former head of the civil service have spoken out in favour of a public inquiry into the government and Prime Minister Boris Johnson’s handling of the COVID-19 pandemic. The UK’s death toll due to the coronavirus currently sits at almost 126,000, which is one of the worst death tolls per capita of any of the world’s large economies. The potential inquiry will look into everything from lockdown tactics to test and trace programmes. Last July, Prime Minister Johnson promised to set up an “independent inquiry”, but the government has since backtracked on this, instead stating now is not the time to launch such a task and they are focussed on protecting and saving lives.
  • Reuters is reporting coronavirus infections are rising exponentially again in Germany, putting at risk further plans to lift lockdown restrictions. An epidemiologist appeared on a German TV network and stated the country was indeed in the third wave of the pandemic, driven by the fact it has loosened restrictions in recent weeks, just as a more transmissible variant has spread. The number of cases per 100,000 reported on Tuesday were 83.7, up from 68 a week ago, and the Robert Koch Institute, Germany’s government body responsible for disease control and prevention, said that number could reach 200 per 100,000 by the middle of next month.
  • The Philippines government has said the recent surge in coronavirus infections will have limited impact on the economy as officials opt for localized lockdowns. Economic Planning Secretary Karl Chua also mentioned the rise in vaccinations should help – the government expects 2.4 million doses to arrive over the next several weeks. The Philippines will also limit foreign arrivals in its main Manila airport to 1,500 passengers a day starting March 18th. Most foreigners are still barred from entering the country.
  • Brazil is moving on to its fourth health minister since the coronavirus pandemic began in the country. President Jair Bolsonaro announced on Monday night that Dr. Marcelo Queiroga will take over for Eduardo Pazuello. Dr. Queiroga was previously president of the Brazilian Society of Cardiology, while Pazuello was a former army general before taking on the health leader role. President Bolsonaro said Dr. Queiroga will choose his working team and a transition will take place “in one or two weeks”. Brazil really needs the fourth time to be the charm as they deal with one of the darkest stretches any country in the world has seen during the pandemic. Close to 280,000 Brazilians have died from COVID-19 and currently the intensive care units in 22 out of 26 states are nearing capacity.

Covid-19 – Due Diligence And Asset Management

Private Equity Investors Fret Over Record U.S. Buyout Prices

Brief : Private equity firms are paying more for leveraged buyouts to keep pace with soaring valuations of acquisition targets, making some investors leery of whether the industry can keep delivering on promises of lucrative returns. The booming stock market and cheap debt financing have helped push leveraged buyout prices to a record high, driven by sectors that have grown as people work and stay at home during the COVID-19 pandemic, such as technology and business services. Private equity firms paid an average 13.2 times a company’s annual earnings before interest, tax, depreciation, and amortization (EBITDA) for U.S. leveraged buyouts in 2020, an all-time high, up from 12.9 times in 2019, according to financial data provider Refinitiv. Some investors are growing concerned about whether buyout firms can deliver the 15% to 20% annual returns they target when they raise new funds.

Read more...


Private Equity’s Presence in Health Care is Growing

Brief: Private equity is expanding in health care, becoming a larger source of industry capital across buyout, growth, and venture strategies, according to UBS Group’s chief investment office. Health care represented 14 percent of deal activity in private equity last year, up from 9 percent in 2007, UBS said in a note this week. Digital health companies are turning to private equity firms as their main source of capital, receiving $35 billion of investments in 2020, according to the report. Although health care accounts for 5 percent of the world’s data, UBS said the industry remains one of the least digitalized. The investing opportunity for private equity is vast in the sector, with a total 146,000 private companies dwarfing the 2,700 publicly-traded health-care companies globally, according to the report. “The universe of potential investable companies for private equity is larger,” UBS said. “Private equity is a primary source of capital for innovation, especially for early-stage drug discovery where corporate funding is often scarce.”

Read more...


Apollo to Test Partial Remote Work as Vaccinations Increase

Brief: Apollo Global Management Inc. will test giving employees the option of working remotely two days a week through the end of the year, according to a person familiar with the matter. The exact start of the experiment will depend on when Covid-19 vaccines become more broadly available, the person said. Employees will be given at least 30 days’ notice. Firms across Wall Street have been struggling with how -- and when -- to get employees back at their desks. Many are treading lightly or delaying the effort, given looming virus variants and the difficulties in obtaining vaccines. Apollo’s decision, made in response to employee feedback over the past year, is also an attempt to attract top talent, the person said. The plans were announced Thursday at a town hall meeting led by incoming Chief Executive Officer Marc Rowan and co-Presidents Jim Zelter and Scott Kleinman, the person said. “Our teams have proven to be highly productive in remote and hybrid settings,” a company spokesperson said Tuesday in a statement. “As vaccines soon allow us to welcome back more of our workforce, we will be testing a hybrid approach designed to uphold our apprenticeship model and team camaraderie, while offering our colleagues, and future colleagues, greater flexibility to do their best work.”

Read more...


Bridgewater Co-CIO Sees Inflation Spiral Forcing Fed Into Action

Brief: The world is on the verge of a new inflationary wave that could force the Federal Reserve to raise rates earlier than planned, according to the co-chief investment officer of the world’s largest hedge fund. The Biden administration’s “extreme” approach to fiscal stimulus looks set to turbocharge consumer prices while threatening the post-crisis bond and stock rally, Greg Jensen at Bridgewater Associates said in an interview. “The pricing-in of inflation in markets is actually the beginning of a major secular change, not an overreaction to what’s going on,” Jensen said. “Economic conditions and inflation will adjust faster than either markets or the Fed are expecting.” While market-derived inflation expectations have surged near a 12-year high, the Fed has signaled patience with a heating economy and projected no rate hike for the coming two years. It’s a stance policy makers are expected to reiterate at the end of their meeting Wednesday. Between the upcoming $1.9 trillion stimulus program and the ending of lockdowns, traders are betting the economic revival will force the Fed’s hand sooner. Eurodollar contracts suggest a roughly 75% chance of tighter policy by December 2022.

READ MORE...


Inflation is Coming – And Active Funds Aren’t Prepared, Bank of America Warns

Brief: Actively managed funds aren’t positioned for rising inflation — which is coming, according to Bank of America Corp. “They remain persistently overweight mega caps but underweight small caps,” Bank of America’s equity and quant strategists said in a research report Monday. That’s despite small-cap stocks being better positioned as the economy reopens from shutdowns during the pandemic, as well as having historically outperformed during the “mid-cycle” when inflation rises, they said.  A majority of actively managed U.S. large-cap funds failed to beat the Standard & Poor’s 500 index in 2020 for an eleventh straight year of underperformance, according to a report released last week by S&P Dow Jones Indices, a unit of S&P Global. Amid expectations for an economic rebound this year, the Bank of America strategists estimated the U.S. has now shifted into a “mid-cycle” phase.  “In this phase, small caps and value have typically outperformed large caps and growth,” the strategists said in the report. “Small caps and value stocks were also some of the best-performing assets during the inflationary period of the late 60s.”

Read more...


Why Every Real Estate Investor Will Become an Impact Investor

Brief: Covid-19 is set to dramatically accelerate the intersection of real estate and ‘impact investing’, the practice where positive and measurable social and environmental outcomes are placed alongside financial returns as the ultimate objective for fund managers and their institutional allocators. Impact strategies have attracted growing volumes of capital in recent years, reflecting an emerging consensus that investors can do well by doing good. As an asset class that is physical, local and designed explicitly with communities in mind, real estate has always had an intrinsic impact dimension and has been at the forefront of impact investing’s journey from specialist focus to mainstream product. But it may be the pandemic that proves the defining moment in this convergence – initially and most visibly in the areas of homes, healthcare and education. In addition to its enormous public health ramifications, Covid-19 has exposed a range of systemic problems in advanced economies. The experience will shock investors into profoundly rethinking their role and responsibilities, beyond solely maximising financial returns, to encompass tackling structural societal challenges.

Read more...


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 March 15, 2021:

  • In the United States, the Centers for Disease Control and Prevention (CDC) said America could still see another surge of coronavirus cases as more states relax restrictions and more people start to travel for spring break. The Transportation Security Administration (TSA) said screenings have topped one million every day since Thursday, hitting the best stretch in a year, but CDC Director Dr. Rachel Walensky is warning Americans of any non-essential trips. “I’m pleading with you, for the sake of our nation’s health. Cases climbed last spring, they climbed again in the summer, they will climb now if we stop taking precautions when we continue to get more and more people vaccinated.” According to the CDC, 37.5 million people, or just 11% of the American population have been fully vaccinated so far.

  • The European Union’s (EU) big three – Germany, France and Italy - all said Monday they would pause the usage of the AstraZeneca COVID-19 vaccine throwing the 27-nation bloc’s vaccination campaign into further disarray. Denmark and Norway stopped giving the inoculation last week after reported isolated cases of bleeding, blood clots and a low platelet count. Iceland and Bulgaria followed suit, then Ireland and Netherlands announced similar moves over the weekend. The World Health Organization appealed to EU nations to reconsider the suspension of the AstraZeneca vaccine saying systems are in place to protect public health.

  • Following the moves made by Germany, France and Italy on Monday, Canadian Prime Minister Justin Trudeau tried to offer reassurances to the country that the AstraZeneca COVID-19 vaccine is indeed safe to use. “Health Canada and our experts and scientists have spent an awful lot of time making sure every vaccine approved in Canada is both safe and effective. Therefore, the very best vaccine for you to take is the first one that is offered to you,” said Trudeau. The Prime Minister added that none of the AstraZeneca doses Canada received are from the batch linked to possible side-effects reported in Europe.

  • In the United Kingdom, Prime Minister Boris Johnson weighed in on the AstraZeneca coronavirus vaccine as well. During a virtual news conference, Prime Minister Johnson reiterated his confidence in one of the vaccines his government is currently using in its vaccination push. “In the MHRA (Britain’s medicines regulator), we have one of the toughest and most experienced regulators in the world. They see no reason at all to discontinue the vaccination programme. So, we continue to be very confident about the programme and it’s great to see it being rolled out at such speed across the UK.”

  • Bloomberg is reporting Dubai is conducting a clinical trial to assess the accuracy of a breath test to detect the coronavirus within one minute. The rapid test is being developed by the National University of Singapore’s Breathonix and being trialled on 2,500 patients in coordination with the Dubai Health Authority and Mohammad Bin Rashid University of Medicine and Health Sciences. 

  • According to the media source, The Age, Australia and Singapore are moving towards establishing a travel bubble that will hopefully be ready to go by July or August. The two nations would allow each other to have their fully vaccinated citizens travel back and forth for work or leisure. The Age reported Australia’s Trade Minister Dan Tehan and Government Services Minister Stuart Robert were driving the plan and behind-the-scenes policy work. The reported travel bubble would be well before the broader reopening of international borders by Australia thought to be sometime in October, depending how the pandemic is throughout the rest of the world.

Covid-19 – Due Diligence And Asset Management

A Year Since Black Monday 2 and a Round Trip for Markets

Brief : It’s a year since COVID-19 mayhem sent the S&P 500 index reeling 12% for its second-worst day ever, yet the bull market born from that selloff has in the subsequent 12 months added more than $40 trillion to the value of world stocks. On March 16, 2020, when the S&P 500 endured its worst one-day fall since the “Black Monday” of October 1987, MSCI’s global equity index plunged almost 10%, only to rise back thanks to huge central bank support. Effects have rippled out to every market sector. Here is a look at markets that day and in the year since: As COVID-19 spread around the world between late February and the end of March 2020, triggering unprecedented lockdowns, world stocks saw their market value collapse by $21 trillion. Markets troughed on March 23, then claimed a record high five months later. The market capitalisation of the MSCI global index has risen $40 trillion between March 23 and now, making it a $65 trillion round-trip.

Read more...


Two Sigma Plans to Test Remote Work Twice a Week After Labor Day

Brief: Two Sigma Investments won’t require employees to return to the office until at least September and will experiment with a hybrid model that allows them to work remotely two days a week. Employees should expect to return after Labor Day, “but that’s going to depend on the science, the availability of vaccines, and schools opening, global regulations,” Two Sigma Chief Technology Officer Jeff Wecker said Monday during the AI and Data Science in Trading conference. The $58 billion quant firm, which has gradually allowed staff to return to its U.S. offices, plans to re-evaluate the hybrid model before the middle of next year. Employees have been working remotely since last March. Wecker joined New York-based Two Sigma in July from Goldman Sachs Group Inc. -- in the middle of the pandemic -- and said he hasn’t been able to meet many of his new colleagues in person. “I’m looking forward to seeing everybody,” he said.

Read more...


IMF Research Shows Top Firms Becoming More Dominant During Pandemic

Brief: The coronavirus pandemic has significantly strengthened the market power of dominant firms, which could drag on medium-term growth and stifle innovation and investment, the International Monetary Fund said on Monday in a new research paper. Key indicators of market power are on the rise, including price markups over marginal costs, and the concentration of revenues among the four biggest players in a sector, the IMF study said. Part of this was due to increased bankruptcies as the pandemic caused competition to fall away. “Due to the pandemic, we estimate that this concentration could now increase in advanced economies by at least as much as it did in the 15 years to end of 2015,” IMF Managing Director Kristalina Georgieva said in a blog post accompanying the paper. “Even in those industries that benefited from the crisis, such as the digital sector, dominant players are among the biggest winners.”

Read more...


CEOs Become Vaccine Activists as Back-to-Office Push Grows

Brief: Some chief executive officers are so eager for their employees to get vaccinated against Covid-19 that they’re granting workers time off or cash incentives to get shots. In the U.S., retailer Lidl is giving its staff $200, while Aldi, Dollar General Corp. and Trader Joe’s Co. are offering extra hours of pay. Online grocery delivery firm Instacart Inc. is providing a $25 stipend for workers and contractors. Yogurt makers Chobani LLC and Danone SA are offering as much as six hours of paid leave, and the French company says it will cover the cost of inoculation in countries where vaccines aren’t free. Other companies are taking a harder line. U.K. handyman empire Pimlico Plumbers Ltd. has said it plans a “no jab, no job” policy for new members of its workforce. United Airlines wants to make shots mandatory, drawing concerns from unions. Many CEOs see themselves as leaders of the fightback against a pandemic that’s killed more than 2.6 million people. They’re standing up against anti-vaccination sentiment that’s strong in countries like the U.S., France and Russia, and trying to keep their workers safe. For some, there’s also a more pragmatic motivation: Vaccination will facilitate a return to the office after a year of working from home that’s strained corporate cultures and spawned a new epidemic of Zoom fatigue.

READ MORE...


PE Investors Expect a ‘U-Shaped’ Recovery, says Mazars

Brief: PE investors expect a ‘U-shaped’ recovery, according to ‘Covid-19 and the world of private equity: optimism in an uncertain environment’, a survey released today by audit firm Mazars, that gauges investor sentiment in the institutional funding market. While the majority (63 percent) of respondents still anticipate a U-shaped recovery - compared to 82 percent in June - the number of respondents expecting a V-shaped recovery has increased from 10 percent to 27 percent - likely on the back of vaccinations starting in Q1 2021, in combination with business support schemes being implemented by governments. Meanwhile, around 70 percent of respondents report seeing more distressed opportunities, according to the research. This figure compares to 54 percent of respondents in June saying they had come across distressed opportunities. Despite expectations that revenues will fall over the next 12 months, participants in the survey view the decline as less severe than previously reported. Some 30 percent of respondents expect a fall in revenue of 11 percent to 25 percent, compared to 50 percent of respondents in the June 2020 survey. A little over one third, or 39 percent, of respondents said they focus on originating new platform opportunities.

Read more...


Euro Finance Chief sees Need for Fiscal Aid Even as Crisis Fades

Brief: Euro-area governments should be ready to keep up emergency support for their economies even after the worst of the coronavirus crisis is behind them, according to the official who leads meetings of the region’s finance ministers. Speaking before chairing a virtual gathering of his counterparts on Monday, Paschal Donohoe warned that the currency zone will require ongoing aid as it recovers lost ground to reach its pre-pandemic growth levels. “There will be a need for the euro area and for finance ministers to continue to support our economies beyond the acute emergency of large parts of last year and parts of this year,” the so-called Eurogroup president said in an interview. “The risk and consequences of cutting support too early are currently bigger than the risks of pulling support too late.” Donohoe, who is also Ireland’s finance minister, spoke before a discussion with colleagues that is expected to result in a pledge to keep fiscal policy in the region supportive through next year, and to only gradually ease support for businesses and workers. Such a commitment would help cement more aid that already totaled about 8% of euro zone output in 2020, along with a new stimulus fund and liquidity schemes worth around a fifth of gross domestic product. To allow that support, the European Commission this month signaled it will extend its suspension of rules limiting debt through next year.

Read more...


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 March 12, 2021:

  • During his first prime-time address as President of the United States Thursday evening, Joe Biden set out another goal for his administration in addressing the coronavirus pandemic. President Biden stated he wants all adults in the U.S. made eligible for vaccines by May 1st with a goal of having Americans return to a state of normalcy by the Fourth of July, which coincides with the country’s Independence Day. President Biden made another declaration before he entered office when it came to coronavirus vaccine distribution – 100 million doses into American arms in the first 100 days of his administration. According to Bloomberg, America was already close to nearing a pace of one million shots a day by Biden’s inauguration, so it should come as no surprise that he proudly proclaimed on Thursday that the nation would hit that threshold by next week – just 60 days into his presidency. 
  • In Canada, Prime Minister Justin Trudeau and his government is in no hurry to reopen the U.S. land border to non-essential travel. Speaking to a Canadian news morning show on Friday, Prime Minister Trudeau said the country will not reopen its land border to its southern neighbours until vaccination rates and case counts reach levels that would make doing so safe for Canadians. The prime minster when questioned didn’t rule out waiting until September or possibly later to reopen the land border, which has been closed since March 2020. The news comes as some American politicians have called for the border to be opened between the two countries for the start of the summer. Prime Minister Trudeau said the border closure has been renewed on a monthly basis and that plan will remain in place. 
  • In the United Kingdom, the economy shrank less than expected during the country’s lockdown in January. The UK’s GDP fell 2.9%, much less than the 4.9% contraction economists had forecasted thanks to stronger than expected gains in construction and stronger activity in the health sector. Prime Minister Boris Johnson and his government’s COVID-19 vaccine rollout, which has been deemed a success, especially compared to the European Union’s ongoing struggles, continues to bolster the economy in hopes that restrictions will be fully lifted by the middle of the year. The Bank of England is supposed to decide next week on whether the UK needs more stimulus to recover from their biggest economic slump in three centuries. 
  • Italy and its citizens might be having a case of déjà vu as one year out from their first coronavirus lockdown, new Prime Minster Mario Draghi is evoking a another one. Under the new rules, regions with more than 250 weekly case per 100,000 inhabitants will be automatically designated as high-risk “red zone”. According to Bloomberg, this could as send as many as 14 of Italy’s 20 regions, including those surrounding Milan and Rome, into lockdown as of Monday. Prime Minister Draghi also made the following declaration in one of his rare public appearances since becoming leader: “Italy is administering about 170,000 doses a day, our aim is to triple that. It is only with widespread vaccinations that we will be able to do without restrictions like the ones we had to adopt.”
  • India reported its worst single-day increase in COVID-19 cases since late December on Thursday, which forced a densely populated city into an upcoming lockdown. Close to 23,000 new cases were reported in a 24-hour span, according to India’s health ministry – the highest daily rise since December 25th. Fresh outbreaks in the western state of Maharashtra have forced officials to announce a lockdown of Nagpur from March 15th-21st. India’s overall COVID-19 caseload of 11.3 million – trails only the United States and an increase in recent public gatherings and travel before a majority of Indians were vaccinated are being blamed for reasons in the spike of cases.
  • The African Development Bank (AfDB) said Friday in its economic report that the coronavirus pandemic is forcing millions more into extreme poverty. Even though Africa is projected to rebound from its worst slump in half a century, the AfDB expects as many as 39 million more people will be pushed into extreme poverty in 2021. In 2020, about 30 million Africans suffered that fate, which means 34.4% of the continent’s population, or 465.3 million, could be living on less than $1.90/per day. Last year, Zambia became the first country in Africa to default on its debt and a United Nations Economic Commission member said last month more African nations will probably seek restructuring of their obligations.

Covid-19 – Due Diligence And Asset Management

Apollo Bets a New Roaring ‘20s Will Revive Vegas After Vaccines

Brief : The theater where Tony Bennett and Steely Dan once performed is still dark. Players at the blackjack tables are separated by plastic partitions. The gondoliers offering rides along faux canals wear face masks and aren’t allowed to sing. The Venetian Las Vegas isn’t the resort it was a year ago. But that didn’t stop Apollo Global Management Inc. and its real estate partner, Vici Properties Inc., from plunking down $6.25 billion to purchase the property, the neighboring Palazzo and the adjacent Sands Expo Convention Center from Las Vegas Sands Corp. last week. The deal surprised observers such as Stephen Miller, director of the Center for Business and Economic Research at the University of Las Vegas, Nevada. “Are they off their nut or are they on to something?” he asked. Despite a long list of problems, Apollo partner Alex van Hoek sees opportunity -- for soaring tourism and a return of convention travel that made the city one of the top destinations for business groups. “We are very bullish on the recovery of Las Vegas,” said van Hoek, who led the investment firm’s purchase. It’s no sure thing. A year after the coronavirus shut down its famous casinos, America’s gambling capital is trying to crawl back from one of its deepest slumps ever. The glittering palaces along the Strip began reopening last June, but business is still slow. Unemployment, at 10%, is the highest among big U.S. cities. Tourist traffic in January slumped almost two-thirds from last year. Gambling revenue on the Strip was off 44% and the convention business nonexistent.

Read more...


Deutsche Bank CEO’s 46% Pay Rise Prompts Backlash

Brief: Deutsche Bank paid Chief Executive Christian Sewing 7.4 million euros ($8.8 million) in 2020, up 46% from a year earlier, prompting criticism from unions and politicians. The bank’s bonus pool was up 29% as it rewarded staff for a pandemic-related trading boom, which helped the German lender to eke out a profit after years of losses. The disclosure in the bank’s annual report on Friday came as Deutsche said revenue would be “marginally lower” this year. In Germany, which is facing an election year and where the public disapproves of high pay, the Verdi labour union called the payouts “grossly disproportionate” and politicians were critical. “It doesn’t fit with the times that Deutsche Bank, which has also indirectly benefited from bailouts time and again, is having a coronavirus party,” Fabio De Masi, a member of Germany’s parliament, said in a statement to Reuters. Last year marked a turnaround for Deutsche and Sewing, who took up his post in 2018, after the bank had faced a series of costly regulatory failings, including over money laundering. The bank has lost 8.2 billion euros over the last decade.

Read more...


EU Recovery Fund Risks Delays With Spending Plans Judged Sub-Par

Brief: The European Union’s pandemic recovery fund has run into early trouble, with the bloc’s executive arm judging that most of the national spending plans submitted so far still need work to get approved, raising the risk of delays in disbursements to some of the region’s battered economies. Germany’s submission is among those deemed to fall short of expectations, with southern European nations including Greece and Spain having the strongest plans, according to officials familiar with the discussions who asked not to be identified. Some countries haven’t made proposals at all yet, and others are way behind, they said. The German government is in talks with the Commission to reduce some of the hurdles to investment in its plan, one official said. A commission spokeswoman said that staff are in “intensive dialogue” with member states with the aim of making disbursements starting from mid-2021, but that “it is also essential” that these plans meet the key objectives of the fund. A spokesperson for the Greek government also declined to comment, and spokespeople for the German finance ministry and Spanish government didn’t immediately respond to a request for comment.

Read more...


Americans Support Restricting Unvaccinated People From Offices, Travel

Brief: A growing number of Americans want to get the coronavirus vaccine, and a majority also support workplace, lifestyle and travel restrictions for those not inoculated against COVID-19, according to a Reuters/Ipsos poll released on Friday. Altogether, 54% of respondents said they were “very interested” in getting vaccinated. That was up from a January survey, when 41% expressed the same level of interest, and 38% in a May 2020 poll before a coronavirus vaccine was developed. Interest in the vaccine increased over the past year among whites and racial minorities, with about six in 10 whites and five in 10 members of minority groups now expressing a high level of interest. Twenty-seven percent of Americans said they were not interested in getting vaccinated, which was relatively unchanged from a similar poll that ran in May. But foreshadowing the social challenges that may emerge as the United States begins to pull out of the yearlong pandemic, the latest poll showed a majority of Americans want to limit the ways in which unvaccinated people can mix in public.

READ MORE...


The ‘Reflation’ Sensation: Emerging Markets Poised to Benefit From Vaccine Rollout and Sustained Global Recovery

Brief: In the first part of the year, the vaccine rollout is supporting a robust economic recovery and global central banks continue to operate very loose monetary policy. This scenario favours the emerging markets (EM) asset class, which is relatively well placed to benefit from the global 'reflation' trade. We are, however, mindful of the impact of higher US Treasury yields (and especially a rapid rise) on EM fixed income, especially some of the higher quality parts of EM. This is because the credit spread in this EM sector is insufficient to absorb the total return drag implied by a sell-off of US Treasuries. Today, higher yielding EM is better placed to navigate these challenges, although even in this asset class it is important to differentiate between the high yield EM sovereigns with positive credit stories and those with impaired balance sheets and a weakening outlook Another positive driver for EMs is the new US President. The Biden administration is, on balance, supportive for EM as it implies more international co-operation and less isolationism. Yet, the stance towards China is unlikely to change very much and remains a source of risk while attitudes to Russia may also become harsher.

Read more...


Private Equity Sets Sights on Strengthening Portfolios with 35 Per Cent Jump in Buy and Build Deals

Brief: The number of private equity buy and build transactions in the UK rose by 35 per cent during 2020, as private equity houses looked to bolster their portfolio during the Covid-19 pandemic, according to research by Rickitt Mitchell.  Analysis by the corporate finance boutique, in partnership with Experian Market iQ, reveals that a total of 370 bolt-on transactions were completed in 2020 – up from the 276 seen over the course of the previous year.  The bounce back following the Covid-19 pandemic is highlighted by the active second half of 2020, with 232 transactions completed during that period. In contrast, just 46 deals were completed during the second quarter, at the height of the national lockdown.  Despite the rise in volumes, the total value of transactions fell by a small portion over the last year. GBP1.2 billion of deals were completed in 2020, just lower than the GBP1.3 billion seen in 2019, which further highlights the trend of bolt-on deals during this period, which typically have smaller average values than other deal types. 

Read more...


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 March 11, 2021:

  • In the United States, President Joe Biden changed his mind on Thursday and decided to sign the COVID-19 stimulus bill into law. The bill arrived at the White House last night and according to an official, President Biden wanted to sign it into law ASAP. Media reports had President Biden signing the bill into law on Friday originally. It also likely helps that the president will make a prime-time address to the nation Thursday evening to commemorate the grim milestone of one year since COVID-19 shut down much of the United States, and likely wants to try and lift the spirts of the American public.

  • Speaking in the House of Commons on Thursday, Canadian Prime Minister Justin Trudeau said March 11th, 2020 will be remembered as the day when life in Canada changed. Thursday marks the one-year anniversary of the World Health Organization (WHO) declaring the novel coronavirus a pandemic. “Every Canadian we lost to the virus will be remembered. Every shift done by a frontline nurse, every mask made by a Canadian worker will not be forgotten. We are stronger together, today, tomorrow and always,” said Prime Minister Trudeau. Elsewhere in the country, one-year into the pandemic there are still signs it is far from over. CTV News is reporting a new status report by Ontario’s COVID-19 Science Advisory Table has found that 42% of the province’s coronavirus cases are variants of concern. 

  • In the United Kingdom, the leader of the Tory’s backbench MPs warned Prime Minister Boris Johnson that lockdown rules will look “silly” if COVID-19 cases continue to decline. Sir Graham Brady, chairman of the 1922 committee of backbench Tory MPs, also criticized the government’s five-week gaps between each stage of the roadmap out of lockdown. Brady’s words are in direct contrast to England’s Chief Medical Officer Chris Whitty who warned earlier in the week that easing of restrictions would significantly increase the risk of a large surge in COVID-19 cases and more deaths.

  • Bloomberg is reporting Spain’s government plans to dedicate around two-thirds of the €11 billion fiscal package on direct aid to struggling firms. Prime Minister Pedro Sanchez’s socialist government plans to channel €7 billion in transfer payments directly to companies with about €3 billion towards a restructuring of state-backed loan guarantees and €1 billion for a separate restructuring fund. Prime Minister Sanchez announced the package last month but didn’t provide details on how the funds would be distributed.

  • According to Reuters, the European Union (EU) is about to suffer yet another setback in COVID-19 vaccine supplies after the United States told the EU they should not expect to receive AstraZeneca COVID-19 vaccines manufactured in America anytime soon. The EU has been an ongoing battle with AstraZeneca and its COVID-19 vaccine supply since the beginning of the year. The drugmaker had previously told the 27-nation bloc that they would be receiving 90 million doses in the second quarter – which is about half of what was expected. Lately, AstraZeneca offered to partly plug the gap with vaccines produced outside Europe, including the United States, but Thursday’s news throws a wrench into that plan.

  • Australia’s government has unveiled a $1.2 billion AUD package aimed at the country’s struggling tourism sector due to the coronavirus pandemic. The stimulus will be aimed at boosting local travel while international routes remain closed due to the pandemic. The government will subsidise 800,000 tickets on domestic flights to 13 destinations around Australia that mostly rely on international tourists and offer cheap loans to small tourism operators. “Our tourism businesses don’t want to rely on government support forever, they want their tourists back. This package, combined with our vaccine roll-out… is the bridge that will help get them back to normal trading,” said Prime Minister Scott Morrison.

Covid-19 – Due Diligence And Asset Management

KKR Seeks $12 Billion for Flagship Infrastructure Fund

Brief : Buyout firm KKR & Co Inc is seeking to raise $12 billion for its flagship global fund that will invest in infrastructure assets such as oil and gas pipelines and renewable energy projects, according to people familiar with the matter. The fundraising comes as President Joe Biden has been pushing U.S. lawmakers to back a plan for trillions of dollars in new spending on projects to restore America’s crumbling infrastructure. KKR began raising the fund, KKR Global Infrastructure Investors IV, late last year alongside its other flagship funds, including the North America private equity fund, which is aiming to attract more than $15 billion. A KKR spokeswoman declined to comment. Private equity firms tend to raise successor funds that are 10% to 20% larger than their predecessors. But KKR’s latest global infrastructure fund would be significantly bigger than KKR Global Infrastructure Investors III, which amassed $7.4 billion from investors in 2018.

Read more...


ECB Doesn’t Intend Faster Bond-Buying to Mean More Stimulus

Brief: Most European Central Bank policy makers have no intention of expanding their 1.85 trillion-euro ($2.2 trillion) emergency stimulus program despite their pledge on Thursday to step up the pace of bond buying to keep yields in check, according to officials familiar with the matter. The Governing Council’s decision to make purchases at a “significantly higher pace” over the next three months means buying debt at a faster rate than the program’s timeline suggests, the officials said, asking not to be identified. Buying would then be slowed if the economic outlook allows. The pandemic purchase program is due to run until at least the end of March 2022, and has almost 1 trillion euros of firepower left. The ECB says it can be “recalibrated” -- ie increased -- if needed.

Read more...


U.K. Banks Lost about 10,000 Women Last Year in Diversity Blow

Brief: More women than men have left British banks during the pandemic, undermining the sector’s pledges to become more diverse. The number of women at the U.K.’s five biggest lenders shrank by 3% during 2020, according to data compiled by Bloomberg News, while men saw a decline of about 2.1% as the banks pushed ahead with long-planned cost cuts and adapted to Covid-19. At NatWest Group Plc, roles filled by women dropped by 9% compared to a 5.2% fall for men. Standard Chartered Plc kept roughly the same number of men but its female staff declined by 2.2%. The banks -- along with Barclays Plc, Lloyds Banking Group Plc and HSBC Holdings Plc -- employ about half a million people globally, broadly even between genders. The stark split has a variety of causes. British lenders have spent years closing branches -- which are staffed more by women -- as they see customers shifting to online banking. This trend accelerated during lockdown. Some women are also withdrawing from the workforce, rather than being cut. At Standard Chartered, the gap between male and female job losses “probably relates to the fact that children were home being home-schooled and that burden within the family fell disproportionately to women,” Chief Executive Officer Bill Winters said on a call with reporters after recent earnings.

Read more...


Equity Investment into Smaller Private Companies Hit New Heights in 2020

Brief: Equity investment into private smaller companies reached new heights in 2020, rising by 9 per cent on 2019 levels to GBP8.8 billion, according to the British Business Bank’s Small Business Finance Markets Report. Average deal size continues to increase, primarily driven by a small number of very large deals. Equity deal sizes increased by 3 per cent in 2020 and the number of deals greater than GBP10 million increased from 173 in 2019 to 176 in 2020. The time taken for some companies to achieve unicorn status reduced in 2020. Beauhurst estimates the average age of all companies gaining unicorn status was seven years, but Hopin gained unicorn status only after one year and Cazoo after two years. Of the six UK companies to achieve unicorn status in 2019, five were backed by venture capital. Judith Hartley, CEO of British Patient Capital, says: "The British Business Bank’s Small Business Finance Markets report was published today and it reveals that, despite the global pandemic, equity investors continue to find smaller private UK companies highly attractive.

Read more...


Why Investors Will Keep Up a ‘Dash for Trash’

Brief: Investors will keep reaching for riskier assets to get returns in a U.S. economy poised for growth this year, according to Natixis Investment Managers. The “dash for trash” will continue, Jack Janasiewicz, portfolio manager and strategist at Natixis Investment Managers, predicted Tuesday during the firm’s web event discussing markets amid the easing Covid-19 crisis. Financial conditions are “highly accommodative,” he said, adding that “it’s tough to see anything but a continued stretch for risk assets.” At the same time, some investors worry that massive fiscal stimulus and easy monetary policy could stoke high inflation, according to Janasiewicz. The Natixis portfolio manager said the concern often comes up in client conversations, particularly with the recent jump in Treasury yields, but that he isn’t expecting a meaningful rise anytime soon.

Read more...


PLSA Strengthens Stewardship and Voting Guidelines to Reflect Pandemic and New Climate Regulations

Brief: Pension fund investors must be watchful this AGM season as to how company responses to the pandemic have impacted governance and workforce practices, the Pensions and Lifetime Savings Association (PLSA) has warned in its updated annual Stewardship and Voting Guidelines. Published to coincide with the PLSA’s annual Investment Conference, the Stewardship and Voting Guidelines 2021 are an important resource for pension trustees, providing practical guidance for schemes considering how to exercise their vote at annual general meetings. Having undertaken a substantial review of the guidelines in 2020, the PLSA has this year focused on ensuring they remain relevant amid the challenges posed by Covid-19 and a fast moving regulatory environment. Since the UK entered the first period of lockdown in March 2020, virtual AGMs have become the "new normal", enabled in law by the Corporate Insolvency and Governance Act on 26 June. The PLSA supports the provisions introduced by the Government and companies to ensure that AGMs can happen virtually during these unprecedented times.

Read more...


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.

About Castle Hall Diligence

Castle Hall helps investors build comprehensive due diligence programs across hedge fund, private equity and long only portfolios More →

Subscribe to Daily Covid-19 Updates