TheChek News Flow

Billionaire hedge fund investor Bill Ackman said Thursday that he expects to see market gains next year but warned there could be volatility in the months ahead as the coronavirus continues to take its toll.

Ackman told investors that he’s “happy to be long” on equity exposure and is “bullish” on 2021 at a time of low interest rates, more expected stimulus and infrastructure spending.

But he also warned that dark days lie ahead as the United States passed a milestone with 250,000 coronavirus deaths. While he is generally optimistic, the investor said it is “prudent” to insure his portfolio now amid a range of uncertainties that can lead to market volatility.

Ackman put on a new hedge — roughly one third the size of the one he put on earlier this year — as corporate credit spreads are very tight. On a conference call with investors he said he likes the companies he’s invested in now and expects Lowe’s, Starbucks, Hilton Worldwide Holdings and Chipotle to perform well after an end to the pandemic.

Pershing Square Capital Management, Ackman’s $12.5 billion firm, boasts one of the industry’s best records this year with a return of roughly 55 percent. Ackman said it is the 16-year old firm’s best year ever on a gross basis.

He said that he has agreed to hire a woman to his all-male investment team but declined to name her, saying only that she performed extremely well on the tests he gives to candidates and is expected to join late next year.

He also declined to offer any new details about his blank check company Tontine, short of saying that the extensive shareholder list will be an asset in finding a target.

• Study by oncologists stating there was evidence of Covid-19 in Italy in September last year has been dismissed by some virologists
• But Chinese cancer researcher says Italian results may need further verification but suggestions the team was unqualified were ‘nonsense’

One critic, Benjamin Neuman, a virologist at the Texas A&M University-Texarkana, said that besides some technical issues, he was irked by the fact that the paper was written by a group of oncologists and published in Tumori Journal, a peer-reviewed journal about cancer.

“Scientists are generally only expert in a narrow field,” said Neuman, a virologist at Texas A&M University-Texarkana.

“Likely the peer review would have been carried out by reviewers and editors familiar in some aspect of cancer biology, but not virus research,” he added.

Some other members in the research community were more straightforward.

“I’m not going to link it. It’s a bad paper,” said University of Arizona biologist Naim Matasci on Twitter. Non-biologists also chimed in.

“I haven’t even read that paper … but I don’t buy it for a second,” tweeted Philippe Lemoine, a PhD candidate in philosophy at Cornell University.

Science has become an extremely specialised profession and scientists studying one bacteria may hesitate to comment on a study about another because they belong to different species.

Professor Wang Shengdian, a principal investigator studying cancer at the Institute of Biophysics at the Chinese Academy of Sciences in Beijing, said that while the findings published by the Italian team in Tumori Journal might need to be verified by further studies, any suggestion that oncologists were unqualified for this investigation was “complete nonsense”

The Italian team identified antibodies that could bind specifically to the Sars-CoV-2 virus in more than 100 cancer patients’ blood samples collected as early as summer last year, months before the virus was detected in China.

This is their turf because cancer is caused by mutated cells that can trigger the immune system just like the virus.

Many oncologists spent their entire career studying how to fight cancer with the help of immune response, including antibodies, according to Wang.

The HPV vaccine is a good example of how the virus and cancer are closely related. This and some other discoveries in cancer immunology won the Nobel Prize.

“Antibodies make some of the most important therapeutics to treat cancer. To say [oncologists] know nothing about antibodies or viruses is an insult,” he said.

The Italian study was led by Professor Gabriella Sozzi, an award-winning scientist with the National Cancer Institute in Milan. Sozzi has spent nearly 40 years studying the interaction between tumours and the human immune system.

“We know that cancer keeps the immune system under control so that it cannot be recognised and eliminated,” she said in a Q&A on the researchitaly.it website in 2017.

Immunotherapy has the job of “unlocking this ‘checkpoint’ with specific antibodies,” she added.

Sozzi and colleagues were puzzled by the outbreaks in Italy, one of the worst hit countries in Europe. They noticed an unusual surge of severe “flu-like” cases reported by local doctors before the pandemic. Some oral swabs and waste water samples collected before there were confirmed cases also tested positive.

Her team happened to have kept a large number of blood samples from patients in a lung cancer screening programme dating back to September last year.

Although blood does not usually contain the coronavirus, it carried antibodies produced by the immune system after an infection.

Their findings challenged a common belief in the West, if not most parts of the world, that the pandemic started in Wuhan, in late December. Some politicians, most notably US President Donald Trump, hold China responsible for the outbreak as the birthplace of the virus.

“I am a scientist, I do not do politics,” Sozzi said in an interview with Chinese state television CGTN earlier this week.

She said that their findings showed clearly that the virus had been spreading in Italy well before the first case of infection was officially confirmed in her own country, but it did not determine where the virus had originated.

DAX:

MDAX:

SDAX:

Nikkei -0.42% Hang Seng +0.36% CSI +0.37% Shanghai +0.49% Shenzen +0.68%

Eur$ 1.1885 CNH 6.5650 CNY 6.5685 JPY 103.77 GBP 1.3282 CHF 0.9098 RUB 76.1660 TRY 7.5722 WTI$ 41.84

S&P -0.51% Nasdaq -0.02% EuroStoxx -0.03% FTSE +0.15% Dax -0.07% SMI -0.13%

Macro :

- Englander’s Millennium Is Returning $8 Billion to Investors

- Zillennials Are Going to Change Investing Forever, BofA Says

- California Orders Late-Night Curfew to Fight Pandemic Surge

- EU Could Pay Over $10b for Pfizer, Curevac Vaccines: Reuters

- Fund Flows Switching to Value From Growth Stocks, Jefferies Says

- Fund Flows Head for Bonds as U.S. Stock Buying Slows, Citi Says

Keep an eye on :

- AIBG ID : AIB in Exclusive Talks to Buy Goodbody Stockbrokers: Irish Times

- ATC NA : Altice 3Q Adj. Ebitda EU1.48b, Est. EU1.45b

- ALTR PL : Altri 9M Net Income EU24.3M Vs. EU90.7M Y/y

- ARYN SW : Aryzta’s Toland to Exit as CEO Immediately, Jordi Named Interim

- BEKB BB : Bekaert 9M Revenue Beats Estimates

- BOOZT SS : Boozt Sets Final Price in Public Offering at DKK105 a Share

- BPOST BB : Belgian Govt Won’t Cut Proximus, Bpost Stakes Below 50%: Tijd

- BC IM : Brunello Cucinelli Final 3Q Rev EU174M

- CINE LN : Regal Cinemas Owner in Talks for Rescue Package to Weather Theater Shutdowns

- COFB BB : Cofinimmo Sees FY Adjusted EPS High End Of EU6.60 to EU6.85

- EUCAR FP : Europcar Mobility Confirms Talks With Creditors on Cutting Debts

- GILD US : *WHO ADVISES DOCTORS NOT TO USE GILEAD’S REMDESIVIR FOR COVID

- HTWS LN : Millicom Holding to Sell 48 Mln Shares in Helios Towers

- DRLCO DC : Maersk Drilling Raises Low End of FY Ebitda Outlook (1)

- KN FP : Natixis Reduces London Headcount by 50 in Trading Strategy Shift

- PA8 GY : Paion Says Remimazolam EU Phase III Trial Met Primary Endpoint

- PRS SM : Prisa Calls Board Meeting to Analyze Herrero’s Offer: Vozpopuli

- PROX BB : Belgian Govt Won’t Cut Proximus, Bpost Stakes Below 50%: Tijd

- RNO FP : Nissan Said to Be in Talks with U.S. Startup to Electrify Pickup

- SHL GY : *SIEMENS HEALTHINEERS AG SET TO JOIN S&P EUROPE 350

- SIOE BB : Sioen Family to Offer EU23.00 a Share for Remaining 34% of Sioen

- SKG ID : Smurfit Kappa to Offer EU650m in New Shares

- SEV FP : Suez Says Legal Entity Protecting French Unit Still in Place

- TEL NO : Telenor Sells Tapad for NOK2.5b to Simplify Portfolio (1)

- TCM LN : U-Blox Makes Possible All-Share Offer for Telit at GBP2.50/Share

- UN NA *UNILEVER NV TO BE REMOVED FROM S&P EUROPE 350

- UNI SM : Unicaja, Liberbank Agree on Menendez as New CEO: Confidencial

- VIE FP : Veolia Welcomes Ruling on Suez Mechanism for French Water Assets

- VOW3 GY : Tata’s Jaguar Seeks to Block U.S. Imports of Porsche, Audi SUVs

- WEW GY : Westwing CEO Sells EU4.35 Million in Shares for EU23.5 Apiece

The plans have been a signature pledge of the president’s since his 2016 election campaign

The Trump administration is planning on Friday to roll out two final rules aimed at lowering drug prices—one curbing rebates paid to middlemen in Medicare and another pegging the prices of certain prescription drugs in the U.S. to their prices in other developed countries, according to a person familiar with the planning.

The plans, slated to be announced in the White House Rose Garden, have been a signature pledge of President Trump’s since his 2016 election campaign. Both rules are expected to be final, meaning they have completed the required public comment period and can take effect immediately.

Drugmakers, pharmacy-benefit managers, and others in the pharmaceutical industry had lobbied over the two rules. Drugmakers had hoped to stop the first-ever price controls linked to prices charged in other nations. Pharmacy-benefit managers, which serve as third parties that manage benefits for Medicare as well as Medicaid managed care, fought to curb rebates that are worked out between themselves and drugmakers.

The government has said it seeks to redirect those discounts toward patients.

Ending the rebates would save the drug companies billions of dollars they pay to the middlemen in Medicare, the federal health-insurance program for seniors and the disabled. An earlier version of the rule was withdrawn in 2019 because some White House advisers raised concerns about actuarial reports showing it could increase Medicare premiums.

Mr. Trump in July signed an executive order that revived the rule and added a requirement that it not raise premiums or increase federal spending. Health and Human Services Secretary Alex Azar is expected to include a letter with the rule stating that it won’t increase premiums, according to the person familiar with the plans.

An analysis of the earlier drug rebate rule by the Congressional Budget Office indicated it would boost federal spending by $177 billion and raise Medicare part D premiums between 2020 and 2029. Medicare Part D is the prescription drug benefit for the health program covering people age 65 and older.

Under the current system, pharmacy-benefit managers negotiate confidential rebates and discounts on many branded prescription drugs. Those deals aren’t always passed along to customers at pharmacies.

Drugmakers have sought to stop paying the rebates, but pharmacy-benefit managers, including Cigna Corp.’s Express Scripts, CVS Health Corp.’s Caremark and UnitedHealth Group Inc.’s OptumRx, have opposed the rule because they retain some of the rebates.

A spokeswoman for the Department of Health and Human Services didn’t immediately respond to a request for comment on the rules.

The rule pegging certain prescription drug prices to prices in other countries, also known as most-favored nation drug pricing, is expected to be announced as an interim final rule, which means it wouldn’t undergo additional public comment before going into effect immediately.

The rule aims to strong-arm pharmaceutical companies to lower prices for some of the highest-cost drugs in Medicare.

A spokeswoman for the Pharmaceutical Research and Manufacturers of America, or PhRMA, said the rule would “allow foreign governments to arbitrarily decide what medicines are worth in the United States and what diseases are worth investing in.”

The federal government is expected to change how it pays for some drugs in Medicare Part B, which includes drugs administered by health providers, and Part D, by tying them to the prices in other developed countries, which are often lower than prices in the U.S.

In Europe, governments control drug prices in a variety of ways. In some cases, a country’s national health service buys drugs and sets a price that manufacturers must meet to sell their product. U.S. prices are set on the open market and through negotiation by insurers and hospitals.

Mr. Trump has repeatedly pledged to move forward with the idea, signing an executive order mandating it in September after first proposing the price control in 2018, but industry watchers said they were unsure if the proposal would proceed after the election.

Some health-policy leaders expect the rule could face legal opposition. They have said it would deprive them of money they use for innovation and research and could stifle the development of new therapies and treatments.

The changes under the rule are likely to be driven through pilot programs operated by the Centers for Medicare and Medicaid Services.

One-fourth of adults taking prescription medications said it is difficult to afford their drugs, according to a March 2019 poll by the Kaiser Family Foundation.

Some congressional Republicans have opposed the rule on the grounds that it could stifle development. Some Democrats have backed it, saying it would lower costs.

The future of the rules once President-elect Joe Biden takes office is uncertain. Mr. Biden has called for a system or federal group to evaluate fair prices for drugs and called for limits on the prices of newly launched drugs.

Boutique investment bank shuns traditional IPO in favour of $1bn blank-cheque company merger

Boutique investment bank Perella Weinberg Partners is in talks to take its advisory business public via a special purpose acquisition vehicle in a deal valuing the division at $1bn, said people briefed about the matter. 

If the deal goes through, PWP will join a long list of companies that have shunned the traditional initial public offering route in favour of a Spac. The identity of the blank-cheque company PWP is merging with could not be learned.

The firm’s asset management business, which has about $10bn in assets, would remain independent, sources familiar with the deal said. 

PWP, which was launched in 2006 by veteran rainmakers Joseph Perella and Peter Weinberg, is hoping to list as early as the first quarter of 2021, said two people with direct knowledge of the matter.

Spacs have become one of the hottest products on Wall Street this year, with a record $55bn raised, according to data provider Refinitiv. The vehicles use money raised on the stock market to hunt for private companies to take public. 

The Spac structure has come under criticism for the incentives offered to the sponsors behind the vehicle as well as the type of due diligence being performed on companies that emerge with a public listing without having to go through the traditional regulatory and investor scrutiny of an IPO. 

PWP has been planning to go public for several years. Late in 2018 it hired advisory firms Goldman Sachs and JPMorgan Chase to lead an offering, and made key leadership changes in preparation for the listing. 

Mr Weinberg became the chief executive of the firm last year, while Bob Steel, the former Treasury Department official who joined PWP in 2014 as chief executive, took over the chairmanship.

Mr Perella, famed on Wall Street for transforming mergers and acquisition into a glamorous, moneymaking business in the 1980s, remains a founding partner.

PWP would be following other boutiques including Evercore, Greenhill, Lazard and, most recently, Moelis & Co in going public. Its listing plan comes as M&A activity has surged in recent weeks following a sharp slowdown earlier in the year because of uncertainty linked to the pandemic. 

So far, the fourth quarter of 2020 has been the third strongest for M&A in two decades. Since the start of October, $612bn of deals have been agreed, according to data from Refinitiv, up from $461bn during the same period in 2019 and $491bn in 2018.

PWP’s Spac listing plan was first reported by Bloomberg.

Ructions in March put spotlight back on role of non-bank institutions in trading

Once again hedge funds are facing increased scrutiny for their role in a crisis moment in financial markets. This time, regulators need to take more action.

The Financial Stability Board, which gathers the world’s leading financial regulators and finance ministries, this week released a comprehensive review of the turmoil that gripped financial markets in March.

The report highlights the role played by non-bank market participants in fanning a fire that the US Federal Reserve ultimately put out with unprecedented liquidity. Yet the American counterpart to the FSB, the Financial Stability Oversight Council, has been notably silent.

Congress created the FSOC in 2010 to monitor and address threats to financial stability. In 2016, FSOC examined many of the vulnerabilities identified in the FSB report, but unfortunately, the current administration failed to act and buried this work. Remedying this should be a priority of president-elect Joe Biden’s new administration.

In March, we saw a preview of what the consequences might be. While the US Treasury market ordinarily serves as a haven for investors in turbulent times, this proposition was put to the test. Traditional measures of liquidity dramatically deteriorated and volatility reached a post-financial crisis peak.

Stress rippled through financial markets and was propagated by a variety of non-bank entities. Money market funds, which played such a central role in the 2008-09 crisis, once again faced redemptions. Mutual funds and exchange traded funds contributed to selling in corporate bond markets. Selling by international central banks is likely to have put downward pressure on Treasury prices.

Hedge fund trade associations have pointed to these additional factors to downplay their members’ role. However, the contribution of hedge funds cannot be ignored.

Contemporaneous reporting, as well as subsequent analysis by the Fed and now the FSB, all show that the unwinding of highly leveraged strategies by hedge funds exacerbated market stress. Price volatility triggered margin calls — demands from lenders that the funds pledge additional cash to back their trades — and led to forced selling that contributed to a self-reinforcing spiral.

Given these disruptions, the FSB proposes a series of steps to analyse and, if necessary, address the risks posed by non-banks. Their objective is not just to increase resilience but also to reduce the risk of “any unintended consequences, including moral hazard, due to expectations of central bank interventions”.

The FSB is a valuable international co-ordinating body, but solutions will require action by national authorities. In the US, only the FSOC, which is chaired by the Treasury Secretary and includes the heads of all major banking and markets regulators, is capable of prioritising this work and facilitating the necessary co-ordination.

It should do so by drawing on the groundwork laid in 2016 when the FSOC reviewed the use of leverage by hedge funds. Its initial analysis concluded that a relatively small number of hedge funds were engaged in very large trades in highly liquid markets using enormous amounts of leverage. In a preview of the March volatility, the report noted that forced selling by hedge funds could significantly disrupt trading or funding in key markets.

Addressing such risks will require an active FSOC and market regulators who view financial stability as within their core mandate.

Additional data will also be critical. Current hedge fund reporting is inadequate, limiting regulators’ ability to assess market risks in an era of high-speed algorithmic trading in massive volume.

Regulators should also consider ways to limit hedge-fund borrowing, whether from banks or in the derivatives markets. Policy considerations will be complex. However, areas to revisit could include “haircut” practices that limit how much can be borrowed against specific assets, margin requirements in derivatives trading, the degree of central clearing in Treasury markets, and how large hedge funds exposures are incorporated into existing bank and clearing firm stress tests.

After the events of March, one would expect hedge funds to take on even greater leverage as they test the Fed’s willingness to step in again. An engaged and empowered FSOC must not let history repeat itself. Next time could be far worse.