What are the resilient assets in this Covid19 crisis?

What are the resilient assets in this Covid19 crisis?

CVD1080-1024x576 What are the resilient assets in this Covid19 crisis?

 

colour544x544-300x300 What are the resilient assets in this Covid19 crisis?As the World attempts to contain Covid-19 and hinder global escalation, markets have recalibrated in the face of a potential global recession whilst monitoring the shocks to supply and demand. Market sentiment is that we will see virus case escalation in the second quarter with cases rising until May. The subsequent months will see significant disruption to supply and demand before a rebound later this year.

For this rebound to occur, first we would have to see a substantial decrease in fatalities within red zones, and a slowdown in new cases across all major economies. Central banks would need to implement emergency interest rate cuts and coordinate to keep lending channels operating (the Federal Reserve has already made cuts and ECB’s TLTROs are set to be sub-zero), stimulus plans at national and international levels introduced (e.g. ECB’s €750billion Eurozone financial package and the US administration are to sanction more than $1trillion) and other fiscal authorities to bring about quantitative easing measures. These measures are intended to avoid a more dramatic scenario where the health problem will be followed by a severe economic recession with two or more consecutive quarters of negative growth and potentially thousands of bankruptcies. The indication is that once business resumes then the economy should see a speedy, sharp recovery. Fundamentally, periods of stock market corrections are often followed by markedly positive trends within six months of finding the bottom. Volatility in the meantime of course will be high.

What can investors proactively do?

 So, we should expect low growth and low interest rates into the second quarter and possibly the third quarter. There has already been a brutal repricing of assets so many are not from this point adopting a defensive stance feeling that the damage has already been done. Some sectors will prove to be more resilient, namely infrastructure and real estate, certain commodities may also perform well.

Infrastructure – typically regarded as a solid defensive investment with above average dividend yields. The benefit being that this sector is usually involved in long-term contracts often with governments providing reliable cash flows. China is expected to announce fiscal stimulus packages for infrastructure. Telecommunication towers should continue to see decent secular demand along with digital economies particularly those involved in remote office work, remote management tools, and remote networking. More data centres may be built and more fibre optic infrastructure put in place to cope with demand.

Real Estate – this sector has shown resilience in the past during uncertain economic times. The benefit comes from predictable and stable lease-based cash flow and would not be affected by near-term shocks to the global supply chain. Due to being less impacted by global economic conditions, healthcare, rental housing, net lease, and storage are among the most resilient within this sector. Hospitality will heavily be impacted and opportunities may arise for discounted assets in the coming months. Office demand will have to be reassessed as the confinement/lock down has obliged firms to quickly deploy business continuity plans sending their employees home. Employees will be more accustomed to working from home and even favour it – the individual and business standpoints could be aligned resulting in a decreasing demand for offices.

Commodities – gold of course is the typical safe haven investment. For base metals we know that there is an inventory overhang as demand from China halted. Once Chinese factories resume full operations base metals should recover. China also expected to introduce fiscal stimulus to autos and infrastructure which require vast amounts of base metals. Agriculture is to experience less impact than other sectors as consumption and production rates stay level.

For many this has been a time to restructure their portfolio to a more defensive stance, whilst others have identified great value in the market confident that once Covid-19 is under control by Q3/Q4 major economies will see a rapid recovery. Either way, proactivity means its business as usual despite operating under lock down conditions.

Finscoms helps funds and projects to tell their story to a wider investment network. In these unprecedented times our clients are looking for guidance. We would like to share with you our thoughts. Please contact us to hear about how we can help you.

Benoît Egée, Co-Managing Partner

[email protected]  

+353 1202 4444

Information about Benoît

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Will the RAIF be a good fit?

Will the RAIF be a good fit?

KMCWeb Will the RAIF be a good fit?

Ken Carmody

November 27th saw the Luxembourg Government adopt a new draft law to create the Reserved Alternative Investment Fund, abbreviated to “RAIF”, aiming to maintain the competitiveness of the financial services sector for alternative investments. It can only be managed by fully authorised AIFMs, and is a response to the wishes of many asset managers by providing an alternative investment fund that will not be subject to the approval and/or supervision of the Luxembourg regulatory authority and will benefit from structuring flexibility which means it can be set-up in a few days.

The Luxembourg Council of Government approved a draft bill for its proposed Reserved Alternative Investment Fund (RAIF) in November 2015. The Bill still has to gain approval from the Luxembourg parliament but is scheduled for the first half of 2016. The main characteristic of the RAIF is that it is not subject to authorisation or supervision by the Commission de Surveillance du Secteur Financier (CSSF) resulting in a comparatively faster time to market. Most likely in reaction to the frustration of many managers over the time it takes to gain approval in Luxembourg. The RAIF has most of the main features of a regular Luxembourg AIF, such as a Specialised Investment Fund (SIF) but has lower regulatory costs.

The fund manager must be an authorised AIFM and must be domiciled in one of EEA member states. RAIFs will therefore access to the AIFMD passport. This new product reveals a move towards manager-oriented regulation, and away from the existing dual regulatory approach of regulating both the manager and the product.

Another benefit of the RAIF is that there are no restrictions on asset eligibility. Any fund strategy can be utilised. It will be exempt from corporate income tax, municipal business tax and net worth tax. There will not be withholding taxes on distributions or any tax on speculative capital gains for investors. A 1 bps subscription tax will be applied levied on the NAV of the RAIF.

The RAIF is also projected to broaden the range of the different options for structuring of various alternative funds such as real estate, private equity and hedge funds. It can take on different legal forms (e.g. corporate, contractual, or partnership) without being limited on eligible assets or investment policies.  This is brought about through the sharing of the structuring flexibility applied to some other types of Luxembourg funds such as the Société d’investissement en capital à risque (SICAR).

Luxembourgers expect the RAIF to be well subscribed, especially with US fund managers as it should be suitable for treatment as a partnership for US tax purposes. Such a flexible investment vehicle will undoubtedly contribute to the success of Luxembourg as Europe’s alternative investment centre.

The new product is scheduled to enter into force in the first half of 2016, subject to parliamentary approval. Finscoms makes sure to keep clients abreast of all that is coming down the pipeline.

Ken Carmody    [email protected]

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