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Covid-19 Diligence Briefing

Our briefing for Tuesday May 19, 2020:

  • United States President Donald Trump has told the World Health Organization (WHO) via a letter that he will permanently pull funding if the world health body does not “commit to major substantive improvements over the next 30 days.” Those improvements according to President Trump include demonstrated independence from China. "I cannot allow American taxpayer dollars to continue to finance an organization that, in its present state, is so clearly not serving America's interests," the President wrote. The WHO confirmed they received President Trump’s letter and was “considering the contents”. European leaders defended the WHO while speaking at the World Health Assembly asking for a global united front against the coronavirus pandemic.

  • In Canada as provinces slowly start their reopening in phases, one situation that will not change anytime soon is the closure at the Canada-United States border. During his news briefing on Tuesday, Prime Minister Justin Trudeau confirmed the agreement has been extended another 30 days after it was set to expire on May 21st. The agreement both countries committed to back in March has the border temporarily closed to non-essential travel, only allowing commercial traffic and essential workers who cross for work.

  • According to United Kingdom government figures, the number of unemployment benefits jumped to the highest rates on record in the early weeks of the coronavirus pandemic. Unemployment related benefits jumped by a whopping 69% to 2.1 million between March and April, the biggest month-to-month increase since records began in 1971. In related news, the government’s environment secretary and Prince Charles have made a plea to the British public for furloughed workers to lend a hand to pick fruit and help farmers in order to “supplement their income”. The environment secretary noted the UK usually receive help from other countries such as Romania and Bulgaria to help harvest strawberries, salads and vegetables.

  • The leaders of Germany and France agreed to a one-off $500 billion-euro fund to help the European Union (EU) recover from the coronavirus pandemic. German Chancellor Angela Merkel and France President Emmanuel Macron’s funding effort will add further cash to an array of financial measures already carried out by the EU.

  • The Philippine government has warned its citizens shopping malls might be closed again after the weekend saw hordes of people shopping and ignoring safety protocols. The news comes as the country just began loosening its two-month lockdown, although its largest cities – Manila and Cebu – remain in lockdown.

  • Wuhan China’s Municipal Health Commission has stated they have conducted 1.3 million coronavirus tests since May 12th. Wuhan started conducting city-wide tests after health officials detected several locally transmitted cases. The city was ground zero of the coronavirus epidemic and had experienced a strict 76-day lockdown. It was announced last week that China had originally promised to test all 11 million people of Wuhan in 10 days. They have since backed off that slightly ambitious timetable, noting there will a 10-day timetable in testing different districts of the city, but those tests will not necessarily start on the same day.

Covid-19 – Due Diligence And Asset Management

Eleven Hedge Fund Traders Scored Big During Worst of the Crisis

Brief: A small group of hedge funds managed to overcome the fast and furious market rout in March as the coronavirus pandemic sent countries around the world into a lockdown. For them, the sell-off brought riches that some haven’t seen since … well, since the last financial crisis. Notably, these profits were derived from a wide variety of investment approaches, from macro and credit to long/short equity and oil. The crisis beaters were the exceptions. Most hedge funds, including those run by industry titans such as Ray Dalio and Michael Hintze, failed in their mission to protect investors from the market turmoil. Three in every four hedge funds lost money, with some down as much as 40% in March, according to data compiled by Bloomberg.

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Asset Managers Told to Adapt for Survival in Post Covid World

Brief: Asset managers have been warned they must rapidly adapt their business models to claw back investor flows and profits lost as a result of the Covid-19 pandemic, with businesses advised to ramp up their digital distribution capabilities, accelerate cost saving plans and bolster their range of alternative assets. According to a report by Boston Consulting Group, asset managers are facing a “new chapter of economic turmoil in 2020 which is likely to prompt a winner-takes-all phenomenon” not seen since the aftermath of the global financial crisis. “Overall, the market storm of early 2020 has only intensified the industry’s challenges, as asset managers find themselves in uncharted territory,” said Lubasha Heredia, a New York–based BCG partner and co-author of the report.

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JPMorgan’s Jamie Dimon says the Coronavirus Crisis is a ‘Wake-Up Call’ to Tackle Economic Inequality

Brief: JPMorgan CEO Jamie Dimon said in a memo to stakeholders on Tuesday that the coronavirus pandemic is a "wake-up call" to build an "inclusive economy" that recognizes the financial situations of all parties involved.Dimon said: "This crisis must serve as a wake-up call and a call to action for business and government to think, act, and invest for the common good and confront the structural obstacles that have inhibited inclusive economic growth for years."The bank chief said he looked forward to sharing more ideas on how to create an "inclusive economy" that is stronger, more resilient, and offers "widespread access to opportunity." Dimon said: "From the reopening of small businesses to the rehiring of workers, let's leverage this moment to think creatively about how we can mobilize to address so many issues that inhibit the creation of an inclusive economy and fray our social fabric."

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U.S. Financial Conditions are Easing at Fastest Pace in History

Brief: American financial conditions have loosened at the fastest pace since at least 1990, belying mounting investor skepticism that a V-shaped economic recovery will follow the pandemic-induced crash. A Bloomberg measure of market health across bond, stock and liquidity indexes has staged a revival like never before -- bouncing back to early March levels, when recorded coronavirus cases globally were around 90,000 versus more than 4.8 million today. All told, this gauge of animal spirits has improved from the nadir by 5.4 standard deviations in just 37 trading days, a feat that took 50 days back in 2008. Explaining why investors are getting their mojo back is the easy part. Thank historic policy stimulus, indications that the collapse in the investment and consumption cycle has bottomed, as well as the global race for an experimental vaccine.

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Most Investors Don’t Think this Rally is for Real, According to Widely Followed Wall Street Survey

Brief: More than two-thirds of professional investors doubt that the stock market jump off the March lows is the start of a legitimate new bull market, according to the Bank of America Fund Manager Survey for May. Amid a surge that has seen the S&P 500 rise 32% since the March 23 trough, some 68% of survey respondents called the move a “bear market rally.” The term implies that even though the surge tops the 20% benchmark that would signal a new bull market, the fundamentals tell a more pessimistic story. The Bank of America poll is among the most widely followed surveys of investors on Wall Street. That said, respondents still see the near-term “pain trade,” or the one that catches most investors off guard, as the market going higher. Current sentiment is consistent with an S&P 500 level of 3,020, or about 2.3% higher than Monday’s close, according to Michael Hartnett, chief investment strategist at Bank of America Global Research.

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Citigroup Launches New ESG Investment Banking Group

Brief: Citigroup Inc (C.N) said on Tuesday that is launching a new business unit within its corporate and investment bank dedicated to environmental sustainability to strengthen its commitment to an area that has grown increasingly important to corporate clients and investors. The New York-based company said its Sustainability & Corporate Transitions group will be led by Banking, Capital Markets and Advisory (BCMA) Chief Strategy Officer Bridget Fawcett and Keith Tuffley, who has lead the unit’s sustainability efforts so far. “The current Covid crisis will elevate the importance of ESG to our clients, as they increasingly focus on more sustainable and resilient strategies and on recovery plans that help drive the just transition to a net-zero emissions future,” global BCMA heads Tyler Dickson and Manolo Falcó said in a memo to bankers sent on Tuesday. Companies have become more focused on environmental, social and governance (ESG) factors in recent years as activists and investors put pressure on them and companies that put these considerations at the forefront are rewarded.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday May 15, 2020:

  • United States President Donald Trump announced his government’s new plan of creating a vaccine dubbed “Operation Warp Speed”. During the news briefing on Friday, President Trump would love to see this team develop a vaccine by year’s end, which outpaces the outlook given by most health officials. Moncef Slaoui, the ex-head of GlaxoSmithKline’s vaccines division and four-star Army General Gustave Perna will lead the effort. President Trump also stated the White House will likely make an announcement related to the World Health Organization (WHO) next week. The American administration had halted funding to the WHO last month after saying a review was needed in how they handled the coronavirus outbreak, especially in regards to China.

  • During a news briefing on Friday, Canadian Prime Minister Justin Trudeau announced his Liberal government would extend the emergency wage-subsidy program to the end of August. The program that covers 75% of an eligible company’s payroll to a maximum of $847 per week per employee was set to expire May 31st. The original program was set to cost $73 billion. The federal government’s finance minister did not make clear how much the expanded program will cost.

  • According to a Financial Times article, the financial hub of the United Kingdom is drawing up detailed plans for when its workers return. Canary Wharf will be introducing one-way routes, daily deep cleaning, limiting elevator capacity and eliminating soft furnishings. Canary Wharf is home to the European headquarters of Barclays, Citigroup and HSBC and many other businesses.

  • Europe’s largest economy is now officially in a recession. Germany’s economy shrank by 2.2% in the first three months of the year, its largest quarterly drop since the 2009 global financial crisis. The numbers were released just as the country tries to return a new state of normalcy. Most German states will be reopening bars and restaurants this weekend, and the country’s soccer league – the Bundesliga will be returning as well, although without any fans in the stands.

  • Restaurants, bars and cafes were allowed to reopen in Australia’s most populous state on Friday. The easing of restrictions in New South Wales, which includes Sydney, was welcome news as the country learned earlier in the week of its unemployment numbers. Close to 600,000 jobs were lost last month due to the coronavirus. The Australian Bureau of Statistics said 2.7 million Australians either lost their job, had their hours reduced, or left the labour force in April.

  • Brazil’s health minister Nelson Teich handed in his resignation on Friday after less than a month on the job. Teich is another name added to the list of those who disagreed with President Jair Bolsonaro’s handling of the coronavirus pandemic. President Bolsonaro has been pushing in recent days for wider use of hydroxychloroquine as a treatment for COVID-19, the same drug United States President Donald Trump pushed earlier. Teich resisted this and also disagreed on the pace of reopening the country, saying he wasn’t consulted before Bolsonaro issued a decree allowing gyms, beauty parlours and hairdressers open for business. The next health minister hired will be Brazil’s third during the coronavirus outbreak in the country.

Covid-19 – Due Diligence And Asset Management

BlackRock CEO Fink told Trump U.S. Needs Infrastructure Spending

Brief: BlackRock Inc. Chief Executive Officer Larry Fink said he told President Donald Trump the U.S. needs to spend on infrastructure to generate jobs, as the country navigates the next steps to rescue a coronavirus-addled economy. “I’ve told the U.S. president, and I’ve told this to many other politicians now, that an infrastructure build is really important,” Fink said Thursday in a live-streamed interview with Sergio Rial, CEO of Banco Santander SA’s Brazil unit. The U.S. government has rolled out unprecedented spending to shore up the economy, but business leaders and politicians are already focusing on what new revival efforts should look like. Trump tweeted in March that a $2 trillion infrastructure bill would be a good way to create jobs. Fink also said in the interview that BlackRock, the world’s largest asset manager, has been talking with central banks in the midst of the dual public health and financial crisis.

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Bain Capital to Target $9 Billion for New Buyout Fund

Brief: Bain Capital is planning to raise about $9 billion for its next flagship global buyout fund, as the U.S. alternative asset manager seeks to tap demand from yield-hungry investors, people familiar with the matter said. The Boston-based firm has started discussions with new and existing investors about the fund, which it aims to close later this year, according to the people, who asked not to be identified because the information is private. Bain’s last flagship fund closed in 2017 at $9.4 billion, which included $8 billion from investors and another $1.4 billion from the firm’s own partners. Similar internal commitments could increase the eventual size of the new fund by a further 10% to 15%, the people said. Buyout firms have been on a fundraising spree as institutional investors reach for better returns in an environment of low interest rates and poor performance from stock-picking fund managers.

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European Hedge Fund and Trading Groups Call for Short Selling Ban to be Lifted

Brief: Europe’s trading and hedge fund firms are calling for a removal of the temporary short selling bans issued in several countries from March, in response to the market volatility triggered by the coronavirus pandemic. The trade bodies calling for the repeal represent hundreds of top firms — including the likes of Citco, Man Group, State Street, Guotai Junan Securities, Citadel Securities Europe, Bridgewater Associates and Marshall Wace — who say a removal of the ban is crucial to improving market efficiency and preventing further damage to investor portfolios as a result of the pandemic Their plea comes after the European Securities and Markets Authority said on 15 April that the short-selling ban would remain across Austria, Belgium, France, Greece and Spain until 18 May, with the possibility of a further extension.

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Coronavirus Crisis Herald Major Changes to the Hedge Fund/Prime Broker Dynamic

Brief: With the broader hedge fund industry facing multiple challenges around rising costs, squeezed profits, and a shifting regulatory backdrop, the prime brokerage sector will need to juggle future disruptions and sweeping changes in client activity as a result of the coronavirus pandemic. In a new market commentary, Anthony Bennett, head of prime brokerage at Capco, a global technology and management consultancy dedicated to the financial services industry, examined the potentially far-reaching fallout of the Covid-19 crisis on the hedge funds/PB relationship, with future success possibly hinging on the degree of diversification within a PB’s business. Gauging perspectives through recent conversations with leading prime brokers, Bennett suggested primes have largely weathered Q1’s historic volatility and de-risking and “passed the initial tests” of the recent crisis.

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Coronavirus: US Hedge Fund Davidson Kempner Eyes Virgin Atlantic Deal

Brief: A prominent American hedge fund has emerged among a pack of suitors eyeing a deal to prop up Virgin Atlantic Airways as it races to secure the funds it needs to survive the COVID-19 crisis. Sky News has learnt that New York-based Davidson Kempner Capital Management is one of the prospective investors which held talks with Virgin Atlantic bosses this week. The airline, which is seeking more than £500m in debt and equity funding following a collapse in revenue, wants to stitch together a deal this month. Sources said that Davidson Kempner was on a list of financial investors in discussions with Virgin Atlantic which also includes Apollo Global Management, Cerberus Capital Management and Greybull Capital, the former owner of Monarch Airlines. Davidson Kempner, which manages well over $30bn in assets, is among the hedge funds negotiating a financial restructuring of the US department store chain Neiman Marcus.

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A 3.5 Billion Hedge Fund Lures Clients with Rare Fee Discount

Brief: Selwood Asset Management, one of the fastest growing hedge fund firms in London, is enticing new clients with a type of fee structure that hasn’t been seen in the industry since the last financial crisis. The firm will waive its cut of some new clients’ profits until assets in its flagship fund reach their previous peak, a threshold known as the high-water mark, according to people with knowledge of the matter. That means Selwood won’t collect a performance fee until the fund has gained 8%, said the people, who asked not to be identified because the information is private. Selwood typically charges performance fees ranging from 13.5% to 30% for its main fund. Discounts like this are rare even for existing clients in an industry that’s notorious for charging high fees. Selwood, whose assets have grown to about $3.5 billion from $85 million at its launch in late 2015, is trying to raise as much as $250 million to take advantage of trading opportunities created by the coronavirus sell-off, the people said. New investors will have to lock their money up in the fund for as long as 12 months. A representative of Selwood declined to comment.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday May 14, 2020:

  • In the United States, Republican Senator Richard Burr will be stepping down as chairman of the Senate Intelligence Committee while he’s under investigation for stock trades he made ahead of the market downturn in March. President Donald Trump publicly took Dr. Anthony Fauci to task for comments he made while in front of senate members earlier in the week. President Trump accused Dr. Fauci, one of his top medical aides in the White House coronavirus task force of wanting “to play all sides of the equation”. Trump particularly didn’t like Fauci’s suggestion of caution around reopening schools too quickly, calling his assessment, “not an acceptable answer”.

  • In Canada as promised Ontario Premier Doug Ford laid out his government’s plan on the next stage in reopening the province. Starting May 19th, retail stores outside of shopping malls can begin reopening with physical distancing measures. Construction projects, seasonal activities such as golf courses and healthcare settings will also be allowed to resume, some as early as Saturday May 16th. During a Thursday news briefing, Quebec Premier Francois Legault announced the delayed reopening of greater Montreal area schools until September. Retail stores in the Montreal area are still set to reopen on May 25th and Premier Legault believes this could still happen if more people start wearing masks, although he won’t make the use of face coverings in public mandatory.

  • The United Kingdom hit a new record for the number of coronavirus tests performed in one day. Over 126,000 tests were deployed on Wednesday and Prime Minister Boris Johnson says the government’s goal was to hit 200,000 tests a day by the end of the month. The government’s transport secretary, Grant Shapps has also urged Britons who are travelling to work again to avoid public transport. Shapps even went as far to say it was citizens “civic duty” to walk, cycle or drive instead.

  • France’s President Emmanuel Macron has summoned a Paris based drug maker for a meeting. Sanofi CEO Paul Hudson was interviewed by Bloomberg News and said the United States would be given priority to a vaccine if discovered by the drug company due to their funding of vaccine development and production. Hudson quickly walked back those comments on Thursday promising if Sanofi did discover a vaccine, it would be made available in all countries.  President Macron has been vocal that any vaccine found as treatment for COVID-19 should be treated as “public good for the world and not subject to the laws of the market.”

  • Italian Prime Minister Giuseppe Conte has threatened to leave the European Union after criticizing the EU’s proposed tourism plan that could allow so-called green corridors between countries within the block. These green corridors would allow fellow EU nations making side deals for tourism paths, based on countries having low coronavirus outbreaks. Italy, being one of the hardest hit countries in the world due to the virus, would obviously be on the outside looking in on these green corridor deals. Tourism represents 13% of Italy’s GDP.

  • Japanese Prime Minister Shinzo Abe lifted the state of emergency ahead of schedule for 39 of the country’s 47 prefectures. The state of emergency remains in effect for Tokyo, Osaka, Kyoto, Hokkaido and three other prefectures. The state of emergency was supposed to be in place until May 31st. Prime Minister Abe said he and experts will meet next week to decide if the emergency measures can be lifted in the remaining eight prefectures. Japan has more than 16,000 confirmed cases and about 680 deaths due to the coronavirus.

Covid-19 – Due Diligence And Asset Management

Ray Dalio on Covid-19 Effect: We’ll Reconsider How ‘To Divide the Pie’ and ‘There are Reasons it won’t be good for Capitalists’

Brief: PresidentDonald Trump and his administration are confident that the U.S. economy will quickly rebound after the coronavirus pandemic is contained — but some experts are not so sure. Count hedge fund billionaire Ray Dalio among the skeptics. “We’re not going to go back to normal,” Dalio tellsCNBC Make It.  But he also has hope. “Soon we are going to reconsider how we are going to divide the pie and there are reasons that it won’t be good for capitalists,” Dalio says. Dalio sees the closest parallel to the world’s current economic situation as the Great Depression, which lasted from 1929 well into the 1930s, and is regarded as the worst economic crisis in American history. Much like with the Great Depression, Dalio predicts that the impending downturn will require a recovery period that could last several years, even as long as five years, he says.

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Jefferies to Spin out Quant Hedge Fund with Some Staff Leaving

Brief: Jefferies Financial Group Inc. is spinning out its systematic hedge fund Quantport, with some staff leaving the firm. Jefferies may retain an interest in the new venture, and the shakeup was in the works before the pandemic, according to a person familiar with the matter. The New York-based fund, which had regulatory assets under management of $3.7 billion as of January, started as part of Jefferies’ proprietary trading desk, before overseeing external money from 2010. Led by Vlad Portnoy, it trades market-neutral strategies in equities and futures. The news was reported earlier by eFinancial Careers. The past few years have seen a number of systematic funds shut as growing competition and muted market swings eroded gains from their strategies. This year’s historic volatility has also been challenging, as the fallout from the coronavirus upended the price patterns underpinning many quant models.

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Brookfield is Sitting on $60 Billion to Help it Weather the Pandemic

Brief: Cash is king in times of crisis, according to Brookfield Asset Management Inc.’s chief executive officer, and the alternative-asset manager has more than US$60 billion to weather the coronavirus pandemic. If a business isn’t prepared for situations like the COVID-19 outbreak that’s rattled markets, it’s often too late once such a crisis hits, Bruce Flatt said in a letter to shareholders Thursday. “In reflecting on what really matters to our business, it is liquidity, liquidity and liquidity, in that order,” he wrote in the letter. “The most damaging thing for any business owner is to find yourself out of business and unable to participate in the recovery, or in a position of needing to issue shares which dilute the owners, and therefore make it impossible to ever recover from undue dilution at the wrong time.”

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CQS Spins off Equity Hedge-Fund Arm as Hintze goes back to Roots

Brief: Billionaire Michael Hintze’s CQS is spinning off its nascent equities hedge-fund business into a stand-alone firm as it focuses on core credit strategies that have been hammered by the pandemic. Paul Graham, the firm’s head of equities, will leave CQS to lead the spinoff as chief executive officer, according to people with knowledge of the matter. CQS will take an equity stake in the business and allocate some capital to it, said the people, asking not to be identified because the information is private. The abrupt move comes after sharp losses at the firm’s main hedge funds in March amid the virus-fueled sell-off. Its long-short equities business hasn’t yet started a fund and the firm was recently looking to build out its share-trading offerings under plans initiated by former CEO Xavier Rolet.

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Private Equity Firms Have a ‘Fair Amount of Dry Powder,’ Carlyle Group Co-Founder says

Brief: The co-founder of one of the biggest players in private equity said the industry is in “reasonably good shape” and there will be opportunities to buy companies in the coming months.  David Rubenstein, a co-founder of the Carlyle Group, said on CNBC’s “Closing Bell” that his firm and other private equity companies are waiting on the right opportunities as the economic impact of the pandemic puts stress on companies around the world. “We have a fair amount dry powder, as do the other large private equity firms. We see a lot of opportunities,” Rubenstein said. “But we don’t think that, if you don’t move in a week or two or three or a month, that you’re going to miss the best opportunities.”

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How Far will Asset Management Pay Fall?

Brief: Johnson’s latest projections have 2020 incentive compensation at traditional asset management declining by 20 to 25 percent. The pay cuts come as assets under management have fallen across the board, with investors fleeing stocks and bonds and rushing into money market funds or cash. Hedge funds, whose average performance is down less than the overall markets, have also suffered asset declines. Their incentive compensation is expected to be down between 15 and 20 percent this year from 2019. Johnson noted that while macro and event-driven funds have been able to capitalize on the market impact of the pandemic, most strategies have taken a hit. Assets are at a multi-year low, according to the firm. Private equity, which has the highest paid professionals in asset management following rapid growth in recent years, will also undergo pay cuts. Johnson Associates expects large private equity firms to cut incentive compensation by 5 to 10 percent, compared to 2019.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday May 13, 2020:

  • After seven weeks of lockdown, people in England could return to some workplaces, and exercise more than once a day and with one person outside of their house, as long as social distancing measures are used. Some construction sites have resumed work and automaker Ford announced plans to restart production at two factories inside the United Kingdom. Other sporting activities such as tennis, fishing, boating and lake swimming also resumed. The easing of these restrictions apply only to England as the semi-autonomous governments of Scotland, Wales and Northern Ireland are sticking with the “stay home” message as the virus progresses through different stages in different parts of the country.

  • Two United States agencies have accused China of trying to steal coronavirus research by hacking into American organizations that are studying the disease. The FBI and the Cybersecurity and Infrastructure Security Agency issued the joint warning on Wednesday, but did not name the organizations targeted, or say whether any of the attacks were successful. Elsewhere in the United States, Federal Reserve Chairman Jay Powell stated additional policy measures may be needed form the US central bank, along with other fiscal authorities to prevent greater long-term damage to the American economy.

  • In Canada, as the number of confirmed cases approach 40,000+ in the province of Quebec, Premier Francois Legault has urged Quebecers to follow social distancing guidelines and wear a mask when outside. Previously the government had only advised people to wear a mask outside in situations when respecting the two-metre social distancing guidelines were impossible. Prime Minister Justin Trudeau noted in his Wednesday news briefing the country would like to see another one-month extension of the Canada-United States border restrictions. The agreement in place right now has all non-essential travel across the border shutdown. The current agreement is set to expire on May 21st, and Canada would like that extended to June 21st

  • Germany’s Interior Minister is hoping for unrestricted travel within the European Union by June 15th. Speaking with journalists the minister said Germany has agreed with France, Austria and Switzerland to gradually ease its border controls with the goal to completely end the restrictions by mid-June.

  • Brazilian state and city governments continue to clash with their President on the handling of the coronavirus pandemic. As the death toll rises above 12,000 in the country, states and cities are proceeding with lockdowns. This remains in direct contrast to the will of President Jair Bolsonaro who continues to say Brazilian governors are destroying the economy and Brazilians should be free to go about their everyday lives. Bolsonaro criticized state governors on Tuesday for ignoring his decree that gyms, barbershops and beauty salons should be treated as essential services.

  • Amid fears of a second wave at ground zero of the coronavirus epidemic, authorities in Wuhan, China are about to embark on a very ambitious plan. Chinese media reported over the next 10 days, authorities in Wuhan are planning to test all 11 million residents for the coronavirus. No official announcement has been made and it’s unclear how such a vast testing campaign would even be carried out in such short order.

Covid-19 – Due Diligence And Asset Management

David Tepper says this is the Second-Most Overvalued Stock Market he’s ever seen

Brief: Billionaire hedge fund investor David Tepper told CNBC on Wednesday the stock market is one of the most overpriced he’s ever seen, only behind 1999. His comments sent stocks to a session low. He also said some Big Tech stocks like Amazon, Facebook and Alphabet may be “fully valued.” Before Wednesday’s sell-off, it was “maybe the second-most overvalued stock market I’ve ever seen,” Tepper said on CNBC’s “Halftime Report.” “I would say ’99 was more overvalued.” “The market is pretty high and the Fed has put a lot of money in here,” the founder of Appaloosa Management said. “There’s been different misallocation of capital in the markets. Certainly you are seeing pockets of that now in the stock market. The market is by anybody’s standard pretty full.” The S&P 500′s forward price-earnings ratio based on estimates for the next 12 months has ballooned to above 20, a level not seen since 2002.

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Carlyle, Singapore’s GIC Sued over Collapsed AmEX Stock Buy

Brief: Carlyle Group Inc. and Singapore sovereign-wealth fund GIC Pte. are using fake excuses to renege on buying a 20% stake in American Express Global Business Travel, according to a lawsuit unsealed in the U.S.A unit of Centares Management LLC claims Carlyle’s losses from the coronavirus left it with a whopping case of buyer’s remorse and prompted its attempt to scrap the stock purchase, which had valued the travel entity at $5 billion when it was announced in 2019. Centares leads a group of investors in the deal, including the Qatar Investment Authority and several Carlyle entities. “The Carlyle Group’s losses do not provide defendants with a basis to withdraw from the transaction,” Juweel Investors Ltd., a subsidiary of New York-based Centares, said in the lawsuit unsealed Monday in Delaware Chancery Court. The investment fund “cobbled together a series of pretextual and transparently false excuses to justify their refusal to close” the deal, Juweel said.

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Goldman Sachs, Citi, HSBC Among Banks Telling Staff to Stay at Home

Brief: The UK government’s plans to ease lockdown restrictions may have caused confusion and criticism, but some of the world’s largest investment banks have a clear message to their London employees — stay at home. According to internal memos seen by Financial News and people familiar with the matter, banks including Citigroup, Goldman Sachs, HSBC, JPMorgan and Morgan Stanley have told employees that their current remote working arrangements, which have forced them to radically overhaul their staff base, will remain in place for the foreseeable future.Others including Barclays and Deutsche Bank will ask a small proportion of staff to return in the coming weeks. Investment banks with huge, global operations are grappling with how to get their employees back into the office safely as various local authorities loosen restrictions on their populations, but Prime Minister Boris Johnson’s lockdown exit plan has largely failed to prompt any changes at finance firms.

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Wall Street Bonuses set to Fall by as Much as 30% in 2020

Brief: Wall Street bonuses for 2020 could fall by as much as 25%-30% due to the deep cuts to revenues recorded by banks and hedge funds earlier this year as a result of the novel coronavirus, according to a report published Wednesday by compensation consulting firm Johnson Associates Inc. While most compensation is expected to be down, 2020 is likely to be a year with “wide, wide variations in incentive outcomes between stronger and weaker competitors,” according to the report by Alan Johnson, whose predictions are closely watched by financial professionals. The outbreak of the novel coronavirus has led to widespread shutdowns in the U.S. economy, causing gross domestic product to decline at a 4.8% annualized rate in the first quarter and forcing some 33.5 million Americans to file for unemployment benefits.

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Diversity Gaining More Traction as Firms eye Recovery after Crisis

Brief: One of my favourite memes recently is the one where the world is sending us back to our rooms to reflect on what we’ve done. The act of being sent back to our rooms, to a place where we have to reset and reprioritise is an opportunity that many business leaders are seizing. Although you might think that the “nice to have” of inclusion and diversity would drop off the business agenda in a time of crisis, it is gaining more traction at firms that want to ensure they innovate and reposition themselves for recovery. Decades of research has shown that diversity brings greater levels of innovation, fosters creativity and improves financial performance. Multiple voices lead to new ideas, services and products and encourage out-of-the-box thinking.

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Byron Trott’s BDT Capital Raises $9.1 Billion for Latest Fund

Brief: BDT Capital Partners raised $9.1 billion for its third investment fund, exceeding the amount it had initially sought, according to a regulatory filing Tuesday. The fund has about 200 investors and will focus on buying stakes in family-owned businesses, said a person familiar with the strategy who asked not to be identified because the information is private. More than 90% of the investors have their own businesses or significant family office operations, and about a third are based outside the U.S., the person said. Byron Trott founded Chicago-based BDT in 2009, after an investment-banking career that included working with Warren Buffett and the Pritzker and Koch families, as well as other prominent investors. The firm has about $25 billion under management. So far, the coronavirus pandemic hasn’t stopped private equity firms from raising fresh funds. On Monday, U.K.-based Hg said it would stop accepting new money after bringing in $11 billion for three buyout funds, and KKR & Co. said last week that it had raised $10 billion over the past two months. In all, private equity firms are sitting on about $1.5 trillion of capital to invest…

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday May 12, 2020:

  • The battle between science and the economy rages on in the United States. Dr. Anthony Fauci, a key member of the White House’s coronavirus task force, was speaking with senators on Tuesday cautioning against states and cities opening too quickly from the pandemic. In California, Elon Musk restarted his Tesla electric car plant, despite local orders against manufacturing. Musk who is quite vocal on social media, took to twitter asking if anyone was arrested for defying the order, let it be him only, and not any of his employees for returning to work. President Donald Trump weighed in the online conversation, also taking to twitter in support of Musk stating, "California should let Tesla & @elonmusk open the plant, NOW,. "It can be done Fast & Safely!"

  • In Canada, Ontario Premier Doug Ford hinted at good news coming for the people of the province on Thursday. During his news briefing on Tuesday, Premier Ford said in the coming days Ontario will hit stage one of the province’s three-stage framework, which was introduced a few weeks ago. Stage one would allow for the reopening of seasonal businesses, low-risk businesses and essential services. The province has seen close to 21,000 coronavirus cases, with the current majority (62%) concentrated in the Greater Toronto Area, Canada’s most densely populated region.

  • The Bank of England didn’t completely rule out cutting interest rates to negative levels, a step it has never taken before, to protect the country as much as possible from the economic impact of the coronavirus. Speaking in an interview, deputy governor Ben Broadbent said, “The committee is certainly prepared to do what’s necessary with our remit. With the risks still tilted to the downside, yes, it’s quite possible that more monetary easing will be needed over time.”

  • In a televised national address, Indian Prime Minister Narendra Modi announced a $266 billion stimulus plan to help the country’s stalled economy due to the coronavirus pandemic. Not many details were given, but Prime Minster Modi said the package will provide support to industry, small and medium size businesses, the self-employed, farmers and others who have been hit by India’s almost eight-week lockdown.

  • The Philippines will be tweaking their lockdown procedures as they try to balance the health of their people with the economy. President Rodrigo Duterte announced Metro Manila, Laguna province south of the capital and Cebu City in the Visayas will be under a modified enhanced community quarantine from May 16th to May 31st. This change will allow manufacturing plants and public transport to restart in those areas, albeit under a limited capacity.  The stay-at-home orders imposed on the central and southern parts of the Luzon island, and several provinces in Visayas and in Mindanao will be lifted after May 15th.

  • South Korean officials are navigating mobile phone data, credit card statements and closed-circuit TV footage as they try to identify people who visited nightclubs that are now at the centre of a new coronavirus outbreak in the country. More than 100 new cases have been linked to Seoul nightclubs and bars. To make matters worse, some of the nightclubs in question are homosexual bars, where the lifestyle is still considered taboo in the country, making people afraid to come forward and be tested for fear of persecution and discrimination.

Covid-19 – Due Diligence And Asset Management

Hedge Fund Cheyne Raising Cash for Debt Oversold in Pandemic

Brief: London-based hedge fund Cheyne Capital is planning a new vehicle to buy up debt that’s been excessively punished by the coronavirus selloff, the latest in a number of investment firms targeting distressed credit. The firm is seeking to raise 300 million euros ($325 million) and will launch the fund as soon as next month, according to people with knowledge of the matter. Cheyne will buy up bonds and loans that it deems are now cheap and sell them once they’ve recovered, said the people, who asked not to be identified because the information is private. A spokeswoman for Cheyne declined to comment on the new vehicle. Investment firms around the globe that target distressed debt are seeking to make the most of the chaos wrought by the coronavirus pandemic by setting up new funds. Oaktree Capital Group LLC, Highbridge Capital Management and Chenavari Investment Managers are among those who are raising capital to invest in discounted debt.

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JPMorgan to Raise up to $3 Billion for Real Estate Credit Fund

Brief: JPMorgan Chase & Co.’s asset-management arm has launched a new fund to take advantage of dislocations in the public and private real estate credit markets, according to a person familiar with the matter. JPMorgan Asset Management is looking to raise $2 billion to $3 billion from institutional investors for the Real Estate Credit Opportunity Fund, according to the person, who asked not to be identified because the information is private. The vehicle will target 10% to 15% net returns investing in bonds and pools of loans tied to commercial real estate, according to documents viewed by Bloomberg. The fund will invest in strategies including structured credit, rescue loan origination and both performing and non-performing loan acquisition, the documents said. A JPMorgan Asset Management spokesman declined to comment.

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Kohlberg is Sued Over Deal Soured by Pandemic

Brief: Covid-19 is threatening another mergers and acquisitions process. Kohlberg & Co. is trying to back out of its $550m agreement to buy Decopac, claiming the company has suffered a material adverse effect, according to a lawsuit. Snow Phipps, a New York middle market private equity firm, has sued Kohlberg, alleging the firm has acted in bad faith, has breached its stock purchase agreement to buy Decopac and refused to secure financing on the terms it initially set out, according to a lawsuit filed 17 April in Chancery Court in Delaware. Snow Phipps is seeking specific performance to make Kohlberg complete the sale, the filing said. Kohlberg, of Mount Kisco, NY, agreed on 6 March to buy Decopac, which supplies and markets cake decorating products. Snow Phipps claims that Kohlberg knew about Covid-19 and the seriousness of the virus when it signed the agreement.

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PIMCO Outflows Drag Down Allianz AUM

Brief: Assets under management at Allianz SE fell 6.2% in the first quarter, as subsidiary Pacific Investment Management Co. recorded net outflows of €43 billion ($47.5 billion). Total AUM was €2.13 trillion as of March 31, an increase of 1.4% for the year, an update said Tuesday. Group revenue grew 20% for the quarter and 5.7% for the year, to €42.6 billion. Net income dropped 17.9% for the quarter and fell 27.7% for the year ended March 31, to €1.48 billion. Third-party assets under management — made up of Allianz Global Investors and PIMCO — fell 7.7% in the first quarter to €1.56 trillion. Third-party AUM grew 0.6% for the year. Third-party net outflows were €46.4 billion in the first quarter. That compared to €20 billion and €18 billion in net inflows for the quarters ended Dec. 31 and March 31, 2019, respectively.

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Scaramucci’s SkyBridge Looks to Dalio, Marks to Boost Returns

Brief: SkyBridge Capital, the investment firm founded by Anthony Scaramucci, is turning to some of the biggest names in the hedge fund industry to boost returns after its portfolio lost almost a quarter of its value this year. The firm is investing $100 million each in Ray Dalio’s Bridgewater Associates and Howard Marks’s Oaktree Capital Group, according to a letter sent to clients on Monday. The fund-of-funds will allocate an additional $90 million to Dan Loeb’s Third Point. Scaramucci said all three performed well in the last financial crisis and in other periods of market dislocation. “We believe our investors will be better served -- in good and bad markets -- by greater diversification across different strategies and across different managers,” he wrote. “We learned hard lessons in March, and we are taking decisive corrective action.” SkyBridge’s flagship fund lost nearly 24% in the first four months of the year. After investing heavily in credit hedge funds, the fund posted most of the losses in March as the coronavirus fueled a market sell-off. Clients have asked to redeem 9.3% of capital for June 30, an amount Scaramucci called “manageable.”

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TIAA Offers Buyouts to 75% of U.S. Employees, Including Nuveen

Brief: TIAA-CREFis offering a voluntary separation program for 75% of its U.S. employees, which includes employees ofNuveen, TIAA's investment manager.The 25% of employees not eligible for the program "involve certain groups that are involved in processes and technology necessary to conduct business, and some critical client support roles," TIAA said in an emailed statement. The program offers 45 to 91 weeks' salary, depending on length of service and salary, 100% of last year's bonus and six months of outplacement assistance, the email said. "As we navigate through these unprecedented times, we are exploring a variety of measures to reduce costs while managing our business and continuing to serve our clients. As part of that process, we have introduced a voluntary separation program for our employees, which is designed to give our people the ability to decide what's best for them," the company said in the statement…

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Monday May 11, 2020:

  • United Kingdom Prime Minister Boris Johnson’s plan for the country to get back on its feet was met with confusion and criticism. Government officials had to do some damage control on Monday after citizens were left confused by Johnson’s televised address to the nation on Sunday. For instance, people weren’t sure how many people could meet together outdoors, or when businesses should return to work. The UK will have three phases to the easing of their lockdown; the first starting this Wednesday. People will be allowed to leave their households as often as they want for exercise and leisure, but still maintain social distancing. Workers in construction and manufacturing sectors should actively be encouraged to go to work, but those taking public transit are urged to wear masks to limit spread of the virus. Stage two, which will not take place before June 1st, will include phased reopening of primary schools and non-essential shops.

  • In the United States, three senior officials guiding the country through the coronavirus pandemic are now in self-quarantine after coming in contact with two White House staffers who tested positive for the disease. Dr. Anthony Fauci, the director for the National Institute of Allergy and Infectious Diseases, Robert Redfield, the director of the Centers for Disease Control and Prevention, and Stephen Hahn, Commissioner of the U.S. Food and Drug Administration will all be monitoring themselves for any symptoms over the next two weeks. President Donald Trump and Vice President Mike Pence are being tested daily, and so far have tested negative. Elsewhere in America, parts of upstate New York will be allowed to reopen once their state shutdown expires this Friday. Governor Andrew Cuomo though noted New York City isn’t there yet, having hit just four of seven metrics an area must meet before they are allowed to start the reopening process.

  • The Canadian federal government will be offering bridge financing for big Canadian businesses across all sectors, except for banks. The bulk of the details were not delivered, but Prime Minster Justin Trudeau made the announcement during his Monday news briefing. Employers with annual revenues of more than $300 million can apply for support whose credit needs aren’t being met through conventional financing. Trudeau insisted this program was of the bridge loan variety, not a “bailout” and the government is a “lender of last resort.”

  • After two months of strict lockdown, France was allowed to emerge on Monday. Reports noted the shops on Paris’s famed Champs-Elysees were only half open and the notorious traffic jams in France’s capital city were absent. Government has encouraged businesses to continue allowing employees to work from home and are promoting bicycles and other modes of transport, as opposed to buses, trains and subways if possible.

  • With unemployment doubling in the country, Russian President Vladimir Putin unveiled his plan for citizens to head back to work as early as Tuesday. Putin emphasized the lifting of restrictions would be gradual and the world’s largest country (in terms of land) would need to tailor their approach to local conditions. Moscow will keep its lockdown measures in place until May 31st. Russia has recorded nine straight days of 10,000 or more new cases, and now have the third most cases in the world trailing only the United States and Spain.

Covid-19 – Due Diligence And Asset Management

Hg said to Top $11 Billion for its Largest Ever Buyout Funds

Brief: Hg will soon stop accepting new money for three of its buyout funds after raising $11 billion for its largest ever pool of capital, according to people familiar with the matter. The U.K.-based private equity firm, which focuses on software and service businesses, will divide as much as $10 billion equally between its second large-cap fund, known as Saturn, and its ninth mid-cap fund, known as Genesis, said the people, who asked not to be identified discussing private information. An additional $1.5 billion has been raised for the firm’s third small-cap fund called Mercury, the people said. Hg’s first investment from Saturn will go to increasing its stake in Norwegian cloud software developer Visma Group, the people said. Last April, private equity firm Cinven Group sold its stake in Visma to Hg and co-investors, valuing the business at more than 6.5 billion euros ($7 billion) at the time. Hg has been invested in Visma since 2006 when it led the company’s delisting from the Oslo Stock Exchange.

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Scott Minerd sees ‘Moral Obligation’ Arising from Virus Bailouts

Brief: Scott Minerd, the chief investment officer of Guggenheim Investments, thinks that government support of corporate America in the wake of the coronavirus pandemic will ultimately lead to the creation of a “new moral obligation” to help U.S. companies access credit. “Corporate borrowers are most likely on the way to becoming something akin to government-sponsored enterprises like Fannie Mae and Freddie Mac,” he wrote in a note dated May 10. “Many companies, including Boeing, Southwest, and Hyatt Hotels, have likely gained access to financing simply on the strength of the government’s intentions to intervene in credit markets.” Minerd, who on Friday warned that markets were sending a clear message that negative rates would soon be here, said he thought yields on 10-year Treasury notes could fall to -50 basis points in the intermediate term.

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BlackRock and Pimco Take Lead Role in Managing Federal Reserve’s Coronavirus Stimulus

Brief: The Federal Reserve’s giant programme of corporate bond buying is about to kick in. It will hand a critical new role in propping the struggling economy to a business with increasing clout in the financial world: money management. The central bank has tapped BlackRock to help it direct money into both new and already issued corporate bonds, assisting the Fed in its recently adopted role as lender of last resort for businesses. The Fed is expected to launch the programme in coming days. The Fed also has given Pacific Investment Management Co., or Pimco, the job of helping it purchase commercial paper, or companies’ short-term borrowings. That programme is already up and running. The two firms could eventually invest hundreds of billions of central bank dollars.

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Future Air Travel: Four-Hour Process, Self Check-In, Disinfection, Immunity Passes

Brief: Once airports and borders open again and people are able to fly freely — a process already in play as airports of all sizes around the world ready strategies to ensure healthy air travel — how much are you ready to change your flying habits?  As much as was required after 9/11? Less? More? Considering some of the changes already happening and the many more recommended before airports can reopen safely to commercial routes, experts are referring to the coronavirus pandemic as ‘the new terrorism,’ triggering the biggest crisis the airline industry has ever faced. Let’s start with the entire process of checking in for flights, which some calculate that it could take up to four hours and involving social distancing, sanitation of passengers and luggage, wider spaces for various lines and waiting to board. Nine out of 10 experts expect slower turnarounds between flights due to the need of thorough cleaning of cabins and following of sanitary measures at airports.

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Carlyle, GIC Back Away from AmEx Global Business Travel Deal

Brief: Private-equity firm Carlyle Group Inc. and Singapore sovereign-wealth fund GIC Pte. Ltd. are backing away from a deal to take a 20% stake in American Express Global Business Travel, whose revenue has plummeted as a result of the coronavirus pandemic, according to people familiar with the matter.The deal, announced in December, values the company at $5 billion including debt. It was scheduled to close Thursday but representatives for Carlyle and GIC informed AmEx Global Business Travel on Wednesday they wouldn't participate in the closing, the people said. AmEx Global Business Travel, which is 50%-owned by American Express Co., offers airfare and hotel-booking services mostly to large and midsize businesses. In 2014 the credit-card giant sold the other half to a group led by investment firm Certares. Carlyle and GIC, along with a group of others, agreed to purchase a portion of that stake last year.An entity acting on behalf of the sellers filed a motion this past week in Delaware Chancery Court against Carlyle and GIC, calling for it to compel the duo to proceed with the purchase.

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Michael Hintze’s CQS is Experiencing a Nightmare

Brief: CQS is facing its worst crisis since Michael Hintze founded the London-based credit-driven multistrategy firm in 1999. At least three of its funds are among the worst-performing hedge funds this year after posting massive losses in March alone, when the global financial markets were in free fall. Other funds have posted smaller declines. These huge losses have raised questions about the future direction of the firm, which was managing $20 billion at the beginning of the year. In March alone, the CQS Directional Opportunities Fund, which Hintze manages himself, lost more than 33 percent, according to a document from investment bank HSBC that tracks hedge fund returns. As a result, it was down 35 percent for the quarter. 

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Friday May 8, 2020:

  • The United States Department of Labor confirmed what many already feared: April 2020 was by far the most sudden and largest decline of jobs since the government began tracking data in 1939. The American economy lost 20.5 million jobs last month, and the unemployment rate soared to 14.7%. The last time unemployment numbers were that high was during the Great Depression when it peaked at 24.9% in 1933.

  • North of the border in Canada, the numbers were not much better. Statistics Canada noted two million jobs were lost in April, causing the unemployment rate to spike to 13%, compared to 7.8% in March. Since comparable data started being recorded in 1976, the April unemployment rate was the second highest on record. December 1982 remains the highest at 13.1%. The province of Quebec has the highest unemployment rate among all provinces at 17%, and unfortunately it won’t get much better for the time being. This is due to Montreal’s planned reopening being pushed back for the second time. Elementary schools, daycares and retail stores that have entrances to outside streets will have to wait until May 25th to possibly reopen.

  • As United Kingdom citizens eagerly await to see what Prime Minister Boris Johnson’s Sunday news conference has in store for the country, government officials seem to be making sure people temper their expectations. The country’s environment and culture secretaries warned there will be no dramatic overnight change to its lockdown restrictions once next week rolls around. The UK is closing in on 212,000 cases and has 31,000+ deaths due to the coronavirus.

  • The mayor of Milan, Italy made an angry television appearance on Friday threatening to pass measures of shutting down the city once again. Mayor Giuseppe Sala called television footage “disgraceful” as it showed crowds of people gathering in open spaces of the city and apparently ignoring public health rules aimed at preventing a second wave of the virus. Italy only loosened some of Europe’s toughest restrictions on Monday May 4th. “Either things change today, or tomorrow I’ll be here in Palazzo Marino and I’ll pass measure to close the Navigli, I’ll stop takeaway services and then you can explain to the people who work in bars why the mayor isn’t allowing them to do business,” said Sala.

  • As promised, Australia’s Prime Minister Scott Morrison unveiled his government’s plan to emerge from the coronavirus pandemic. Prime Minister Morrison announced a three-step plan to reopen the country’s economy by July. The first stage includes family and friends allowed to visit each other while restaurants, stores and cafes can reopen. The second stage will allow larger gatherings of up to 20 people, while organized community sporting events and beauty parlors can resume operations. The final stage will allow gatherings of 100 people and interstate travel will be permitted to resume.

Covid-19 – Due Diligence And Asset Management

Credit Funds in India see Big Outflows on Franklin Mutual Stock

Brief: Indian credit risk funds suffered large redemptions in April after Franklin Templeton’s shock decision to wind up $4.1 billion of such plans triggered fresh turbulence in the nation’s debt market. The category saw a net withdrawals of 192 billion rupees ($2.5 billion) last month, up from outflows of 55.7 billion rupees in March, according to data released Friday by the Association of Mutual Funds in India. “The Franklin event intensified redemptions in credit funds that we saw in March,” said Vidya Bala, head of research and co-founder at Chennai-based Primeinvestor.in. “There’s a clear flight to safety as flows to gilt funds have jumped and a good chunk would have moved to deposits.” Equity funds received a net 62.1 billion rupees, the smallest inflow this year, as the world’s most expansive lockdown to curb the spread of coronavirus infections stalled economic activity and disrupted processes at mutual funds and their distributors.

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Macquarie Group Ready to Invest, Despite Crisis

Brief: Macquarie Group chief executive Shemara Wikramanayake has signalled the bank could pounce on assets that come up for sale in the pandemic crisis, after slashing dividends and warning of a highly uncertain outlook. As the banking group on Friday delivered an 8 per cent slide in profit to $2.7 billion, it also highlighted a strong balance sheet and $20 billion in "dry powder" for investment by its infrastructure-focused managed funds. Markets cheered the result, with Macquarie shares gaining 5.7 per cent to $105.19 amid predictions the bank would emerge from the crisis in relatively good shape, despite taking a short-term hit. The company known as the "Millionaires' Factory" on Friday also released its remuneration report for the financial year, which showed Ms Wikramanayake was awarded $18.1 million for the year, her first full 12 months as CEO, up from $17 million last year. She was not the highest paid senior executive at Macquarie, with head of Macquarie Asset Management Martin Stanley awarded $18.9 million for the year after a surge in profit in his division.

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A Swedish Real Estate Mogul Has His Bond Investors Very Worried

Brief: Bondholders in one of Sweden’s biggest property firms say they fear their investment might soon be labeled junk after learning of a criminal probe with wide-reaching ramifications. The company in question is Samhallsbyggnadsbolaget i Norden AB, also known as SBB. Its chief executive, Ilija Batljan, was this week detained by police for questioning amid reports of insider trading tied to a recent acquisition. The news sent SBB’s share price and bonds plunging. The episode has struck a nerve in a market already shaken by panic selling. Back in March, 35 credit funds slammed shut to halt a client exodus as the bond market tanked. Real estate bonds played a big role in the rout, and the financial watchdog has since signaled concern over the sector’s dominance in credit markets, following its conspicuous growth.

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Brookfield to Create $5 Billion Retail Revitalization Program

Brief: Brookfield Asset Management Inc. (“Brookfield”) (TSX: BAM.A, NYSE: BAM) today announced the launch of a Retail Revitalization Program (“the Program”) to bring much needed capital and assist with the recapitalization of retail businesses with operations in the major markets in which Brookfield operates globally. The Program, which will be funded by Brookfield and its institutional partners, will focus on non-control investments in retail businesses to assist with their capital needs during this period of dislocation. Brookfield is targeting $5 billion to be put toward this Program. This Program will be led by Ron Bloom, Managing Partner and Vice Chairman of Brookfield’s Private Equity Group, who was a principal architect of the restructuring and rejuvenation of the automobile industry on behalf of the U.S. government during the 2008 financial crisis. “This initiative is being designed to assist medium sized enterprises in getting back on their feet. We believe this is a critical component to getting the economy moving again, and we would like to partner with companies and entrepreneurs that can draw on our capital and expertise to stabilize and grow their business,” stated Bloom.

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The Pandemic is Transforming the Wealth Management Industry, UBS says

Brief: The Covid-19 pandemic has sparked dramatic changes to the wealth management industry, making clients more cautious, more digitally savvy and more interested in sustainable investments, according to a UBS Group AG executive in Hong Kong. “The whole pandemic has transformed the business and also the way we operate,” said Amy Lo, co-head of Asia Pacific wealth for the Swiss bank. “The world has become more digital, less global and more local.” Lo says clients across the region have become more cautious, concerned about preserving their wealth and re-balancing portfolios as the global economy heads into its steepest contraction since the Great Depression. “Diversify and navigate volatility,” is the goal for many clients, said Lo, whose firm manages more than $400 billion in the region. UBS’s investments in its digital platform are paying dividends amid the pandemic, allowing clients to interact with the bank through online conferences, chats, and trading, she said.

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Amundi Lifts Pandemic Hiring Freeze

Brief: Amundi, Europe's largest listed asset manager, has lifted a hiring freeze it imposed shortly after the onset of the coronavirus pandemic, making it one of the first major investment firms to ease recruitment related restrictions. A spokesperson for the Paris-headquartered asset manager, which put a hold on making new hires globally at the end of March, toldFinancial Newsit has "resumed recruitment on a case-by-case basis". Amundi, which employs around 4,500 people and manages €1.5tn globally, previously told FNthat the onset of the Covid-19 outbreak and subsequent government containment measures put in place hadprompted it to pause new hires. The lifting of Amundi's hiring freeze comes as predictions point to an uncertain future for those working in the financial services sector. According torecent figures from recruitment firm Morgan McKinley, jobs available in the City have dropped by 51% since March 2019 – a drop which has coincided with the onset of the Covid-19 pandemic.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Thursday May 7, 2020:

  • The coronavirus pandemic has made two months ago feel like two years ago. Nowhere is this more evident than the unemployment numbers in the United States. In the beginning of March, the country was experiencing its lowest unemployment rate in 50 years. Fast forward to Thursday where another 3.2 million Americans filed for insurance benefits. One in five Americans have now tried to claim unemployment benefits since mid-March. CNN is reporting the Trump Administration will not implement the Centers for Disease Control and Prevention (CDC) guidelines for reopening the country after asking for it. A senior CDC and administration official were sourced in the report, noting a 17-page recommendation from the CDC went to White House task force officials who found it “overly prescriptive” and that their guidance was too much ‘one size fits all’.

  • During a Thursday news briefing, Canadian Prime Minister Justin Trudeau announced a $4 billion plan to boost pay for essential workers. The final details of the plan are still being worked out with the provinces who will be responsible for deciding which workers are eligible. British Columbia’s Premier John Horgan revealed his province’s plan on its next phase in reopening the province, which could include healthy people able to hold small gatherings once the Victoria Day long weekend rolls around in two weeks. A range of businesses including non-urgent health care, stores, libraries, parks, salons and restaurants could also resume by the middle of May, assuming they can meet public health guidelines.

  • The Bank of England has forecasted the coronavirus will push United Kingdom’s economy into its deepest recession in 300 years. The country’s output has plunged 30% in the first half of the year, but the central bank has no plans to launch a new stimulus package.

  • France plans to start easing its two-month lockdown as of Monday May 11th. Edouard Phillipe, the country’s Prime Minister noted some special restrictions will remain in place for the Paris region as the number of COVID-19 cases remain high and is densely populated. Social distancing guidelines will be enforced on public transport as 400,000 businesses plan to reopen in the country, while secondary schools and parks in the capital will remain closed. France has had 25,000 deaths due to the coronavirus pandemic.

  • Russia’s coronavirus cases have overtaken France and Germany to become the fifth most in the world with close to 180,000. Despite this, President Vladimir Putin has backed a plan by Moscow Mayor Sergei Sobyanin to gradually begin lifting restrictions after May 12th, which would allow certain industrial facilities to begin working. Those taking public transport would be required to wear a mask and gloves.

  • The World Health Organization (WHO) is considering a new mission to China to seek the source of the coronavirus pandemic. A WHO epidemiologist said without knowing where the animal origin is, it’s hard to prevent an outbreak like this from happening again. During a Thursday news briefing, a Chinese foreign ministry spokeswoman didn’t directly answer if the country would allow WHO officials in for their fact-finding mission.

Covid-19 – Due Diligence And Asset Management

Hedge Funds Post Best Month in Six Years, Led by Equities

Brief: Hedge funds rose 4.2% in April, the most in data going back to January 2014, as U.S. stocks rebounded to their best return in more than 30 years. Equity managers led the gains, posting a 6.5% advance in the month, according to preliminary figures from the Bloomberg Hedge Fund Indices. So far this year, hedge funds are down 6.7%. That still has outpaced the S&P 500 Index, which sunk about 9% for the first four months of the year, including reinvested dividends, as the coronavirus outbreak and measures to contain it rocked global markets. But equities were less volatile in April, with the S&P 500 jumping almost 13% -- its best month since 1987.

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Neiman Goes Bankrupt, Idled by Virus and Crushed by Debt

Brief: Neiman Marcus Group Inc. filed for bankruptcy after efforts to manage its crushing debt load unraveled amid the spreading coronavirus pandemic. Creditors will take control of the luxury department store chain, according to plans outlined in a Chapter 11 petition filed in Houston. The move gives the Dallas-based chain a break by letting it stay in business while management works out a recovery plan. The company, led by Chief Executive Officer Geoffroy van Raemdonck, said it has support from a substantial majority of its creditors, who agreed to put up $675 million to get Neiman Marcus through the court process. They’ll also provide $750 million in exit financing. When the company emerges from bankruptcy in early autumn, management expects to see about $4 billion cut from its existing debt load -- the legacy of a 2013 leveraged buyout by current owners Ares Management Corp. and the Canada Pension Plan Investment Board. Neiman listed debt obligations of about $5.5 billion in its filing.

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Paul Tudor Jones Reportedly Buys Bitcoin as an Inflation Hedge, Compares Crypto to 70s Gold Trade

Brief: Legendary trader Paul Tudor Jones is reportedly buying bitcoin as an inflation hedge as central banks around the globe print money to relieve coronavirus-battered economies.Jones, one of Wall Street’s most-successful and seasoned hedge fund managers, revealed in a message that one of his funds holds a low single-digit percentage infutures on the cryptocurrency, Bloomberg Newsreported. He compared it to the gold trade in the 1970s, according to the report. Bitcoin futures trading on the CME jumped 5% on Thursday. Jones, founder and chief executive at Tudor Investment Corp., told CNBC in March thathe thought the stock market could be higher by Juneif coronavirus cases began to peak. The investor said at the time that he expected stocks to endure a choppy April but that, ultimately, equities would again climb.

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JPMorgan Mulls Shrinking Office due to Coronavirus Crisis

Brief: JPMorgan could join the ranks of big investment banks shrinking their office space as its investment banking boss predicts a portion of its staff may continue to work from home after the coronavirus crisis. Daniel Pinto, who runs JPMorgan's corporate and investment bank, told Citigroup analysts that he could "envision a scenario" where employees continue to work from home on a rotational basis, according to a note seen by Financial News, as the coronavirus looks set to permanently impact how large financial services organisations work. Pinto suggested that such a move would fall in line with the bank's sustainability targets "as well as reducing square footage" of its office space. He cautioned that the bank would need new methods of measuring employees productivity in such a scenario. Around 90% of JPMorgan's corporate and investment bank employees are currently working from home - compared to a firmwide figure of 75% - and the experience could change the way the bank does business, the note said.

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Home Working Conduct During Lockdown is now a Concern for Financial Services, says KPMG Vice Chair

Brief: Conduct issues created by home working with a flatmate who works for a competitor firm has become such a worry for financial services firms that employees' living conditions could be scrutinised in the future,  according to KPMG’s vice chair for financial services Kay Swinburne. Swinburne made the comments about conduct issues emerging as a result of homeworking during the coronavirus lockdown, at the City Week Covid-19 Operational resilience for financial institutions webinar series on May 5. “We’re also finding some very strange ones where you suddenly realise there are people sharing houses in a way that normally wouldn’t cause difficulty,” Swinburne said. “If you have several young investment bankers sharing a house in Chelsea it’s a problem when they’re trading portfolios they shouldn’t have knowledge of.”

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Coronavirus: Goldman Sachs in Talks to Buy Invesco Holdings

Brief: Goldman Sachs is in talks to buy a big portfolio of company stakes being sold by the asset manager Invesco in a race to shift illiquid holdings whose value has been hit by the coronavirus pandemic. Sky News can reveal that a unit of Goldman Sachs Asset Management (GSAM) is closing in on a deal to acquire the positions, which include a holding in Oxford Nanopore, a gene sequencing specialist. City sources said that an agreement to buy the private company stakes, which are nominally valued at hundreds of millions of pounds, could be finalised within weeks. One added that a team within GSAM which manages private equity portfolios was leading the transaction at the Wall Street giant.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Wednesday May 6, 2020:

  • United Kingdom Prime Minister Boris Johnson announced Wednesday the initial plans to ease the country out of its lockdown will start this coming Monday. The prime minister will make a televised address on Sunday with more details on what the first steps will look like. Johnson also announced his government’s new goal to conduct 200,000 tests a day by the end of May after meeting its goal of 100,000 tests at the end of last month.

  • In the United States, the government coronavirus task force went from being phased out by the end of the month, to being continued “indefinitely” in the span of a 24-hour period. The confusion began on Tuesday when Vice President Mike Pence said they were phasing out the health-focused panel in favour of a group focused on reopening the economy. President Donald Trump then noted on Wednesday the task force would instead adopt a new focus on vaccines and is considering naming a person who will lead the way on treatment and vaccine efforts. CNN is reporting by this weekend, 43 states will be in some form of reopening.

  • In Canada, British Columbia Premier John Horgan will be the latest province to outline their plans of what a new normal will look like as they ease some of their restrictions. The country has 62,000+ coronavirus cases, with 4,100+ deaths. British Columbia accounts for 2,232 of the known cases, along with 121 deaths.

  • A Financial Times article is reporting German Chancellor Angela Merkel is having some issues having leaders of its 16 federal states moving in lockstep as they try to determine their next move. Merkel had a conference with its country’s regional leaders on Wednesday aimed at having a coordinated exit from the lockdown.  An “emergency brake” was created, allowing restrictions to be reintroduced if the pandemic flares up again. However, some regional leaders have already decided to go it alone, opening restaurants and hotels this month without waiting instruction from Berlin.

  • Spain’s parliament voted in favour of a two-week lockdown extension. The vote continues giving the government sweeping powers to rule by decree and set limitations on citizens mobility throughout the country if they choose to do so. This is the fourth two-week extension parliament has allowed. The country has started easing its lockdown restrictions and Prime Minister Pedro Sanchez argued the state of alert is a tool to be used right now as a shield against the pandemic.

Covid-19 – Due Diligence And Asset Management

BlackRock’s Fink Delivers Grim Outlook With Tax Hikes for Corporate America

Brief: BlackRock Inc. Chief Executive Officer Larry Fink had a stark message for a private audience: As bad as things have been for corporate America in recent weeks, they’re likely to get worse. Mass bankruptcies, empty planes, cautious consumers and an increase in the corporate tax rate to as high as 29% were part of a vision Fink sketched out on a call this week. The message from the leader of the world’s biggest asset manager contrasts with the ebullient tones of a stock market that has snapped back from recent lows. Even among Wall Street luminaries, Fink speaks with particular clout. He has been advising President Donald Trump on how to navigate the effects of the coronavirus pandemic. And BlackRock is playing a key role in the Federal Reserve’s efforts to stabilize markets, helping the central bank buy billions of dollars in assets.

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Bank Bosses Urge Regulatory Pass Through the Covid-19 Crisis

Brief: City grandee Lord Blackwell has called for leniency from the UK's regulators as financial services workers navigate the "great pressure" of the Covid-19 crisis. Lord Blackwell, the chairman of Lloyds Banking Group, said staff at the UK lender "are having to make many decisions under great pressure every day": "My... ask of regulators is to recognise that, under this pressure, some of our colleagues, while trying their hardest, may not get every detail of the compliance requirements right and to be tolerant of some errors so long as bank staff are genuinely trying to do the right thing," he said, during a session of the City Week Covid-19 Webinar series on May 6. His comments come as UK banks facecalls to speed up lending to businessesunder the UK government's various coronavirus business interruption schemes, introduced to help companies weather the coronavirus crisis.

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Volatility Clobbered These Hedge Funds – and More Shocks Mean Some May go Under

Brief: The wild swings in market volatility has been a blessing for many hedge funds this year. But for others, it's been a curse. The Cboe Volatility index, the fear tracker known as the Vix, has more than halved in the six weeks since it hit an all-time high on 16 March. Long-volatility funds have reaped big rewards — the Cboe Eurekahedge Long Volatility Hedge Fund Index returned about 40% in the first three months of 2020. Yet systematic volatility-focused hedge funds, which theoretically should be profiting at times like these, have instead endured performance meltdowns. In March, 9 out of the 38 volatility and options funds ranked in Société Générale’s Nelson Report, published last week, posted declines. Losers include Chicago-based hedge fund Wolverine Asset Management. Named after the fictional co-leader of the X-Men superhero team in Marvel Comics, Wolverine has lately more resembled Dr. Doom. The firm's volatility-focused Wolverine Intrinsic Fund was down 13.7% in March and 12% in the first quarter, according to the Nelson Report.

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Natixis Joins French Equities with $140 Million Hit

Brief: Natixis SA joined its French peers in taking a hit from equities trading as market turmoil and dividend cancellations following the outbreak of the coronavirus forced it to mark down assets. Equities trading revenue was more than erased by a 130 million-euro ($140 million) writedown when companies started to pull their dividends, contributing to a 204 million-euro net loss for the first quarter. Income from debt trading rose 46%, the bank said late Wednesday, beating peers BNP Paribas SA and Société Générale SA as well as the Wall Street average. The quarter ends a brief respite for Chief Executive Officer Francois Riahi, who had been trying to draw a line under a series of missteps since taking over in June 2018, including trading losses on Korean securities, a liquidity scare at its H2O Asset Management subsidiary and oversight problems. The bank put aside 193 million euros for credit losses, mainly to account for loans to oil and gas companies.

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Fiera Capital Limits Redemptions on $1.1 Billion Credit Fund

Brief: One of Canada’s biggest money managers is freezing redemptions in a large debt fund and warning that some borrowers may miss interest payments. Fiera Capital Corp. has called investors to inform them it has gated its Diversified Lending Fund, which has about C$1.5 billion ($1.1 billion) under management, according to people familiar with the situation. The fund is managed by chief investment officer Francois Bourdon and two others. The fund invests in the residential and commercial construction sector through limited partnerships (LPs) with various partners that specialize in lending solutions. The fund also puts money into partnerships that offer private loans to companies and other types of loans.

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Citadel Waiving Redemption Fees for Fund Clients Seeking Cash

Brief: Ken Griffin’s Citadel will allow investors to pull a total of $1 billion from its main hedge funds without incurring fees or penalties, a sign that clients are grappling with the economic fallout from the coronavirus pandemic. The move, an exception from the firm’s usual practice, is aimed at providing relief to those invested in Citadel’s flagship Wellington and Kensington funds, according to an investor letter seen by Bloomberg. Such clients are primarily institutions like pension funds. Citadel manages about $30 billion. “In the wake of the unprecedented conditions created by the Covid-19 pandemic, we recognize that our investors may have different capital needs, both in size and timing, than originally anticipated at the beginning of the year,” according to the Citadel letter dated Monday. “In response to these potential demands, we are offering $1 billion of additional liquidity to investors in our multi-strategy funds on June 30, 2020 without being subject to any redemption fees or other restrictions.”

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

Our briefing for Tuesday May 5, 2020:

  • In the United States, it’s a case of good news and bad news. First, the good news. The country saw its daily death toll stay around 1,000, the first time they have been around that number in a month as New York state, the country’s epicentre for the virus, has seen a decline in their numbers. Now the bad news: with many states easing restrictions, including California this Friday, multiple media reports are citing an influential coronavirus model that is predicting as many as 3,000 deaths a day in America by June 1st. California is the country’s largest state with close to 40 million people.

  • In Canada, Quebec Premier Francois Legault has pushed back its government’s plan to reopen its largest city from May 11th to May 18th. Stores in Montreal with entrances to outside streets were going to be permitted to open on May 11th, but the city’s public health director has not seen a flattening of the curve yet. The island city had 350+ new cases and 45 deaths a couple of days ago. In total, Montreal has seen over 16,000 confirmed cases and over 1,400 deaths, most of those deaths are seniors in long-term care homes.

  • The United Kingdom now have the grim distinction of having the most deaths due to COVID-19 in Europe, surpassing Italy. Government figures have coronavirus related deaths in the UK at 29,427 while Italy’s latest official figure is 29,316. Secretary of State Dominic Raab tried to downplay the latest numbers saying, “I don’t think you can make the international comparisons you are making at this stage – at least, I don’t think you can make them reliably.”

  • Doctors at a Paris hospital are saying they’ve found evidence of a patient being admitted in December who was infected with COVID-19. The patient was first diagnosed with pneumonia on December 27th when they actually had coronavirus, which was discovered after a recent retest of the swab taken at the time. The first official reports of the coronavirus in France were reported on January 24th, 2020 from two people who had a history of travel to Wuhan, China.

  • Similar news is circulating in Sweden with their chief epidemiologist telling local media they could have had their first case in November or December. The country’s first official case wasn’t noted until January with a woman returning from a trip to Wuhan.

  • The Philippines telecommunications body has ordered the country’s leading broadcaster, ABS-CBN Corp. to cease operations on Tuesday. President Rodrigo Duterte has repeatedly threatened to block the renewal of the station’s license after the broadcaster refused to air his campaign commercials during the 2016 presidential election. Government opposition lawmakers have noted the decision Is poorly timed with the country in the midst of a pandemic and the media playing an important role to inform the public.

  • Australian and New Zealand government officials are in meetings to establish a COVID-safe travel zone between the two countries, which would allow residents to travel freely between the two nations without a need to quarantine. Australian Prime Minister Scott Morrison invited New Zealand Prime Minster Jacinda Ardern to join a national cabinet meeting. This marked the first time a New Zealand head of state had attended an Australian national cabinet meeting, or similar gathering since World War II. Both countries are in fairly good shape in regards to the coronavirus. New Zealand hadn’t reported any new cases in the past two days, while Australia recorded only 14 news cases between Sunday and Monday.

Covid-19 – Due Diligence And Asset Management

Goldman Sachs CEO: Return to Work Will be Gradual

Brief: Goldman Sachs Group Inc is working on a strategy to gradually return staff to working in offices worldwide, the bank’s chief executive told staff on Tuesday in an internal memo viewed by Reuters. Goldman Sachs staff in Hong Kong, mainland China, Sweden and Israel have already started returning to work in phases, according to the memo, which was verified by a Goldman spokeswoman. “However, in certain cities, such as New York and London, it will take longer before we start to slowly increase the number of people in our offices,” stated the memo, which was signed by Chief Executive Officer David Solomon, President John Waldron and Chief Financial Officer Stephen Scherr. 

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Virus Lockdown Takes Toll on Frazzled Compliance Teams

Brief: The thought of a single banker spilling company secrets on a personal phone is a compliance worker’s worst nightmare. The Covid-19 lockdown and the sudden surge in makeshift home-working setups has multiplied those fears by hundreds of thousands. The coronavirus outbreak is taking its toll on the City’s compliance workers tasked with tracking the behaviour of employees scattered throughout the UK. The crisis has placed huge pressure on already stretched financial services compliance teams to get the right systems and controls in place. And it’s reigniting old tensions with bankers in the front line. Financial News spoke with several senior compliance officers and traders. All asked to remain anonymous to avoid a backlash from their colleagues or regulators.

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Victoria’s Secret Partnership with Sycamore Partners Implodes after Coronavirus

Brief: Sycamore Partners was all set to acquire a majority stake in Victoria's Secret. For the lingerie brand's parent company L Brands, it was all part of the plan to spin off one of its most recognizable properties.But now, after a global pandemic and a lawsuit filing, the deal with Sycamore has officially fallen apart, according to a statement retail holding company L Brands sent out Monday In a statement sent to Business Insider, L Brands announced that it had come to a "mutual agreement" with Sycamore to "terminate" the company's previously agreed-upon sale of Victoria's Secret. Private equity firm Sycamore Partners had previously been interested in acquiring a 55% stake in the apparel and lingerie brand for $525 million. The private equity firm valued Victoria's Secret at $1.1 billion in February.

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ESG Has Been a Win for Stocks, Not so Much for Bonds Amid Covid-19

Brief: The market convulsions caused by the coronavirus pandemic and efforts to halt its spread might offer some answers to one of fund managers’ biggest questions: What’s the affect on financial performance of investing in companies that make a positive contribution to society and the environment? Allianz Global Investors, which oversees about $615 billion for clients, offered some insights with an analysis of how its sustainable and responsible investment mutual funds performed. The asset manager reviewed the “downturn resilience” of its funds and found that the vast majority of its sustainable strategies outperformed broad market benchmarks in the first quarter. In the past decade, fund managers who consider environmental, social and governance issues alongside regular financial metrics have gone from outliers to the mainstream with more than $30 trillion of assets now managed using a broad definition of the ESG approach.

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Hong Kong’s Exchange Fund Sees Record $11 Billion Quarterly Loss

Brief: Hong Kong’s wealth fund suffered a HK$86.1 billion ($11 billion) loss in the first quarter, its biggest ever, as stocks tumbled globally. The Exchange Fund, managed in its current form by the Hong Kong Monetary Authority since 1998, lost HK$111.5 billion on its portfolio of domestic and foreign stocks, while bonds gained HK$54.4 billion in the quarter, according to a presentation by HKMA Deputy Chief Executive Howard Lee to lawmakers Monday. The HK$4 trillion fund acts as a backstop to ensure the stability of Hong Kong’s currency and as a stabilizer in times of crisis. It joins other funds around the world in posting losses at the start of the year as markets tumbled due to the coronavirus outbreak. The MSCI global stock index slumped 22% in the first three months of the year. The fund clawed back some losses in April, seeing gains of about HK$30 billion to HK$40 billion, according to Lee.

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Ultra-Rich Families With Cash on Hand Pile Into Private Debt

Brief: Michel Andre Heller is looking to lend when credit is tight. The London-based real estate adviser to a billionaire family from the Middle East is lining up deals of as much as 5 million pounds ($6.2 million) for U.K. residential developments and more than double that amount alongside other investors for bigger properties, such as hotels or offices. The private debt market “is more than trickling along for us,” Heller said. “From a family office perspective, you don’t want to take on too much risk, but you still want to deploy capital.” As the coronavirus upends financial markets, family offices with money to spend are boosting private debt and credit holdings to take advantage of cheaper valuations and avoid the volatility of stock markets. Meanwhile, central banks are keeping economies afloat with cheap-money policies and negative yields, making assets that used to preserve and grow family fortunes less effective.

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Contact Castle Hall to discuss due diligence

Castle Hall has a range of due diligence solutions to support asset owners and managers as our industry collectively faces unheralded challenges. This is not a time for "gotcha" due diligence - rather this is a time where investors and asset managers can and should work together to share best practices and protect assets. Please contact us if you'd like to discuss any aspect of how Covid-19 may impact your business.

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