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Covid-19 Diligence Briefing

Our briefing for Friday April 9, 2021:

  • In the United States, Bloomberg is reporting the country is sitting on a stockpile of more than 20 million AstraZeneca COVID-19 doses even as the inoculation looks increasingly less likely to factor into President Joe Biden’s domestic vaccination campaign. AstraZeneca has yet to request FDA approval for its vaccine and has already been questioned by American regulators for mistakes made during clinical trials and partial data releases. American health officials believe the FDA authorization of the AstraZeneca vaccine would be seen as “really important” due to all the questions surrounding it. However, most health officials are in agreement; the United States doesn’t need the stockpile of AstraZeneca doses and should start donating it to allies and poorer countries that could actually use it.
  • In Canada, Ontario reported 4,227 new cases of COVID-19 on Friday – the second most recorded in a single-day during the pandemic. The country’s most populous province recorded 4,249 new infections on January 8th, but 450 of those were attributed to a data delay. There are currently 552 patients being treated for COVID-19 related sickness in Ontario hospitals – the most since the pandemic began. Due to the record-breaking number, CBC reported Thursday evening that Ontario Health has ordered hospitals in much of the province to stop performing all but emergency and life-saving surgeries because of the growing case load of COVID-19 patients.
  • In the United Kingdom, economists are predicting a roaring start next week when the country’s battered hospitality and retail sectors reopen on April 12th. A chief economist at a London brokerage said extra spending from diners, drinkers and shoppers could be worth half a billion pounds in the first week alone. Over the course of the second quarter, the UK’s economy is expected to grow by around £6 billion as lockdowns are lifted under the government’s roadmap.
  • German Chancellor Angela Merkel plans on taking control back from state leaders and will look to impose restrictions on regions with high numbers of new infections. The news comes as the head of Germany’s disease control agency has called on the country to enter into a two-to-four-week lockdown to prevent hospitals from being overwhelmed. “Germany is in the middle of a third-wave, so the federal government and the states have agreed to add to the national legislation,” a spokesperson for Chancellor Merkel told reporters on Friday. The change to Germany’s COVID-19 pandemic law will likely be put before cabinet on Tuesday.
  • The Japanese government will reimpose restrictions in Tokyo, Kyoto and Okinawa as coronavirus cases rise in those three regions. Prime Minister Yoshihide Suga announced the decision on Friday and the measures will run from April 12th until May 11th in Tokyo and until May 5th in Kyoto and Okinawa. Similar restrictions are already in place in Osaka, Hyogo and Miyagi. Japan’s capital city Tokyo had only been out of their previous restrictions for three weeks. Under the new measures, bars and restaurants are being instructed to close by 8 PM and those that fail to do so, will face fines.
  • In Brazil, a congressional investigation of the federal government’s role in the country’s disastrous pandemic response has been given the green light. Not surprisingly, President Jair Bolsonaro was fuming at the move, blaming “leftist” senators and saying the investigation should instead focus on alleged misuse of federal funds to fight the pandemic by state governors and mayors. President Bolsonaro has been constantly at odds with governors and mayors throughout the pandemic who have imposed restrictions on commerce and public gatherings. Brazil set another record on Thursday with 4,429 Brazilians succumbing to the coronavirus.

Covid-19 – Due Diligence And Asset Management

Guardians of World Economy See Long Recovery Road

Brief : The guardians of the global economy this week implored governments to act to avoid a two-speed rebound where vaccinated, rich nations recover more strongly from the pandemic than poorer countries languishing under the burden of disease and debt. The International Monetary Fund said that it sees the U.S., as well as China, as the locomotive for global economic growth. The world’s largest economy, fueled by trillions of dollars in stimulus spending, is expected next year to surpass its pre-pandemic projected level of output. But many emerging and developing economies, struggling with slow growth and mountains of debt, will take much longer. The central theme of the IMF’s virtual spring meetings with the World Bank was “giving everyone a fair shot” -- a slogan that underlined both concerns about inequality and the importance of speeding up the distribution of vaccines globally.

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Hedge Funds Enjoy Biggest First-Quarter Gains in 20 Years, as Event Driven and Equity Strategies Fuel Returns

Brief: Hedge funds have made their strongest first-quarter start in more than 20 years, gaining more than 6 per cent in the three-month period to the end of March, with returns powered by a mix of successful calls on deep value equities amid accelerated volatility, renewed economic optimism, and soaring cryptocurrencies. Hedge Fund Research’s main Fund Weighed Composite Index, a global, equal-weighted benchmark of some 1400 single-manager hedge funds, advanced 6.08 per cent in Q1, following a 1.02 per cent gain in March. The March gain proved to be its sixth consecutive monthly rise, with Q1 its best opening quarter since 2000, and the index’s fifth-best opening quarter on record. HFR president Kenneth Heinz said deep value, event-driven equities, coupled with credit strategies – including traditional credit arbitrage exposures – and cryptocurrencies have helped fuel industry gains lately, as performance dispersion between winners and losers continues to narrow. Overall, event driven hedge fund managers led the pack, gaining 1.85 per cent in March to put their first quarter return at 8.21 per cent.

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Rebounding Private Flights Fuel M&A Interest in Corporate Jet Services Providers

Brief: As U.S. business aviation traffic rebounds to pre-pandemic levels, a niche, fragmented industry providing services ranging from hangars to fueling is drawing interest from private equity funds and infrastructure investors. Fixed base operators, or FBOs, play a key role in keeping private jets flying, offering services like hangars and fueling, and some buyers are betting the revival in flights could spill over into allied industries. While business jet orders and deliveries dropped in 2020, private flights, which carry smaller groups and promise wealthy passengers less risk of exposure to the coronavirus, have generally fared better than commercial. That is underpinning investor interest in FBOs. The sector recently made headlines when Gatwick Airport owner Global Infrastructure Partners joined forces with Blackstone and Bill Gates’ investment vehicle to make a $4.73 billion offer for Signature Aviation, the largest private jet services firm. There are other deals brewing too. Macquarie Infrastructure Corp has said it is seeking buyers for Atlantic Aviation, the second-largest FBO network, for a deal by year’s end.

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The World’s Wealthiest Countries are Getting Vaccinated 25 Times Faster

Brief: Enough vaccines have now been administered to fully vaccinate about 5 per cent of the global population — but the distribution has been lopsided. Most vaccines are going to the wealthiest countries.  As of Thursday, 40 per cent of the COVID-19 vaccines administered globally have gone to people in 27 wealthy nations that represent 11 per cent of the global population. Countries making up the least-wealthy 11 per cent have gotten just 1.6 per cent of COVID-19 vaccines administered so far, according to an analysis of data collected by the Bloomberg Vaccine Tracker. In other words, countries with the highest incomes are vaccinating 25 times faster than those with the lowest. Bloomberg’s database of COVID-19 vaccinations has tracked more than 726 million doses administered in 154 countries. As part of our effort to assess vaccine access around the world, the tracker has a new interactive tool measuring countries by wealth, population and access to vaccines. 

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Dealmakers Optimistic Private Credit Markets Will Fully Rebound, says new Survey

Brief: Initially sideswiped by Covid-19 in early 2020, private credit markets began to bounce back by year’s end, leaving dealmakers optimistic that private credit might fully rebound in 2021. According to a new survey of 112 private credit industry professionals conducted in February, 91 per cent of investors and 80 per cent of lenders surveyed expect deal flow to increase this year and are optimistic about several deal categories and sectors. For the 2021 Private Credit Survey Report, Katten surveyed an almost-equal weighting of lenders and private equity investors. Those surveyed represent a variety of sectors (including financial services, information technology, consumer staples, communications, industrials and health care) about their outlook on deal flow, readiness to address the London Inter-Bank Offered Rate (LIBOR) phaseout and other issues critical to the private credit industry.

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How Equity Analysts Filled the Covid-19 ‘Information Void’

Brief: The research output of equity analysts went up dramatically during the Covid-19 pandemic — but the accuracy of their forecasts went down, according to a new study from the University of London’s Cass Business School. Compared to the pre-pandemic months, analyst forecasts for company earnings per share, or EPS, increased by 72 percent in March 2020, indicating that sell-side analysts’ “initial response to pandemic-induced market uncertainty is to increase their provision of information,” according to the study’s author Pawel Bilinski, director of the Centre for Financial Analysis and Reporting Research at Cass. For other forecasts, such as revenue, cash flow, and dividend estimates, Bilinksi uncovered a similar pattern. The number of revenue forecasts increased by 80 percent in March, while cash flow forecasts jumped 59 percent and dividend estimates grew by 11 percent, according to the paper. The study was based on over 400,000 EPS forecasts and revenue, cash flow, and dividend estimates made by sell-side analysts from January 2018 to November 2020. The increase in research activity came as the Covid-19 pandemic sent a series of shock waves rippling through the global economy, creating an uncertain and volatile market environment.

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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 April 8, 2021:

  • In the United States, Treasury Secretary Janet Yellen urged major economies on Thursday to inject significant new fiscal support to secure a robust recovery. Yellen made the statement to the steering committees of the International Monetary Fund and the World Bank, and also made the point that major economies need to continue supporting developing countries as they struggle with the COVID-19 pandemic, climate change and high debt burdens. The United States are trying to lead the way in that regard, pledging $4 billion USD to the COVAX global vaccine distribution initiative and signalling America could provide excess doses of COVID-19 vaccines to other countries in the future.

  • In Canada, Quebec recorded more than 1,600 cases on Thursday – the most since January 23rd. The rise in cases has Premier Francois Legault and his government considering keeping strict restrictions in place in the hardest-hit cities of Quebec City, Levis and Gatineau. For instance, public health officials have linked 419 cases in recent days to an outbreak at a gym. Schools, restaurant dining rooms, gyms, hair salons and other non-essential businesses have been closed in the three cities mentioned since April 1st. Elsewhere in the country, 16 MLAs of the leading Alberta provincial government have signed a letter speaking out against their own party over its decision to adopt more stringent public health restrictions over a surge in COVID-19 cases. On Wednesday, Alberta recorded 1,351 new cases of COVID-19 – the most since December 31st, 2020.

  • The United Kingdom is set to reach herd immunity against COVID-19 within days, according to scientists. The University College London have used real-time modelling to suggest the UK should pass the critical threshold where the proportion of people who have protection against the virus either through vaccination, previous infection or natural immunity will hit 73.4% by Monday, April 12th. Professor Karl Friston of the University College London though has warned against the notion of speeding up the easing of lockdown restrictions in response to reaching herd immunity, noting: “if we let up, that threshold will go up again and we will find ourselves below the threshold, and it will explode again.”

  • France is set to meet its target of 10 million COVID-19 inoculations a week earlier than projected. French Prime Minister Jean Castex made the proclamation during a visit to a vaccination center near Paris. The government’s next goals are to have 20 million doses injected by mid-May and 30 million doses delivered by mid-June. France is in the middle of its third lockdown due to the coronavirus and French Prime Minister Emmanuel Macron noted last week he hopes the country will be able to reopen museums and restaurant terraces by mid-May.

  • Australia, the Philippines, and the African Union are the latest to deal blows to AstraZeneca as all three countries/regions made moves in recent days. Australia have recommended people under the age of 50 should get the Pfizer COVID-19 vaccine in preference to AstraZeneca – a policy shift that government officials have warned would hold up its inoculation campaign. The Philippines have suspended their use of AstraZeneca shots for those under the age of 60 after Europe’s regulator said on Wednesday it found rare cases of blood clots among some adult recipients. The African Union made the most drastic move of all – dropping plans to buy AstraZeneca’s vaccine from India’s Serum Institute and instead will explore options with Johnson & Johnson.

  • The Japanese government was busy doing damage control on Thursday, denying media reports that they were considering prioritizing COVID-19 vaccines for Olympic athletes ahead of the projected Games later this summer. The report was first made by the Kyodo news agency and met with outrage on social media with many noting the original government plans were to give vaccine priority to medical workers, elderly people, and those with chronic conditions. The chief cabinet secretary, Katsunobu Kato said the government has no plans on giving priority to Olympic athletes. Japan’s vaccination drive is far behind most major economies with only one vaccine approved for use and roughly one million people having received a first dose since February.

Covid-19 – Due Diligence And Asset Management

Powell Vows to Restore ‘Great’ Economy, Plays Down Inflation

Brief : Jerome Powell pledged to get the U.S. back to a “great economy” and invoked a homeless encampment in downtown Washington to make the point that the recovery remains incomplete. Playing down the risk that inflation could get out of control as the pandemic recedes, the Federal Reserve chair told a virtual panel Thursday that his commute home takes him past a “substantial tent city,” and that he thought of the millions of Americans who are still trying to get back to work. “So we just need to keep reminding ourselves that even though some parts of the economy are just doing great, there’s a very large group of people who are not,” he said during the International Monetary Fund panel. “I really want to finish the job and get back to a great economy.” Fed officials have repeatedly stressed that the U.S. economy continues to need aggressive monetary policy support as it recovers from the pandemic, even as the outlook brightens amid widening vaccinations

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UK Investors Flood to Equity Funds in March

Brief: UK investors added record levels of capital to equity funds in March as they bet on the post-Covid economic recovery, according to the latest data from funds transaction network Calastone. In total, UK investors committed a net £2.96 billion (€3.42 billion) to equity funds surpassing the previous record seen in the post-crash bounce of April 2020 by over a tenth, the firm said.  UK-focused equity funds saw a net £610 million added to holdings marking a "startling" turnaround for the asset class, while global equity funds took in £1.84 billion. Meanwhile, global ESG equity funds attracted new capital to the tune of £1.15 billion. Edward Glyn, head of global markets at Calastone highlighted that equity fund managers have enjoyed their best ISA (Individual Savings Accounts) season in years. “New capital has flooded in from investors keen to capitalise on the post-Covid economic recovery,” he said.  Active funds took in the lion’s share of investment, attracting over three quarters of overall net inflows (£2.32 billion). It was their best monthly performance since July 2015.

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Pandemic Impact may Weigh on Commercial Real Estate Recovery

Brief: The distribution of COVID-19 vaccines is fueling optimism that Americans will increasingly return to the ways they used to shop, travel and work before the pandemic. That would be a welcome change for companies that own office buildings and hotels, or those that lease space to restaurants, bars, department stores and other retailers. These have been the hardest-hit areas of commercial real estate over the past year as the pandemic forced many businesses to shut down temporarily or operate on a limited basis. But even as the U.S. economy appears set to roar back to life this year, as many economists now predict, demand trends for commercial real estate could take longer to recover as businesses reassess their post-pandemic needs. This means higher vacancy rates and declining rents this year, especially for retail and office property owners, said Thomas LaSalvia, senior economist with Moody’s Analytics.

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Jersey Finance Supports Research Exploring Post-Pandemic Fund Domiciliation Trends

Brief: The rise of sustainable finance, the impact of Brexit, EU regulation and the fallout of the pandemic all have the potential to shape considerations around alternative fund domicile selection, according to new research published this month by IFI Global and supported by Jersey Finance. Based on the views of alternative managers, law firms and advisors from across North America, Europe and Australasia, including some of the world’s largest investors in alternatives, the research for this new report – entitled ‘The Future of International Fund Domiciliation 2021’ – was carried out between October 2020 and February 2021. Building on the first IFI Global report in this series, published in April 2020, which found that investors and managers want stability when it comes to fund domiciliation, this new report explores how investor and manager attitudes have changed in light of some key developments in the investment space landscape over the past twelve months, including ESG acceleration, Brexit and regulation. Overall, the survey found that investors continue to be the key driver behind domiciliation decisions, and they want to allocate to funds that are domiciled in well-known jurisdictions that have a good reputation.

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RBC’s McKay Gives Staff a Day off with Workers More ‘Exhausted’ than Ever

Brief: Royal Bank of Canada is giving employees an extra paid day off this year, and its top executive acknowledged that staff are more burned out now than at any time during the COVID-19 pandemic. Chief Executive Officer Dave McKay said in companywide memo on Thursday that many employees have said they’re exhausted and that the bank needs to “eliminate the stigma associated with asking for time to focus, concentrate, and in some cases, log off and recharge.” Burnout has become a more pressing issue for financial firms as the pandemic moves into its second year and some lines of business, including mergers and acquisitions, see a sustained boom in activity. Last month, Goldman Sachs Group Inc. CEO David Solomon said the firm would improve enforcement of a rule designed to ensure junior bankers don’t have to work on Saturdays. His memo came after junior analysts gave managers a presentation showing that some worked 100 hours in a week. RBC, Canada’s largest lender, is also giving its roughly 86,000 employees worldwide a free, one-year subscription to Headspace, a meditation and sleep app. An annual subscription costs US$69.99, according to Headspace’s website.

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Fund Managers Urged to Diversify Their Talent Pool

Brief: Former Schroders COO Markus Ruetimann has called on fund managers to use the pandemic to assemble a more diversified workforce with greater emphasis on IT specialists and data scientists. Writing in the latest edition of the FundsTech quarterly report, Ruetimann stated that the move to remote working had shown the need for “new, more inclusive hierarchical structures and communication channels”. “Future talent pools will need diversifying. IT pioneers and data scientists are likely to play a bigger role than fund managers and data administrators going forward,” stated Ruetimann, chief executive of advisory practice Hardy London and also chair of Aprexo, a data management provider. However, while the institutional asset management industry has talked about the need to reinvent itself in view of the ever-expanding digital economy, few firms have replaced their legacy systems with new technology or hired talent from outside the industry to cater for a more tech and data-dominated operating environment. 

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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 April 7, 2021:

  • In the United States, the National Institutes of Health has begun a mid-stage study to determine the risk of allergic reactions to COVID-19 vaccines made by Moderna and Pfizer. The study, which will be funded by the National Institute of Allergy and Infectious Diseases, will enroll 3,400 adults between the ages of 18 to 69, with about 60% of those participants having a previous history of severe allergic reactions to either food, insect stings or immunotherapy. The results of the study are expected to be released later in the summer.
  • In Canada, Ontario’s “emergency brake” installed last week has done little to stem the third wave of COVID-19 in the province, so instead, a stay-at-home order will be implemented as of 12:01 Thursday morning. Ontario’s ministry of health recorded 3,215 new cases on Wednesday – the most since January 17th and the seven-day average now at close to 3,000. The stay-at-home order is expected to last as long as four weeks and will close all non-essential stores, with big-box stores only permitted to sell grocery and pharmacy items for in-person shopping. The top public health officers from Ontario’s largest health units – Toronto, Peel and Ottawa urged Premier Doug Ford earlier in the week to impose the order, along with travel restrictions between regions and an emergency mandate for paid sick days. 
  • The United Kingdom’s drug regulator says people under 30 will be offered another product other than the AstraZeneca COVID-19 vaccine due to a rare blood clot risk. The Medicines and Healthcare Products Regulatory Agency said Wednesday the AstraZeneca vaccine continues to outweigh the risks for the vast majority of people. The UK’s decision was announced shortly after the European Union’s drug regulator said it had found a “possible link” between the AstraZeneca coronavirus vaccine and a rare clotting disorder, but the agency didn’t recommend any new restrictions for those taking the vaccine over the age of 18. The Moderna COVID-19 vaccine is expected to gain approval as the third vaccine for use in the UK in the coming days.
  • With Germany struggling to cope with the third wave of the coronavirus pandemic, Reuters is reporting Chancellor Angela Merkel is supportive of a demand for a short, tough lockdown. “Every call for a short, uniform lockdown is right,” deputy government spokeswoman Ulrike Demmer told a group of reporters on Wednesday. Chancellor Merkel has struggled to get all of Germany’s 16 state leaders on the same page with some states imposing night-time curfews over Easter, while others were experimenting with the easing of some restrictions.
  • China might be kept out of the next probe into COVID-19 origins as a group of scientists have called for more rigorous investigations – with or without Beijing’s involvement. An open letter signed by 24 scientists and researchers from Europe, the United States, Australia and Japan said the study conducted by the World Health Organization in January was tainted by politics. The letter states the study’s conclusions were based on unpublished Chinese research, while critical records and biological samples “remain inaccessible”. “Their (WHO) starting point was, let’s have as much compromise as is required to get some minimal cooperation from China,” said Jamie Metzl, one of the members who drafted the letter. 
  • Brazil set another unfortunate record on Tuesday with 4,195 deaths in one day due to the coronavirus. The numbers from Johns Hopkins University show just how dire the situation is in Latin America’s largest country. The month of March was the deadliest for the country since the pandemic began with at least 66,573 recorded deaths. Brazil has accounted for 28% of the world’s COVID-19 death toll since March 21st and only 2.42% of the total population in the country have been fully vaccinated. President Jair Bolsonaro has refused a national lockdown stating: “We will look for alternatives, we will not accept the ‘stay at home’ policy to close everything, to lockdown. The virus will not go away. The virus, like others is here to stay, and will stay for a lifetime. It is practically impossible to eradicate it.”

Covid-19 – Due Diligence And Asset Management

Fink says In-Person Client Meetings are Top Priority Post-Covid

Brief : BlackRock Inc. Chief Executive Officer Larry Fink said the thing he looks forward to most in the post-pandemic world is meeting with clients again, as the U.S. vaccination campaign continues and companies weigh how to unwind remote work setups. In his annual letter to shareholders, Fink said that there is no substitute for in-person meetings. His comments add to earlier remarks that he fears corporate culture can erode over time while working from home. “I miss the personal connections and unexpected ideas that come from meeting face-to-face and sharing a meal together,” Fink said Wednesday in the letter. “It’s often through a less structured conversation than one can have on a video call that we learn most about each other and experience intangibles, like culture, that are hard to see through a screen.” More than a year into the Covid-19 pandemic, global financial firms like BlackRock are deciding how to safely bring employees back to in-person work settings. BlackRock executives last year signaled the office will remain the primary work location for employees in the long term, and full-time remote work permission will be given only selectively.

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JPMorgan CEO Dimon sees U.S. Economic Boom Through 2023

Brief: JPMorgan Chase & Co Chief Executive Officer Jamie Dimon said on Wednesday the United States could be in store for an economic boom through 2023 if more adults get vaccinated and federal spending continues. “I have little doubt that with excess savings, new stimulus savings, huge deficit spending, more QE (quantitative easing), a new potential infrastructure bill, a successful vaccine and euphoria around the end of the pandemic, the U.S. economy will likely boom,” Dimon wrote in his annual letter to shareholders published on the bank’s website. “This boom could easily run into 2023 because all the spending could extend well into 2023.” As head of the biggest U.S. bank, Dimon is widely seen as the face of America’s banking sector, and he used the letter to share his views on the country’s economic health and to press for policies to help address inequality and improve the criminal justice system.

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IMF Proposes Temporary ‘Solidarity’ Tax on Pandemic Winners and the Wealthy

Brief: High earners and companies that prospered in the coronavirus crisis should pay additional tax to show solidarity with those who were hit hardest by the pandemic, according to International Monetary Fund. A temporary tax would help to reduce social inequalities that have been exacerbated by the economic and health crisis of the past year, the fund said in its twice-yearly fiscal monitor on Wednesday. It would also reassure those worst affected that the fight against COVID-19 is a collective endeavour within societies. Vitor Gaspar, IMF’s head of fiscal affairs, told the Financial Times that a symbolic rise in taxation from those who have prospered over the past year would strengthen social cohesion even if there was not a pressing need to repair the public finances. Countries should consider this policy as it would help boost their citizens’ perception “that everybody contributes to the effort necessary for recovery from COVID-19,” he said.

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Seward & Kissel Survey Finds Alternative Investment Allocators Likely to Increase Allocations to Less Liquid Strategies and Embrace New Managers

Brief: While the “fear gauge” that tracks market volatility has remained at elevated levels since the onset of the pandemic, those who allocate alternative investment dollars for large investors are showing no signs of skittishness, according to the Alternative Investment Allocator Survey conducted by leading law firm Seward & Kissel.The survey found that allocators are likely to increase allocations to less liquid strategies and continue to embrace emerging managers in 2021. The full survey is available here. The survey analyses the views of individuals from pension funds, endowments, family offices, seeders, high-net-worth individuals, and others. Asked how their organisations’ allocations across a wide range of alternative investments would change in 2021, on average 42 per cent of participants anticipated their organisations to increase allocations to at least one strategy and 54 per cent said they would maintain their allocations, while just 4 per cent said their allocations would decrease. The strategies for which participants expect to increase allocations to in 2021 were primarily less liquid strategies typically utilised by closed-end funds with private equity, private credit, and venture capital accounting for the top three of the four strategies of interest for increased allocations, followed by equity hedge.

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Biden White House in Talks with Airlines on Vaccine Passports; will Issue Guidance

Brief: The Biden administration is in extended discussions with U.S. airlines and other travel industry groups to provide technical guidance for vaccine passports that could be used to ramp up international air travel safely, industry officials said. The administration has repeatedly made clear it will not require any businesses or Americans to use a digital COVID-19 health credential, however. It will also publish guidelines for the public. The key question, airline and travel industry officials say, is whether the U.S. government will set standards or guidelines to assure foreign governments that data in U.S. traveler digital passports is accurate. There are thousands of different U.S. entities giving COVID-19 vaccines, including drugstores, hospitals and mass vaccination sites. Airline officials say privately that even if the United States does not mandate a COVID-19 digital record, other countries may require it or require all air passengers to be vaccinated.

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ESG Funds Beat out S&P 500 in 1st Year of COVID-19

Brief: In the first 12 months of the COVID-19 pandemic, many large investment funds with environmental, social and governance criteria outperformed the broader market. One fund went from being among the poorest performers to the top of the list following tweaks to its portfolio. S&P Global Market Intelligence analyzed 26 ESG exchange-traded funds and mutual funds with more than $250 million in assets under management. We found that from March 5, 2020 — the month that the World Health Organization officially declared COVID-19 a pandemic — to March 5, 2021, 19 of those funds performed better than the S&P 500. Those outperformers rose between 27.3% and 55% over that period. In comparison, the S&P 500 increased 27.1%.  Funds that identify as "ESG-focused" screen for stocks based on value and growth like many other funds, but add various criteria such as ESG-focused governance practices, sustainability scores, disclosure practices, fossil fuel exposure, adherence to religious principles and workplace diversity. Critics of ESG investing often question whether the strategy can deliver premium returns. But ESG fund managers have said their focus on nontraditional risks led to portfolios of companies that so far have been resilient during the COVID-19 downturn.

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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 April 6, 2021:

  • In the United States, President Joe Biden and his administration are advising states to widen the vaccine eligibility by April 19th. The deadline is two weeks earlier than the previously announced deadline of May 1st and will target anyone over the age of 16 to get their vaccine shot if they so choose. The announcement means Americans no longer need to check with state and local websites to see whether they qualify. The White House administration has said since President Biden took office, four in 10 Americans have already received their first COVID-19 inoculation, a rate far ahead of most countries.

  • Canadian Conservative Leader Erin O’Toole said his government, if elected, would call a public inquiry to examine the federal’s government’s response to the COVID-19 pandemic. O’Toole accused the Justin Trudeau Liberal government of ignoring scientists’ warnings about the transmissibility of COVID-19 in the early days of the pandemic, of allowing national stockpile of personal protective equipment to become depleted and of defunding a key pandemic early warning system. “A public inquiry will ensure that all lessons learned from the crisis are publicly aired and improvements can immediately be adopted. Canada must be better prepared for future threats. We cannot afford to once again fail to keep Canadians safe,” said O’Toole. It has been rumoured that the leading Liberals might trigger a snap election in the fall, especially if the vaccine rollout goes well throughout the summer.

  • United Kingdom scientists are sounding the alarm that the government’s current easing of lockdowns could trigger a wave of COVID-19 infections, similar to last spring. The Scientific Advisory Group for Emergencies (Sage) aren’t as concerned about the next stage in reopening – April 12th of shops, hairdressers and pub beer gardens - but the proposed changes in May and June when social mixing is set to be permitted again. A paper from the London School of Hygiene and Tropical Medicine said their projections of stage four, when restrictions are set to be abolished could, “lead to a larger surge of cases and deaths comparable to that seen during the first wave.”

  • India’s Maharashtra state, home to the country’s financial capital, Mumbai, has ordered offices to work from home and shut malls and restaurants through April. India recorded more than 100,000 daily COVID-19 cases for the first time on Monday. An unexplained lull in recent months gave the country a false sense of security, which allowed businesses to reopen and fostered optimism among government officials about a recovery in growth. As of Monday evening, private offices were asked to work from home, with some allowances for banks and stock exchanges.

  • The United Arab Emirates (UAE) and Israel have started direct commercial flights between the two countries. UAE Ambassador to Israel, Mohamed Al Khaja and Israel’s head of mission to the UAE Eitan Na’eh were on the Etihad Airways inaugural flight. “As our countries recover from the COVID-19 pandemic, we have much to look forward to in commercial, diplomatic, technological, health, and tourism exchanges,” Khaja was quoted as saying by UAE state news agency WAM. Dubai has become a popular destination for Israeli tourists, even during the pandemic. It also doesn’t hurt that both countries are among the world’s fastest in their COVID-19 vaccination campaigns.

  • Australia and New Zealand have agreed to a quarantine-free travel bubble. New Zealand Prime Minister Jacinda Ardern made the announcement during a Tuesday news conference with the travel bubble set to begin on Sunday, April 18th at 11.59 pm. “This is an important step forward in our Covid response and represents an arrangement I do not believe we have seen in any other part of the world,” said Prime Minister Ardern. Under the new rules, travelers won’t be allowed to travel if they had a positive COVID-19 test in the previous 14 days or present flu-like symptoms.

Covid-19 – Due Diligence And Asset Management

IMF: COVID-19 Pandemic Recession Could Have Been Three Times as Bad

Brief : The International Monetary Fund (IMF) estimates that without government support through the COVID-19 pandemic last year, the global economic downturn would have been three times as large. A retroactive look from the IMF estimated that fiscal measures from governments around the world contributed about 6% to global growth in 2020, helping to soften a global shock that still contracted output by 3.3% in 2020. The IMF now says the COVID-19 recession is likely to leave a smaller scar on the global economy compared to the 2008 financial crisis. "Overall, the global economy seems to be coming back somewhat stronger than we had expected," IMF Chief Economist Gita Gopinath told Yahoo Finance on Tuesday. Still, the fund is recommending that countries with the ability to spend continue to support policy measures like unemployment insurance and stimulus checks through the economic reopening.

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China’s Growth Set to Drive World Economy in Post-Pandemic Years

Brief: China will drive global economic growth in the coming years as the world recovers from an pandemic that’s killed 2.9 million people, the International Monetary Fund predicts. China will contribute more than one-fifth of the total increase in the world’s gross domestic product in the five years through 2026, according to Bloomberg calculations based on IMF forecasts published Tuesday. Global GDP is expected to rise by more than $28 trillion to $122 trillion over that period, after falling $2.8 trillion last year in the biggest peacetime shock to output since the Great Depression.  The U.S. and India will be the second and third-biggest contributors to global growth in the period, according to the IMF, with Japan and Germany rounding out the top five.  Overall, the IMF forecasts that the global economy will expand 6% this year, before slowing toward a 3% pace by 2026. It also warned that growth in the coming expansion may be unevenly spread, with developing economies expected to have bigger losses and slower recoveries.  “Income inequality is likely to increase significantly because of the pandemic,” the Fund said in its World Economic Outlook report. “Close to 95 million more people are estimated to have fallen below the threshold of extreme poverty in 2020 compared with pre-pandemic projections.”

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Amid the Pandemic, Hedge Funds Grapple with Investments in New Tech and Alternative Data

Brief: The Covid-19 pandemic shifted the professional world to the online office. Yet despite the demands of the virtual space, only around half of hedge fund managers are spending money on new technology. According to a recent survey from the Alternative Investment Management Association, Simmons & Simmons, and Seward & Kissel, 47 percent of hedge fund managers answered “no” when asked if they were investing in new technologies. Those who answered “yes” are focused on one major trend: alternative data. In the survey, hedge fund managers and investors were asked a series of questions about the health of, and trends in, the hedge fund industry. The survey, which gathered data during the fourth quarter of 2020, asked questions of over 300 industry professionals, a majority of whom were hedge fund managers accounting for an estimated $1.3 trillion in assets under management. “The industry is investing in technology — period,” said Tom Kehoe, managing director and global head of research and communications at AIMA, in an interview. “Across the board, hedge funds were using technology more in the past 12 months. If we look at the next 12 months, our sense is that the industry will double down on the use of technology.”

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Hundreds of Bankers Return to JPMorgan, Goldman London Offices

Brief: Hundreds more JPMorgan Chase & Co. and Goldman Sachs Group Inc. bankers have returned to their London offices since the U.K. government eased its “stay at home” guidance on March 29. About 15% of JPMorgan’s staff in the city -- about 1,800 people -- came into the office last week, up from about 10% since Christmas, according to a person familiar with the matter. Goldman is expecting attendance to increase in the coming weeks to about 20% of its roughly 6,000 workers in the U.K. capital, another person said, asking not to be named discussing private information. Spokespeople for the banks declined to comment. The U.K. is inching out of its third Covid lockdown and banks of all types are looking to establish future working practices. Some financial firms are starting to entice employees back to deserted offices and an empty City of London, while other have moved to embrace remote work. “Organizations need to understand what their employees need and what will enable them to do their best work,” said Allison English, deputy chief executive officer of workplace research firm Leesman. “The decision is certainly not a binary ‘home or office’ one.” The property market is watching the return to work. A 37-storey skyscraper in the heart of the City is being put up for sale for 1.8 billion pounds ($2.5 billion), according to the Telegraph. The price tag -- a record for a London office building -- will be a test of investor appetite for offices following the pandemic.

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Covid Success to see Cashing in ‘Surge’ Over Pension Freedoms

Brief: UK investment platform provider A J Bell is predicting a significant increase in withdrawals from pension pots compared to the unusual circumstances caused by the Covid pandemic over the last year. In five of the six years since the pension freedoms launched in April 2015, the first three months of the tax year has seen the highest volume of flexible withdrawals. The exception is the 2020/21 tax year, when withdrawals dipped to £2.3bn amid severe stock market uncertainty. Total withdrawals have been between 10% and 33% higher between April and July than the next largest quarter in every other tax year. Tom Selby, senior analyst at AJ Bell, said "While most of us still have fewer things to spend our money on at the moment - particularly given restrictions on foreign travel - the success of the Coronavirus vaccine and more stable market conditions mean we should expect to see a significant jump in withdrawals in the coming quarter." Selby emphasised how until 2020, the beginning of a new tax year has traditionally been peak pension withdrawal season, with UK savers taking advantage of a fresh set of tax allowances to access larger amounts from their retirement pots.

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How Covid-19 has Accelerated e-commerce Trends

Brief: We are witnessing a sizeable and lasting shift to e-commerce across the economy - a shift that has been underway for decades, entirely catalysed by a single, revolutionary technological advancement - the emergence of the internet. The internet made it possible for businesses and individuals to buy and sell items and services online, and in a very short period, consumers had the convenience of almost unlimited selection available to them from the comfort of their homes, 24/7, with just a few clicks of a button. As it stands today, global e-commerce is an area of tremendous opportunity, as the disruption we see is only just beginning. The effect of Covid-19 on corporate and consumer behaviour has been pronounced and significant. This period has been a tailwind for e-commerce at a level unseen since the advent of mobile phones. For the first time in history, we saw an acceleration in e-commerce adoption despite gross domestic product declining globally. The pandemic has created some of the greatest retail, payment, and distribution challenges in our lifetime. In a matter of months, the pandemic catapulted the industry forward, accelerating the adoption of online shopping, digital communications, website creation and other industry trends at a pace that had previously taken years. 

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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 April 1, 2021:

  • In the United States, the Treasury Department is working with the International Monetary Fund (IMF) to provide up to $650 billion in financial aid to the countries hit hardest by COVID-19. An announcement from the Treasury on Thursday stated they were working with IMF on Special Drawing Rights, which are reserve assets that countries can use to suppliant their foreign exchange assets, such as gold and U.S. dollars. Global demand for American currency has been an ongoing issue throughout the pandemic and has resulted in the Federal Reserve also to engage in a dollar-swap program around the world. “Addressing the long-term global need for reserve assets would help support the global recovery from the COVID-19 crisis. A strong global recovery would also increase demand for U.S. exports of goods and services – creating U.S. jobs and supporting U.S. firms,” said the Treasury department in a statement.
  • In Canada, after more than a week of new COVID-19 cases going over the 2,000 mark, Ontario is introducing a province-wide emergency brake. The measure will come into effect as of April 3rd and will last at least four weeks. “I know pulling the emergency brake will be difficult on many people across this province, but we must try and prevent more people from getting infected and overwhelming our hospitals,” said Premier Doug Ford. The restrictions will not be as tight as the province-wide lockdown that was imposed in December. For instance, non-essential retail will be permitted to be open, but at 25% occupancy with essential retail outlets, like grocery stores, capped at 50%.
  • United Kingdom Prime Minister Boris Johnson gave a strong hint on Thursday that vaccine passports will be used once international travel resumes. During a trip to Middlesbrough on Thursday, reporters asked the prime minister if vaccine passports were un-British and this was his response: “On the issue of vaccine certification, there’s definitely going to be a world in which international travel will use vaccine passports. You can see already that other countries, the aviation industry, are interested in those and there’s a logic to that.” Prime Minister Johnson’s comments come after opposition leaders from the Labour Party and Liberal Democrats warned against the introduction of such certificates on the grounds they could be “divisive and discriminatory”.
  • In a televised address Wednesday evening, French President Emmanuel Macron announced a nationwide four-week lockdown set to begin on Saturday. In the address, President Macron implored the nation to make the extra effort as the lockdown comes into effect with restrictions being flexible this weekend during the Easter holidays to allow people to relocate within regions. The nationwide lockdown represents a policy shift for the French leader who favoured a localized approach when dealing with the pandemic. However, similar to the UK, that plan proved unproductive. The people of France also seem to be on board with a snap Harris International poll showing 71% approve of the decision to extend restrictions, which include the closing of schools and businesses.
  • The Italian government has made a potentially controversial move requiring all health workers in the country to take a coronavirus vaccine inoculation. According to media reports, Italy has an entrenched anti-vaccination movement, but a recent discovery of clusters in hospitals after staff refused to be vaccinated has led to a public outcry. In a decree approved by Prime Minister Mario Draghi’s cabinet, all health workers and pharmacists must undergo vaccination and those who refuse, could be suspended without pay for the rest of the year. More than 109,000 people have died in Italy due to the coronavirus.
  • Israel continues to be one of the country’s leading the way in their vaccination campaign. The latest numbers on Wednesday show the active coronavirus cases in the country have dipped to their lowest level since June 2020 and serious infections have hit a three-month low. Israel so far has vaccinated 4.7 million people or 51.2% of its population with two coronavirus shots. Those numbers are even better when it comes to Israel’s most vulnerable populations. Over 80% of all Israeli residents over 50 are fully inoculated and 90% for those over the age of 70. The country started to emerge from its third lockdown back in February with travel inside the country now mostly free of coronavirus restrictions, especially for the vaccinated.

Covid-19 – Due Diligence And Asset Management

Bridgewater to Offer Flexible Return to Work, Prince says

Brief : Bridgewater Associates LP plans to offer employees flexibility as they return to work for the first time since the Covid-19 pandemic began, according to Co-Chief Investment Officer Bob Prince. The firm expects to move toward a blended approach with some staff spending fewer days in the office and offering opportunities for employees to exercise more flexibility, Prince said Thursday in an interview on Bloomberg TV. The Westport, Connecticut-based hedge fund’s current plan is to have everyone in the office one day a week and smaller groups a second day, according to Deputy Chief Executive Officer Nir Bar Dea. The plan will start after Labor Day. The decision is a departure for the firm, which is known for an unorthodox culture that prizes employees working intensely together. Founder Ray Dalio runs the industry giant following a set of about 200 principles, the most central of which is “radical transparency” -- a demand that employees be brutally honest with one another. All meetings are taped and archived for future study and discussion. Prince said having staff work from home has been mixed. “Ironically, in some ways, we’ve been more productive in the last year than we ever were, in other ways less,” he said. “Obviously the culture of a community is very hard to build when you’re not actually seeing each other.”

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Brookfield to Take Property Arm Private in US$6.5B Deal

Brief: Brookfield Asset Management Inc. said it reached a US$6.5 billion agreement to acquire the shares of Brookfield Property Partners LP it doesn’t already own, boosting its offer to take private its real estate arm. The Canadian alternative-asset manager said Thursday it plans to acquire the minority stake for US$18.17 per unit. That would mark a 10 per cent increase to the US$16.50 a unit Brookfield Asset offered in January, and a 26 per cent premium over where the shares traded prior to that earlier proposal. Brookfield Property’s board has unanimously approved the deal, according to the statement by the companies. Brookfield Property dropped 0.8 per cent to US$17.66 as of 10:44 a.m. in New York. Brookfield Property Partners owns, operates and develops one of the largest portfolios of real estate in the world. At the end of December it had about US$88 billion in total assets, including developments such as London’s Canary Wharf and Brookfield Place in New York. In 2018, Brookfield Property acquired GGP Inc., the second-largest mall operator in the U.S., for about US$15 billion. The pandemic has taken a toll on the company as widespread stay-at-home orders kept workers from offices and shoppers from malls. Brookfield Property Partners reported a US$2 billion loss and its shares fell 21 per cent last year.

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Global M&A Sets First-Quarter Record as Dealmakers Shape Post-COVID World

Brief: Mergers and acquisitions (M&A) activity surged globally in the first quarter of 2021 to a year-to-date record, as companies and investment firms rushed to get ahead of changes in how people work, shop, trade and receive healthcare during the COVID-19 pandemic. While the number of deals was up only 6% from a year ago, the total value of pending and completed deals rose 93% to $1.3 trillion, the second-biggest quarter on record, according to data provider Refinitiv. Dealmakers said a boom in the stock market and low borrowing costs - driven by the Federal Reserve’s loose monetary policies - emboldened companies, private equity funds and blank-check acquisition firms to pursue their dream deals. This is despite the global economy’s failure to have fully recovered as yet from the virus’ financial fallout. “This is as robust and broad-based an M&A market as I have witnessed in the last 20 years,” said Colin Ryan, co-head of Americas M&A at Goldman Sachs Group Inc. “We are in an environment where assets are scarcer than the available capital right now.”

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“Cautiously Optimistic”: New Industry Finds Hedge Funds Buoyant in 2021 After Overcoming Covid Challenges

Brief: Hedge funds are “cautiously optimistic” on their growth prospects for the coming year, according to a new deep-dive industry study jointly published by the Alternative Investment Management Association, Simmons & Simmons and Seward & Kissel. ‘The Global Hedge Fund Benchmark Survey: Beyond the Horizon’ probed manager performance, investor sentiment, future challenges, and alignment of interests, among other things. The wide-ranging study is part of an ongoing research series into the health of the hedge fund industry conducted by AIMA, the global trade body for the hedge fund and alternative asset management industry, together with law firms Simmons & Simmons and Seward & Kissel. Its key findings suggest 2021 will see a further acceleration of trends, with the industry becomingly increasingly digitalised and more social conscious, and hedge fund firms playing an integral role in the global economic recovery from the Covid-19 pandemic.

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Covid Kickstarts India’s Reforming Economy

Brief: India seems to have recovered quickly from Covid, and most citizens have been able to go back to their normal lives free from lockdown restrictions, says Jupiter's Avinash Vazirani. The country has reported just 12 deaths per 100,000 population, a much lower figure than, for example, the UK's 189 per 100,000. More than 30 million people in India have been vaccinated so far, with the government hoping to cover the most vulnerable 250 million by the end of July. India is especially well-placed for Covid vaccinations, as the country manufactures around 60% of the world's supply of vaccines. We think that India's world class healthcare and pharmaceutical industry will be a beneficiary of long-term trends for the treatment of and vaccination against Covid. Our outlook is also positive for India's economic growth in general. Economic activity has been trending above pre-Covid levels since January, with Goods & Services Tax (GST) takings up 8% in January, on a year-on-year basis, to a record high. According to the Federation of Indian Chambers of Commerce & Industry (FICCI) business confidence in March is at a decadal high, with companies not only seeing a recovery in demand, but also the potential for higher investment over the coming quarters.

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After a Year of Remote Work, Institutional Investors are Worried About Employee Burnout

Brief: Over a year into the pandemic, institutional investors are worried about the mental health of their employees. Managing stress and curbing burnout among employees who are working remotely were cited as top concerns in Nuveen’s inaugural global survey of institutional investors, which was released Wednesday.  Nuveen, the investment manager of TIAA, has $1.2 trillion in assets under management and operates in 27 countries, according to a press release on the survey results. The asset manager surveyed 700 global investors and consultants including decision-makers at corporate and public pensions, insurance companies, endowments and foundations, superannuation funds, sovereign wealth funds, central banks, and consultants. The organizations represented in the survey held assets ranging from more than $10 billion to no less than $500 million, Nuveen said. When the Covid-19 pandemic changed the nature of work and shifted the investing world to the home office, institutional investors took the change in stride. 

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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 March 31, 2021:

  • In the United States, a government report released on Wednesday stated COVID-19 was the primary or contributing cause of 377,883 deaths in the country in 2020. The Centers for Disease Control and Prevention (CDC) said the COVID-19 mortality rate was the third leading cause of death in the United States in 2020 – trailing only heart disease and cancer. The pandemic took its hardest toll on those 75 and above – accounting for close to 225,000 deaths. The CDC also pointed out that limited availability to testing for the coronavirus at the beginning of the pandemic might have resulted in an underestimation of COVID-19 associated deaths.

  • In Canada, three levels of government announced joint funding to expand the country’s vaccine manufacturing capacity on Wednesday. The federal government will spend $415 million on the partnership with French pharmaceutical company Sanofi Pasteur Ltd., with the Ontario provincial government chipping in $55 million. For its part, Sanofi will spend more than $455 million, to bring the total price tag to close to $1 billion. The end goal is to have a new facility up and running in the Toronto area by 2027 that will have the capacity to produce “enough vaccine doses to support the entire Canadian population”, according to a federal news release. “We are now never going to have to rely on any country, any leader, we will be self-sufficient,” said Ontario Premier Doug Ford.

  • In the United Kingdom, the Evening Standard updated a survey regarding a number of FTSE 100 companies’ latest plans for what a return to the office will look like, or if they plan to embrace flexible working going forward. Private equity firm 3i said they have around 150 staff in London and occupy around 35,000 square feet of office space. A final decision has not yet been made, but 3i said it is likely to “maintain our existing set-up.” ICG, a global alternative manager also responded and said they plan to keep their same amount of space (47,000 square feet in London) for the next three years. Standard Life Aberdeen employees can expect a new look when they return to the office – a re-calibrated area to create more open-zones for people to interact and generate ideas, according to CEO Stephen Bird. 

  • Italy will impose a five-day coronavirus quarantine for people arriving from European Union (EU) countries or returning trips from within the bloc until April 6th. Italy is under tight coronavirus restrictions as it goes through a deadly third wave and are facing a three-day lockdown of their own citizens over the Easter weekend, starting on Saturday. Travellers must also take a COVID-19 test at the end of the quarantine period. Similar measures were already put in place for trips to countries outside of the EU.

  • China has come to the defense of their scientists and called on the World Health Organization (WHO) to take the lead in respecting their conclusions. “We need to respect science and respect the opinions and the conclusions reached by scientists,” said Chinese Foreign Ministry spokeswoman Hua Chunying. China’s comments come one day after multiple countries criticized the findings from the WHO report, calling it incomplete and overly controlled by the Beijing government. Hua had an answer for that criticism too: “They [other countries] want to spread rumours and push their political agenda. The experts said they went to the places they wanted to, and they met with the people they wanted to.”

  • Australia has fallen 3.4 million doses short, or 85% shy of its original targeted goal of vaccinating 4 million of its citizens by March 31st. Australia has fared well compared to other countries when dealing with the pandemic, but this development, coupled with sporadic outbreaks leading to lockdowns in six cities over recent months, has prompted criticism of the government. In January, Prime Minster Scott Morrison promised to have four million inoculated by the end of March but pushed that back earlier this month to mid-April. The prime minister also dialed back his promise to have every Australian fully vaccinated by October – instead saying everyone will have their first shot by then.

Covid-19 – Due Diligence And Asset Management

In Next Pandemic, Buyout Firms Want Reprieve in Debt Deals

Brief : Private equity is already positioning for the next deadly virus. Some buyout firms are seeking new terms in loan agreements to help their companies avoid defaults if earnings drop in a future pandemic, according to lawyers with knowledge of the discussions. They’re getting resistance from banks concerned the proposals allow borrowers too much flexibility and would scare away investors. Fights over the fine print in credit agreements became particularly bitter during the Covid-19 outbreak, with companies strapped for cash as business withered. Those tensions are making creditors wary of giving away any bargaining power. Proposed terms vary, but the most aggressive version would allow a company to exclude the effect of a future pandemic from the calculation of earnings used to determine whether it’s in compliance with creditor covenants. The covenants typically rely on earnings-based financial metrics to determine whether a company can take on additional debt, sell assets or distribute dividends.

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Pressure for Hedge Funds Scrutiny Builds as Yellen Leads her First U.S. Financial Stability Meeting

Brief: U.S. Treasury Secretary Janet Yellen is facing pressure from Democrats to revive tougher scrutiny of hedge funds and other large pools of capital as she heads her first meeting of the premier grouping of U.S. financial regulators on Wednesday. The meltdown of leveraged hedge fund Archegos Capital Management this week, which inflicted losses on Credit Suisse, Nomura and other intermediaries, gives the Financial Stability Oversight Council fresh evidence to review. The council, led by Treasury and including heads of the Fed, the Securities and Exchange Commission and other major financial regulators, is scheduled to meet at 3 p.m. EDT (1900 GMT) to privately discuss hedge fund activity and the performance of open-end mutual funds during the coronavirus pandemic. It also will hold a rare public session to discuss financial system risks from climate change for the first time. Archegos’ failure to meet margin calls is the third significant market episode in the space of a year involving faltering hedge funds or open-end mutual funds.

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Carlyle Seeks Staff’s Return by September, Many in Hybrid Roles

Brief: Carlyle Group Inc. plans to bring most staff back to its offices on a regular basis by September, although many will continue working remotely part of every week for the foreseeable future. “By the fall, we’ll be able to sort of open all of our offices in a more fulsome way,” Reggie Van Lee, Carlyle’s chief transformation officer, said Wednesday during a Bloomberg Live event. “We are hoping for the fall and being agile in the meantime.” The private-equity firm is trying “not to be overly prescriptive” when it comes to remote work, Van Lee said. He expects some staff to come in daily, while others do so periodically -- perhaps as infrequently as once a quarter -- to ensure that Washington-based Carlyle is able to keep up with “community building.” Wall Street is diverging in its staffing expectations, with some executives at the largest banks anxious to get employees back to the office to foster more collaboration and win business. Other firms, like Apollo Global Management Inc. and Two Sigma Investments, have been testing plans for their staffs to work remotely a few days a week as pandemic restrictions ease.

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Blending Home and Office Working a Priority for 2021

Brief: Fund managers must manage a seamless integration between office and home working in order to avoid damaging silos. They should also adopt agile methodologies used in the technology market in order to speed up their operations and cope with a likely acceleration in the use of digital technology. These were some of the priorities and predictions for 2021 made by some of the industry’s leading technology and operations figures in the recently published FundsTech quarterly report. Andrew Hampshire, chief operating officer and chief technology officer at specialist fund manager Gresham House, said: “If businesses don’t have a slick mechanism for bringing office and remote workers together, businesses could see silos start to develop between those in the office and those working at home. Getting both the cultural aspects and technological aspects right therefore is very important.”

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Covid-19 and Threat of Climate Change Drives Increase in LGIM’s Company Engagements

Brief: Legal & General Investment Management (LGIM), one of the world’s largest asset managers, has released its tenth annual ‘Active Ownership’ report, which reveals that over the course of 2020, it increased company engagements by 21 per cent and continued to vote globally, opposing the election of more than 4,700 company directors, as it sought to effect positive change at companies in which it invests. 2020 was an exceptional year for engagement. In March 2020 LGIM wrote to companies with constructive suggestions about how they could cope with the unfolding pandemic and resulting lockdowns, from supporting employees to raising capital. In addition to increasing focus on topics such as executive pay, board governance and income inequality, stewardship efforts have continued to shine a light on companies’ gender and ethnic diversity as well as the longer-term threat of climate change.

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FTSE 100 Dividend Yields Forecast to 24 Per Cent This Year as Economy Bounces Back from Covid-19 Crisis

Brief: UK equity analysts forecast that the dividend yields on FTSE 100 shares will rise by 24 per cent from 2.56 per cent to 3.17 per cent this year as the economy begins its recovery from the coronavirus recession, according to new research from Bowmore Asset Management. Bowmore Asset Management’s research is based on a consensus of analysts’ views on how dividends will increase over the next year. Bowmore Asset Management says many FTSE 100 companies took conservative approaches to dividends in 2020 to ensure their balance sheets weren’t put under too much pressure during the early stages of the coronavirus crisis. Banks and oil & gas companies, two of the UK’s largest dividend paying sectors historically, were among the sectors to cut dividends the most aggressively in 2020, alongside the industries hardest hit by the lockdown restrictions, such as travel & leisure and commercial property. Banks were forced to suspend dividends at the height of Covid-19 crisis last March, with regulators believing they could have difficulty lending if dividends were continued to be paid. HSBC and BT were among the largest FTSE 100 dividend payers to cut dividends in 2020, with each cancelling payments totalling more than GBP3 billion.

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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 March 30, 2021:

  • One day after United States’ CDC Director Dr. Rochelle Walensky shared her feelings of “impending doom” at a White House COVID-19 briefing, President Joe Biden made a plea of his own. The president implored state and local officials to reinstate mask mandates where some have lifted them altogether and/or issued new guidance on restaurant capacity and other measures. “I need the American people do their part as well. Mask up, mask up. It’s a patriotic duty. It’s the only way we ever get back to normal,” said President Biden. Health experts have warned another case surge is likely on the way in the coming weeks, with the majority being fueled by coronavirus variants.
  • In Canada, the country’s three most populous provinces are in various stages of handling the latest waves of the coronavirus pandemic. Ontario – the country’s most populous province – experienced just over 2,300 new cases on Tuesday and Critical Care Services Ontario (CCSO) said 46 more people with a COVID-19 related illness were taken to ICU units – the highest single day increase since the pandemic began. In Quebec, the province’s health minister acknowledged on Monday they have now entered a third wave of COVID-19, even as some restrictions loosen in their largest city, Montreal and cases rise in other regions. Quebec reported 864 new cases on Tuesday and the health minister said he is watching the situation closely and if hospitalizations go up, the province may need to reintroduce some measures. Finally, in British Columbia, the province is introducing a three-week “circuit breaker” style-lockdown, introducing sweeping new restrictions on indoor dining in restaurants, group fitness and worship services after hitting a single-day high in cases over the weekend.
  • In the United Kingdom, the Evening Standard is reporting the country could be receiving a fourth vaccine for use within the next four weeks. Professor Paul Heath, chief investigator for the Novavax inoculation trial, believes the Medicines and Healthcare products Regulatory Agency, which has been using a fast track “rolling review” process, now has nearly all the data it needs to make an approval decision. “The regulator will do a very detailed and thorough review and will decide in good time. I would hope it would be in the spring, possibly end of April,” said Heath.
  • Germany is the latest country to recommend AstraZeneca COVID shots only be used for people aged 60 or over following further reports of a rare brain blood disorder. Germany’s medical regulator, the Paul Ehrlich Institute, says it has received reports of 31 people vaccinated with the AstraZeneca COVID-19 vaccine suffering rare blood clots in the brain. Nine of those people died, the agency announced Tuesday. In 19 of the 31 cases, the people also had low blood platelets. German leaders are set to discuss the use of the vaccine after several states said they would stop giving the inoculation to people under the age of 60.
  • In Australia, two separate clusters that both originated from the same Brisbane hospital at different times, has pushed the city into a snap three-day lockdown. Queensland’s state chief health officer described the growing cluster of seven cases “as significant community transmission” of the UK variant and warned people in greater Brisbane to stay home over the coming days. The hospital at the centre of the two outbreaks – Princess Alexandra Hospital – has also been put into lockdown. Snap lockdowns, social-distancing rules and speedy contact-tracing systems have helped Australia control fresh clusters in recent months and they hope for the same to happen in Brisbane over the coming days. 
  • The World Health Organization (WHO) released their findings Tuesday from the fact-finding mission they made to Wuhan, China back in January and it was immediately met with calls to do more. The governments of the United States, Canada, Australia, United Kingdom, Israel and nine other countries have asked for a more independent review and fully transparent evaluations with access to all relevant data in the future. The countries’ joint statement wants further studies of animals to find how the virus was introduced to humans and called for a renewed commitment from WHO and member countries to access, transparency and timeliness. The statement followed WHO Director-General Tedros Adhanom Ghebreyesus’s assertion that data wasn’t freely shared with its investigators who traveled to China to research origins of the pandemic.

Covid-19 – Due Diligence And Asset Management

Private Equity’s Taste for Tech Spurs $80 Billion Deal Spree

Brief : Private equity firms are barreling through the records as they place bets on technological revolutions in sectors ranging from finance to health care. Firms have spent $80 billion acquiring companies in the global technology sector this year, according to data compiled by Bloomberg. That’s an all-time high for a quarter and already up 141% on this point in 2020, which went on to be a record year for such deals. This month alone has seen Thoma Bravo ink a $3.7 billion acquisition of fintech outfit Calypso Technology Inc. and Ontario Teachers’ Pension Plan agree to take a majority stake in Mitratech, a provider of legal and compliance software, in a $1.5 billion deal. In Europe, TA Associates said it would take over Dutch enterprise software firm Unit4 NV in a $2 billion-plus transaction, while one of Insight Partners’s portfolio companies bought data management group Dotmatics Ltd. for as much as 500 million pounds ($690 million). Earlier this year, Montagu Private Equity agreed to acquire U.K. software developer ITRS Group Ltd. for about $700 million. Buyout firms are flush with investor cash and are being drawn to startups helping companies to reinforce their businesses following the impact of the Covid-19 pandemic, according to Chris Sahota, chief executive officer at tech-focused advisory boutique Ciesco.

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Hedge Funds’ Coffers Swell Further in February, as Investors Pile in

Brief: Hedge funds have recorded their strongest two-month run of investor inflows since 2014, with multi-strategy managers attracting the strongest interest so far this year, according to new research by eVestment. Allocators poured some USD16.44 billion into hedge fund strategies throughout February, which helped push total net inflows so far this year to USD23.74 billion. At the same time, strong positive performance for managers since the start of this year has brought hedge fund industry’s overall AUM to USD3.407 trillion. Multi-strategy hedge funds have been the biggest draw for investors, attracting USD8.98 billion in the first two months of 2021, which included USD5.34 billion in February. Meanwhile, event driven managers pulled in USD2.47 billion of allocator capital in February, swelling this year’s new money to USD3.30 billion.

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Data Breaches are a Frequent Occurrence for the Pensions Industry, says Sackers Webinar

Brief: A new survey by Sacker & Partners (Sackers), a UK-based specialist law firm for pensions and  pensions litigation, has revealed that data breaches are occurring frequently. The survey showed that just over a third of those responding to the survey have suffered a breach in the last twelve months, with almost half of such breaches reported to the Information Commissioners Office. Sackers Senior Counsel, Arshad Khan, says: “The pensions industry is firmly in the sights of the media and seemingly public interest too when it comes to data security. And the headlines can be emotive, giving many the impression that the industry is not on top of the situation. But the pensions industry is no different to any other industry, and breaches or cyber attacks do and will continue to happen to everyone, including schemes, such as those in our survey, and government bodies such as DWP, TPR and HMRC too.

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Americans Want the Government to Buy U.S. – Made Goods, even if they Cost More

Brief: A year of pandemic-driven shortages of vital safety goods and medicines - not to mention consumer items like bikes and electronics - has not made Americans more willing to pay extra for U.S.-made goods. Yet a large majority think the government should do so. A new Reuters-Ipsos poll found 63% of Americans want U.S. agencies to buy American-made products in general, even if they cost significantly more, and 62% think the government should strictly buy U.S.-made vaccines. That enthusiasm dims a bit when it comes to other types of safety equipment, such as face masks: a majority, 53%, agree it is fine to buy personal protective equipment - or PPE - from foreign sources, while 41% disagreed. The poll shows a longstanding contradiction: Americans like the idea of buying American goods - but not if it means paying more personally for it. It also underscores a challenge facing the Biden administration, which has vowed to bolster manufacturers of crucial safety goods and pharmaceuticals as part of its larger push to revive the U.S. factory sector.

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JPMorgan says Banks’ Archegos Hit May be up to $10 Billion

Brief: Banks roiled by the Archegos Capital fallout may see total losses in the range of $5 billion to $10 billion, according to JPMorgan. Losses from trades unwinding related to Archegos will be “very material” in relation to lending exposure for a business that is mark-to-market and holds liquid collateral, analysts led by Kian Abouhossein wrote in a note. They added that Nomura Holdings Inc.’s indication of potentially losing $2 billion and press speculation of a $3 billion to $4 billion loss at Credit Suisse AG is “not an unlikely outcome.” Analysts and investors are trying to figure out the final losses to banks exposed to the Archegos implosion, with the task made harder by the opaque nature of the leveraged trading involved. JPMorgan had previously estimated losses in the range of $2 billion to $5 billion. “We are still puzzled why Credit Suisse and Nomura have been unable to unwind all their positions at this point,” the analysts wrote, adding that they expect to see full disclosures from lenders by the end of this week.

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EQT Nears $5.3 Billion Deal for Partners Group’s Cerba

Brief: EQT AB is nearing an agreement to acquire Cerba HealthCare in a deal valuing the French laboratories firm at about 4.5 billion euros ($5.3 billion) including debt, people with knowledge of the matter said. The European private equity firm could announce a deal as soon as this week to purchase Cerba from Swiss buyout firm Partners Group, according to the people. EQT beat out rival bidders including other investment funds, the people said, asking not to be identified because the information is private. Partners Group, which owns the business together with Canada’s Public Sector Pension Investment Board, has been exploring options for the business including a sale, Bloomberg News has reported. Representatives for EQT and Partners Group declined to comment, while a spokesperson for PSP didn’t immediately respond to a request for comment. Demand for hospital and laboratory assets has increased amid the Covid-19 crisis and a sale of Cerba could rank among the largest deals in the sector in Europe this year, according to data compiled by Bloomberg.

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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 March 29, 2021:

  • The United States’ director for the Centers of Disease Control and Prevention (CDC) is pleading with Americans to continue to take the necessary precautions to prevent the spread of COVID-19 amid an increase in cases across the country. Using words like “scared” and phrases such as “impending doom”, CDC Director Dr. Rochelle Walensky said during a briefing on Monday that the United States’ current trajectory in regard to the pandemic looks similar to Germany, Italy and France, who are experiencing a third wave of the virus. “We do not have the luxury of inaction. For the health of our country, we must work together now to prevent a fourth surge,” said Dr. Walensky. America surpassed 30 million total COVID-19 cases over the weekend, and a 10% increase of more than 60,000 cases per day last week, compared to the previous week.

  • The AstraZeneca COVID-19 vaccine roller coaster in Canada went for another ride on Monday. CBC is reporting Canada’s National Advisory Committee on Immunization (NACI) is expected to recommend a pause on the AstraZeneca vaccine for anyone under the age of 55 because of safety concerns. Canada is expected to receive 1.5 million doses of the AstraZeneca COVID vaccine from the United States on Tuesday. Monday’s news marks just the latest setback for the drugmaker. Earlier this year, a number of European countries halted use of the AstraZeneca vaccine for those over 65 due to questions on efficacy, only to restart them after new evidence emerged. Last week, American health regulators found “outdated information” may have been reported by the company when it released data on U.S. trials. The NACI’s recommendations for the AstraZeneca vaccine have changed multiple times since being approved in the country just last month. 

  • In the United Kingdom, people can now meet in larger groups outside and resume outdoor swimming and organized sports thanks to the government’s roadmap for lifting coronavirus restrictions. Speaking at a news conference on Monday, Prime Minister Boris Johnson said he is “hopeful” he will not need to put the country in lockdown again with infection rates at their lowest in six months and nothing in the data to suggest the government will need to keep restrictions in place longer than planned. The next major stage in the roadmap is April 12th when non-essential retail will reopen while pubs and restaurants will be allowed to serve customers at tables outside.

  • German Chancellor Angela Merkel threatened to assert federal authority over the weekend as some state leaders have opted not to enforce restrictions agreed with her administration. With a federal election expected later this year and Chancellor Merkel already announcing she won’t run again, the once respected leader is now in lame duck status. There has been mounting public opposition to lockdown measures and frustration with Germany’s vaccination drive. In an interview with ARD television on Sunday, Chancellor Merkel stated in regard to broken commitments: “We can’t go on like this. We meet every four weeks and then we just keep going the same way as before.”

  • In the Philippines, Metro Manila and the adjacent provinces of Bulacan, Cavite, Laguna and Rizal were moved back into strictest lockdown phase on Monday. The move made by government officials is expected to at least remain in place until April 4th and a curfew will be imposed from 6 PM to 5 AM during the lockdown. In a move hoping to boost inoculations, Philippine President Rodrigo Duterte said he will allow private companies to import vaccines “at will”. Businesses can choose where to source and import vaccines. Previously, private companies were required to enter into a deal with the government and vaccine manufacturer to secure supplies. 

  • The United Arab Emirates (UAE) have been chosen by China to make millions of doses of its state-backed Sinopharm vaccine. The deal marks the first time China has allowed for manufacturing of their shot overseas and deepens Beijing’s influence in the Middle East. According to the new joint venture between Sinopharm CNBG and Abu-Dhabi based G42, a plant is expected to become operational later this year and produce up to 200 million doses annually. Production has already started on a smaller scale in an existing plant in the UAE with a capacity of 2 million doses per month.

Covid-19 – Due Diligence And Asset Management

SEC says it’s been Monitoring Archegos Fallout Since Last Week

Brief : The U.S. Securities and Exchange Commission has been monitoring the forced liquidation of more than $20 billion in holdings linked to Bill Hwang’s investment firm that has roiled stocks from Baidu Inc. to ViacomCBS Inc. “We have been monitoring the situation and communicating with market participants since last week,” an SEC spokesperson said in emailed statement. Hwang’s New York-based Archegos Capital Management is at the center of a margin call that led to the forced liquidation on Friday, according to people familiar with the transactions. Among the companies sold were GSX Techedu Inc. and Discovery Inc. Banks including Credit Suisse Group AG and Nomura Holdings Inc. are warning investors that they may face “significant” losses after an unnamed U.S. hedge fund client defaulted on margin calls. Goldman Sachs is telling shareholders and clients that any losses it faces from Archegos are likely to be immaterial, a person familiar with the matter said.

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Real Estate Investors Desperate to Spend $250 Billion Hoard

Brief: Investors with a record hoard of money to finance distressed commercial real estate are finding themselves in a tough spot: There’s nowhere to spend it. The massive wave of defaults expected after the coronavirus shuttered offices, hotels and stores last year has so far failed to materialize. Now, as the U.S. economy swings from pandemic lows to a vaccine- and stimulus-induced rebound, the window of opportunity for discounted deals is closing before it ever really opened. That may sound like positive news to most Americans, but to a select group of investors who anticipated raking in big profits from the misfortunes of others, it’s a problem. Troubled properties aren’t coming to market because owners have little pressure to sell. Commercial real estate prices have held up -- or even risen -- because so much money is chasing so few deals. “We’re starting to see frustration rolling over into desperation,” said Will Sledge, senior managing director in the capital markets unit of brokerage Jones Lang LaSalle Inc. Investors are “willing to push prices up and their yields down in order to simply deploy capital.”

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Pandemic Forces Asset Managers to Recalibrate Their Expansion Efforts, says PwC

Brief: PwC Luxembourg has announced the release of the 21st edition of their annual Global Fund Distribution (GFD) poster showcasing the growth of cross border funds and distribution in 2020. The research covers all border markets globally and provides a unique and global view of the health of the industry. The top five asset management companies for cross-border distribution funds, based on the number of countries in which they distribute worldwide, are Franklin Templeton, Fidelity Investments, HSBC, Schroders, and BlackRock, with three of them based in the US, and two based in the UK. A total of 14,128 cross-border investment funds accounted for 128,520 registrations globally as of end-2020, a 0.7 per cent increase in the number of funds and a 5.8 per cent increase in the number of registrations compared to 2019. The number of cross-border ETFs decreased by 6.2 per cent to 4,482 in 2020. A record 297 ETFs closed during the year. This was primarily driven by increased competition, mergers and acquisitions and the failure to attract assets.

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Institutional Investors Increase Focus on Ethnic and Gender Diversity in Wake of 2020

Brief: More than half of US institutional investors report that the events of 2020, including the protests over George Floyd’s death at police hands, have influenced their thinking on diversity and inclusion in their investments. A survey of 100 institutional investors by Aon found that 58 per cent have become more attuned to issues of gender and ethnic diversity in their investment approach and thinking.  Investors may also be responding to a shifting climate in the industry, with stakeholders and shareholder activist groups upping their focus on diversity. Aon’s survey found that 11 per cent of investors say they have felt greater pressure from stakeholders to take concrete action by investing with diverse managers in the last year.  Another 18 per cent reported that constituents, boards and beneficiaries are now asking for statistics on diversity within their portfolio, while 13 per cent of investors felt more pressure to engage with diverse investment firms.

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Funds Bet on a Consumer Boom to Rival ‘Roaring Twenties’

Brief: Some of the world’s top money managers are betting on a post-pandemic spending boom that will boost real-world companies as economies reopen and people go back to their normal lives. Investors from Aberdeen Standard Investments Inc. and GAM Investments to UBS Asset Management are increasingly pouring money into companies where face-to-face interaction is the norm -- things like travel companies, restaurants, off-line shopping and “consumer experiences.” “A lot of people are estimating this is really going to lead to a new ‘roaring 20s’ theme,” said Swetha Ramachandran, the manager of GAM’s Luxury Brands Equity fund, referring to growing views that post-pandemic spending will hark back to the excesses of the 1920s. That’s when euphoric consumers piled into a wave of spending after the first World War and the 1918 flu pandemic. “There will be a lot of peacocking” as people start socializing, she said. Investors began piling into cyclical stocks that benefit from an economic rebound late last year following good news on the vaccine front, while pulling back from high-valued technology stocks. The rotation accelerated as Treasury yields rose in mid-February.

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Investment Fraud Reports 32% Leap as Criminals Exploit Covid-19

Brief: Investment scam reports surged by almost a third (32%) during 2020, with losses to these scams increasing 42% to £135.1m, according to a report by trade body UK Finance. So called ‘authorised' fraud losses increased 5% in 2020 to £479m as scammers ramped up online activity during the pandemic, its latest Fraud the Facts report stated. Unauthorised fraud losses dropped 5% as lockdown restrictions forced criminals to switch tactics, but were still very high at £784m, the latest Fraud the Facts report also revealed. Impersonation scam cases almost doubled to nearly 40,000 cases during the year. The shocking figures show why tackling scam activity, particularly online, needs to be prioritised across Government, UK Finance argued in the report. UK Finance is specifically calling for fraud to be included in the scope of the government's Online Safety Bill to better protect consumers from these scams. This would ensure that online platforms such as social media firms, search engines and dating websites take action to address vulnerabilities in their systems that are being exploited by criminals to commit fraud.

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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 March 26, 2021:

  • In the United States, the country’s former director of the Centers for Disease Control and Prevention (CDC) only stoked the flames of tension when it comes to the origin of the coronavirus pandemic between America and China. Speaking to CNN on Friday, Dr. Robert Redfield believes the pandemic began in a lab in China – a controversial theory without any evidence. Dr. Redfield believes the virus “escaped” a Chinese lab, albeit not necessarily intentionally. The former CDC director served under the Trump administration and the current Biden administration was quick to distant themselves from Dr. Redfield’s opinion stating it was only his opinion and they were awaiting the World Health Organization’s full report from their January visit to Wuhan, China before making any of their own assertions. The origin of the coronavirus has been a key source of tension between Washington and Beijing ever since the coronavirus pandemic began.
  • Canada is expected to hit one million total coronavirus cases next week, according to data released on Friday by the Public Health Agency of Canada (PHAC). “COVID-19 still has a few tricks in store, and we need to hold on together a bit stronger and longer until vaccines have us protected,” said Dr. Theresa Tam, Canada’s chief public health officer. Due to COVID-19 variants spreading throughout the country, daily case counts are expected to rise rapidly over the coming weeks after two months of relative calm. The PHAC stated with current variants in circulation, the case count could hit 12,000 a day if Canadians maintain or increase the number of people they are in contact with daily.
  • In the United Kingdom, Public Health England (PHE) have released a new study on Friday stating the government’s vaccine rollout plan prevented at least 6,100 deaths due to COVID-19 from early December to late February. PHE’s data says about 5,900 deaths were prevented among people aged 80 and above, and 200 in those aged 70 to 79. “While the vaccines have a striking effect on mortality, we don’t know yet know how much these vaccines will reduce the risk of you passing COVID-19 onto others. Even if you have been vaccinated, it is really important that you continue to act like you have the virus, practise good hygiene and stay at home,” said Dr. Mary Ramsay, PHE head of immunisation.
  • Italian Prime Minister Mario Draghi is firmly backing new European Union restrictions on vaccine exports and also took a shot at pharmaceutical companies. “The impression is that some companies - I won’t name any names – sold things two or three times,” said Draghi. The prime minister went on to add that individual exports bans must be considered, especially for companies which don’t respect contracts. Almost 10% of the Italian population has received at least one vaccine dose, compared to 26% in the United States and 43% in the UK. Prime Minister Draghi said he will seek parliamentary approval in mid-April to widen Italy’s budget to allow further economic stimulus.
  • In the Philippines, the government made a move on Friday to attract investments and help businesses recover from the pandemic. President Rodrigo Duterte approved a law that will cut the corporate tax rate from 30% to 25% for most businesses and 20% for smaller enterprises. According to the Philippines’ Department of Finance, the new law will bring the country closer to the average tax rate in Southeast Asia, which is around 22%.
  • Brazil’s Butantan Institute is going to develop its own domestic COVID-19 vaccine with hopes it could be ready for distribution by July. The Sao-Paulo based Butantan has partnered with China’s Sinovac to produce the CoronaVac shot, which will begin trials in April, pending regulatory approval. The single dose inoculation will begin mass production in May and hope to have 40 million shots ready to go by July. Production would be fully focused to meet Brazilian demand, before opening exports to other countries as well. According to data compiled by Bloomberg, Brazil has only administered first doses to about 6.6% of the population with those fully vaccinated standing at just 2%.

Covid-19 – Due Diligence And Asset Management

Private Equity Thinks Student Property is a Post-Covid Winner

Brief : Private equity firms are ramping up their investments in the U.K.’s student accommodation market, pumping hundreds of millions of pounds into a resilient sector with an eye on high rental returns in post-Brexit, post-Covid Britain. More than one-third of deals for student property in 2021 so far have been financed by private equity, compared to about 15% in total between 2016 and 2019, according to data compiled by real estate advisers Jones Lang Lasalle Inc. With student application numbers projected to rise by 8.5% this year and purpose-built accommodation oversubscribed, property remains attractive for private equity firms. They are sitting on more than $300 billion for property investments alone and want to broaden their assets beyond offices, retail and hotels -- all badly hit by Covid-19. Major deals this year include Los Angeles-based Ares Management Corp.’s first U.K. student property investment. The $197 billion alternative asset manager spent 158 million pounds ($217 million) for two newly built housing units in February, and hopes to build a U.K. portfolio worth 400-500 million pounds, co-head of European real estate Wilson Lamont said in an interview. Ares isn’t alone. A recently launched Sunway Bhd and MBU Capital Group Ltd. fund already stands at 110 million pounds and is targeting almost double that.

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New Hedge Fund Launches Hit Highest Level in Three Years, as Managers Seize on Growing Opportunities

Brief: The number of new hedge funds being launched has reached its highest level in three years, as managers look to capitalise on the nascent economic recovery, idiosyncratic and volatility-based opportunities, and a shifting macro environment. New hedge fund launches increased to around 175 in the fourth quarter of 2020, with the number of new funds unveiled exceeding the estimated quarterly liquidations for the second successive quarter, new industry analysis by Hedge Fund Research shows. The number of Q4 launches was up on the previous quarter’s total of 151, bringing the estimated number of new hedge funds launched in 2020 to 539, a period which included a record low in Q1 at the start of the coronavirus pandemic, HFR said this week. “New hedge fund launches continued to rise as industry expansion accelerated into 2021, driven by the strongest performance gains since 2000, as both managers and investors positioned for strong growth throughout 2021,” said Kenneth Heinz, HFR president.

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Wall Street Bonuses Jump 10% in 2020, says NY State Comptroller

Brief: The average bonus paid to employees in New York City’s securities industry in 2020 rose by 10% to $184,000, a top New York state financial regulator said in a statement on Friday. “Wall Street’s near-record year shattered all expectations,” New York State Comptroller Thomas DiNapoli said. “The early forecast of a disastrous year for financial markets was sharply reversed by a boom in underwriting activity, historically low interest rates, and surges in trading spurred by volatile markets,” he added. The 2020 bonus pool increased by 6.8% to $31.7 billion, during the traditional December-March bonus season, from $29.7 billion in 2019, according to the report, which called the growth figure “unique after a recessionary event”. Bonuses fell by 33% in 2001 after 9/11 attack and by 47% percent in 2008, the report said. Compensation firm Johnson Associates Inc in November said it expected year-end bonuses for most Wall Street workers to decline in 2020 compared with 2019 due to the impact of the COVID-19 impact on the U.S. economy.

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In 2020 the Ultra Rich got Richer. Now They’re Bracing for the Backlash

Brief: In 2020, as the world convulsed under COVID-19 and the global economy faced its worst recession since World War II, billionaires saw their riches reach new heights. Now some are talking to their wealth managers about how to keep a hold of and consolidate their fortunes amid the global debris of the pandemic. Others are discussing how to preempt and navigate demands from governments, and the wider public, to pick up their share of the recovery costs. “The stock market crashed a year ago, by July or so my portfolio was back where it was before, at the beginning of the year, and now it’s far higher,” said Morris Pearl, a former managing director at BlackRock who chairs Patriotic Millionaires, a group that believes the high net worth should do more to close the wealth gap. “The fundamental problem is this gross inequality that’s getting worse.” The plans being discussed by the ultra-rich range from philanthropy, to shifting money and businesses into trust funds, and relocating to other countries or states with favourable tax regimes, according to Reuters interviews with seven millionaires and billionaires and more than 20 advisers to the wealthy.

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Lawmakers Urge Scrutiny of Private Equity’s Role in Health Care

Brief: Private equity’s control of health-care companies requires greater scrutiny to better assess the impact on the industry, several U.S. lawmakers said Thursday. Independent industry experts fielded questions from lawmakers at a House Ways & Means subcommittee hearing about private equity’s growing influence and recommended requiring health-care companies to disclose more financial and ownership data. “Private equity’s influence stretches like an octopus,” said Representative Bill Pascrell, a Democrat of New Jersey, who led the hearing. The industry has made a push to expand into every corner of the health system, from nursing homes to home health to doctors practices. Private equity deals in the sector increased 21% from the year earlier, according to Bain & Co. Sabrina Howell, an assistant professor of finance at the NYU Stern School of Business, said all companies that accept government money should disclose who their owners are. Howell co-authored a study that found private equity ownership of nursing homes increased the short-term probability of death by 10%. “The private equity industry is having an overwhelmingly positive impact on health care across America” by lowering costs, improving access, funding cures and delivering more effective treatments, Drew Maloney, president of the American Investment Council, said in a statement Thursday.

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Griffin’s Covid Year had Planes, Palm Beach, Philanthropy

Brief: In the early days of the pandemic, Ken Griffin talked with President Donald Trump and Vice President Mike Pence about stimulus and fast-tracking Covid therapies. Now, he sees an opening to work with the Biden administration to address a year of lost learning. “The political party doesn’t matter to me,” said Griffin, 52, who contributed $66 million to Republicans in the last election. “What matters is the receptivity to solving the problem.” The past 15 months have been busy for the billionaire founder of hedge fund Citadel and market-maker Citadel Securities, as both parts of his business successfully navigated the pandemic-fueled volatility. Griffin was acutely aware of the “existential and economic threat” posed by the pandemic early on after hearing from employees in China, Citadel Securities’ chief executive officer, Peng Zhao, and an employee who had family in Wuhan. To combat the work from home challenge, Citadel Securities created a trading outpost in a high-end Palm Beach resort. The firm later profited from the huge influx of retail traders using apps such as Robinhood.

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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 March 25, 2021:

  • In the United States, President Joe Biden held his first news conference on Thursday since becoming leader just over two months ago, and pledged a new goal for his administration on coronavirus vaccine rollouts. President Biden announced his administration is aiming for 200 million vaccination shots into the arms of Americans during his first 100 days in office. During his campaign, the president promised 100 million vaccinations in his first 100 days – something his administration was able to achieve last week – 42 days ahead of schedule. “I know it’s ambitious, twice our original goal, but no other country in the world has even come close,” said President Biden.

  • Canada’s scientists at the National Advisory Committee on Immunization (NACI) are reviewing research that suggests people that have already been infected with COVID-19 might be good with just one vaccine dose. In an email, NACI chairperson Caroline Quach-Thanh said the committee is “debating” the question after “France and Quebec have said only one.” A small study in the United States suggests those who have been infected with COVID-19 may produce 10 to 45 times as many antibodies after the first dose of the Pfizer or Moderna vaccines compared with someone who hasn’t had COVID-19. The research has yet to be peer reviewed.

  • In the United Kingdom, MPs have voted 484 to 76 in the House of Commons to extend coronavirus laws into September. The laws allow the government wide-ranging powers from shutting down pubs, through to detaining individuals deemed at risk as part of efforts to contain the spread of the virus. Under the new legislation, Britons could also face a £5,000 fine if they leave the UK without a reasonable excuse. Health Secretary Matt Hancock told the House of Commons: “Although this Act remains essential and there are elements of which we are seeking renewal of, we’ve always said we would only retain powers as long as they are necessary.” 

  • France’s President admitted on Greek television Wednesday that his government was caught flat-footed in regard to the country’s vaccination campaign. “We weren’t fast enough, strong enough on it,” said President Emmanuel Macron to Greek TV channel ERT. “You can give that to the Americans, as early as the summer of 2020 they said: let’s pull out all the stops and do it. They had more ambition than us. We didn’t think [the production of a vaccine] would happen that quickly.” President Macron went on to add: “Everybody, all the experts said: Never in the history of mankind was a vaccine developed in less than a year.” According to statistics, as of March 22nd, 9.3% of France’s population had been partially vaccinated.

  • Bloomberg is citing Indian government officials with knowledge of the matter, that the country expects to slow exports of coronavirus vaccines as it looks to expand domestic inoculations. With India’s new cases steadily climbing over the last month, government officials announced earlier this week that it plans to expand its inoculation program to include everyone over the age of 45. Officials have stated the hold on exports may be reviewed in a month or two and India will honor commercial contracts even if at a slower pace. India has exported or donated more than 60 million shots as part of its vaccine diplomacy efforts.

  • In Japan, the official countdown of the postponed 2020 Tokyo Olympics began on Thursday with the first group of runners carrying the Olympic torch through Fukushima. Due to the pandemic, the ceremony was much more subdued than in previous years. The opening event was closed to the public and the few spectators that did show up were asked to wear masks and refrain from cheering or shouting. The torch relay was seen as the first test for organizers that insist a “safe and “secure” event in the midst of a global pandemic. Japanese Prime Minister Yoshihide Suga told reporters that “we [government] will do our utmost in terms of coronavirus measures and continue to work with related areas to contain the spread of infections and hope to work towards a safe and secure Games.”

Covid-19 – Due Diligence And Asset Management

Powell Likens Fed’s Pandemic Response to British at Dunkirk

Brief : Federal Reserve Chairman Jerome Powell compared the actions taken by the central bank early in the pandemic as the economy barrelled toward a recession to British efforts in World War II to evacuate troops at Dunkirk. Asked Thursday in an NPR interview whether he would have anything different back in March 2020 if given the chance, Powell said, “We almost certainly didn't do everything right but we knew at the very beginning that we should use all of our tools and use them as aggressively and extensively as we needed to.” The Fed slashed its key benchmark lending rate to a record low of 0% to 0.25%, created a number of emergency lending programs to shore up a financial system in crisis and began buying billions of dollars in bonds to keep long-term interest rates low. “We knew that we would never be able to explain in such an emergency situation why we hadn't used our tools in that way," Powell said. "So we did.” In that environment, with the U.S. economy facing peril on multiple fronts, Powell compared the urgency with which the Fed acted to the way the British deployed an impromptu regatta to evacuate thousands of its troops from Dunkirk in France that were surrounded by German forces.

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U.S. Regulator Opens Inquiry into Wall Street’s Blank Check IPO Frenzy

Brief: The U.S. securities regulator has opened an inquiry into Wall Street’s blank check acquisition frenzy and is seeking information on how underwriters are managing the risks involved, said four people with direct knowledge of the matter. The U.S. Securities and Exchange Commission (SEC) in recent days sent letters to Wall Street banks seeking information on their special purpose acquisition company, or SPAC, dealings, the four people said. SPACs are shell companies that raise funds via a listing to acquire a private company with the purpose of taking it public, allowing such targets to sidestep a traditional initial public offering. The SEC, which declined to comment for this story, has previously said it was monitoring the SPAC boom, but the letters are the strongest sign yet that it is stepping up scrutiny of such deals and the Wall Street banks that underwrite them… Wall Street’s biggest gold rush of recent years, SPACs have surged globally to a record $170 billion this year, outstripping last year’s total of $157 billion, Refinitiv data showed. The boom has been fueled in part by easy monetary conditions as central banks have pumped cash into pandemic-hit economies, while the SPAC structure provides startups with an easier path to go public with less regulatory scrutiny than the traditional IPO route.

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Private Equity Could be Set for a Rocket Recovery

Brief: During 2020, as the pandemic took hold across Europe, private equity funds based in Luxembourg continued to raise funds from institutional investors, asset managers, family offices and HNWIs across the world. Some of this money has already been put to work in support of companies that are hurt by the pandemic, protecting jobs and past investment, and smoothing the way to recovery. But by far the greater part of new funds raised will be invested in the high growth companies that are going to pull Europe out of the lockdown-induced recession. These two roles, shoring up good companies with temporary troubles and accelerating the growth of those that innovate and modernise, are central to private equity. The first group includes companies in hospitality, entertainment, travel and tourism, and the latter includes fast growing companies in technology, e-commerce and healthcare. Following the last major recession in 2010-11, companies owned by private equity emerged stronger and grew faster than others. This story is likely to repeat itself in 2021-22. Private equity’s strong focus on investment in growth and performance will make sure of that.

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BC Partners Plans Sale of $1.7 Billion Pharma Firm Aenova

Brief: BC Partners is considering a sale of German pharmaceutical contract manufacturer Aenova, according to people familiar with the matter. The private equity firm plans to seek a valuation of more than 1.5 billion euros ($1.8 billion) for the business, one of the people said. BC Partners is working with Rothschild & Co. to gauge interest in Aenova, which could draw interest from buyout firms and other strategic bidders, the people said. Deliberations are ongoing and there’s no certainty they’ll lead to a sale, according to the people, who asked not to be identified discussing confidential information. Representatives for BC Partners and Rothschild declined to comment. Aenova provides product development and manufacturing services to pharmaceutical and consumer health care companies in 15 countries including Germany, Switzerland and Italy. It reported revenue of 726 million euros and a net loss of 53 million euros in 2019, according to its website. BC Partners acquired the business in 2012 in a 480 million-euro deal.

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Many Businesses See Hybrid Work Continuing After Pandemic

Brief: Many businesses around the world expect employees to continue to work from home beyond the pandemic, according to a new report commissioned by Zoom Video Communications Inc. The study, conducted by Boston Consulting Group, found that a majority of businesses in five countries are considering a flexible remote-work model because of the successful use of video conferencing during the pandemic, and many expect a significant chunk of their workforce to continue to work remotely. In the U.S., 39% of businesses anticipate more than a third of their employees will work remotely after Covid-19 infections wane, which was the lowest response of any of the six countries surveyed. Companies surveyed in India were the most keen to keep work-from-home setups, with 47% saying the same. Responses in the U.K., France, Germany, and Japan were all above 40%. As vaccines are administered across the country, and pandemic restrictions loosen, companies are trying to chart a path forward. Last week, Ford Motor Co. told more than 30,000 employees that they can continue to work from home and use the office only when needed. Many firms in the financial industry are signaling they prefer a full return to the office.

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TISE Increases Revenue and Profit During Pandemic

Brief: The International Stock Exchange Group Limited (TISEG/the Company) has released its latest Annual Report which shows record revenues of GBP8.4 million, a 4.2 per cent increase in post-tax profit to GBP3.6 million and an increase in earnings per share to 128.4p during the year ended 31 December 2020. As previously announced, during 2020 there were 831 newly listed securities on TISE, which is the second highest annual total of new listings since the inception of the Exchange. This took the total number of listed securities on TISE’s Official List to 3,162 at 31 December 2020. Charlie Geffen, Chair of TISEG, says: “It is pleasing that we have continued to make successful progress both organisationally and with increased profitability against the backdrop of the pandemic. At the 2020 AGM we announced a revised growth strategy which is an important step in the diversification of our products, geographies and markets. Our strong financial position gives us the ability and time to execute on our plans and Cees Vermaas’ experience from several major international exchange groups is already proving invaluable in achieving our goals.”

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