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We have a small window, now, to manage events while concurrently planning for a peak. If we do this, we'll make better decisions, look after our people, our customers and our country better. We can and must plan to be proactive and to orient around things getting worse before they get better.
Last week felt like a new COVID-19 shock every day in financial services as well as for government, each of us as individuals and our workplaces. The news, and economic outlook, became grimmer. It was predictable based on other countries experiences.
Now we’re on the logarithmic curve what happens next is even more predictable: the infection rate is doubling every three days (that may accelerate) as we head toward a peak of infection and deaths.
From now until that peak it will become increasingly difficult to plan and respond well. Once we get to the “magic number” of 6, the pressure will come off.
1. MARKET FEEDBACK: MODELLING WORSE CASE
A. Real asset owners and private equity
Real assets have been hard hit with airports and shopping centres suffering some of the largest losses due to decreased foot traffic and domestic/international travel. Rental assistance requests are coming in fast.
This will worsen short term as countries and states continue to lock down borders to contain the virus. There are conversations underway with the government regarding financial assistance for critical infrastructure assets due to solvency concerns.
Private equity deals – both acquisitions and exits – have been heavily disrupted with almost all deals delayed or called off. Venture capital funding, anecdotally, has slowed, particularly at the high end. But clients in this space are among the most optimistic in outlook, see opportunities and are reminding us many of today’s most successful tech businesses (Slack, Waze, WhatsApp, Pinterest, Stripe and Beyond Meat) were founded, and funded, during the GFC.
B. Superannuation
Super funds are seeing significant pressures for liquidity to manage churn, overlays, and currency movement. They are also witnessing increased call centre volume, with aggression starting to enter some conversations.
Younger and at-risk members, such as in the hospitality industry, are demanding early access to their super. We’ve now seen the government’s response: allowing $10,000 to be accessed per annum for people who have been made redundant and the result of successful super fund association lobbying delivering reduced minimum superannuation drawdowns for retirees in pension phase. Industry associations continue to work with the government to find solutions to liquidity pressures.
C. Fund managers
Some are beginning to see opportunity in the equity market, saying that while market timing is impossible, conditions may soon provide opportunity. Others are taking a more cautious approach, expressing a view that the market could fall a further 20% despite synchronised responses from central banks and federal government treasuries – and if the pandemic isn’t under control by May/June warning that estimates remain too optimistic.
Major concerns have been expressed in the debt markets where bonds have not lived up to their safe-haven status. Investors have flocked predominantly to US dollars which has sent the dollar index (DXY) - against other currencies. We understand this is applying added pressure to EM markets.
2. MANAGEMENT RESPONSES
Business Continuity Plans / Teams / Facilities
From an operational perspective, full BCP plans are in operation with most, if not all, staff working remotely. This is unchanged from late last week. Frequency of formalised client, employee and stakeholder communications have been ratcheted up.
With many industry organisations now completely in working from home (WFH) mode, internal communication processes are having to be adapted.
Risks include a lack of coordination, teams operating in silos, and the new ways of operating absorbing inordinate management time as you test new communication channels, help staff adjust and you (and we) migrate conversations from face-to-face to tools such as Zoom, Slack, Teams and other messaging platforms. Organisations are testing and learning - many are building the plane and learning to fly at the same time in terms of collaborative online workspaces.
With entire workforces working remotely mental health is also an issue. Some firms have deployed organisational psychologists and employee assistance programs to ensure that teams are feeling looked after and not overwhelmed.
Managers are trying hard to communicate with their teams regularly, face to face via video chat. More 1:1 time is key to make things work, but again, this takes time.
3. CEO GUIDANCE REGARDING CORONAVIRUS RESPONSES
Last week felt like a new shock every day as the news, and economic outlook, became grimmer. It was predictable however based on other countries experiences.
Now we’re on the logarithmic curve what happens next is even more predictable: the infection rate is doubling every three days (that may accelerate) as we head toward a peak of infection and deaths.
From now until that peak it will become increasingly difficult to plan and respond well.
Once we get to the “magic number” of 6, the pressure will come off. Until then there’s a window to manage while concurrently planning for a peak. and plan proactively for predictable further issues.
Plan your operational and communication response for some specific scenarios:
A. Cyber security breach or attack
This is increasingly likely where WFH necessitates using less secure networks, which are vulnerable even to amateur hackers.
1. Attack incidences have already disrupted at least one hospital in central Europe: they’re predictable in financial services.
2. Such attacks may interrupt business, open a window to financial losses, and risk business continuity.
3. Having prepared multi-stakeholder communication “good to go” with minimal adaption is key while resolving the issues.
B. Positive diagnoses and / or illness of a team or key person (CEO, Chairman or other critical roles).
1. Plan alternates for key roles and prepare communication based on logical scenarios. This might be around higher risk people such as recently returning staff who were previously highly mobile and those with pre-existing conditions are most at risk
2. If you have teams still onsite for critical services, plan backup teams and communication for the possibility a whole team is affected.
3. Plan for staff shortages due to increasing illness, self-isolation and school shut-downs
C. Start to think about the future of workplaces
A number of CEOs are telling us they think workplaces will be different forever. We encourage you to look ahead to those who are talking about the future of work post-COVID-19, or to assign this to a direct report such as your People and Culture / HR function. Before then, and based on what we hear from Asia, plan for:
1. Medium-term (6 months) WFH
2. A staggered return to work after the peak of cases
3. A resurgence in COVID-19 cases as this happens
It may be too soon now, but many CEOs thinking will soon move to permanent workplace changes such as seen in SARS affected countries. This will vary by firm, workplace type and specific site,
We’ve seen offshore advice restricting building access to visitors, sanitiser dispensers and hand washing stations. In Australia, clients are talking about longer term and permanent work from home arrangements with smaller city office footprints along hot desk or co-working lines.
4. COMMENTARY
It is likely only a matter of time before one of your team members, client or stakeholder is directly affected by COVID-19 if not already. It is critical now to plan for the peak, and to do so while you have an intact (but possibly shaken) management team, who can look ahead to the future and what we may be faced with the next weeks.
Our primary guidance today is about the importance of thinking through the worst-case scenarios and then putting in place solid plans for them, as well as your strategy and operational response. You can plan based on projections of peak coronavirus cases from health authorities, any number of mathematically capable epidemiologists, and your own work force demographics.
Do so now before it's real and your funds management business, insurer, super fund, wealth management business or other finance sector business is directly affected.
Two weeks ago, we said you needed to start planning, for a longer term duration. Some have taken direct, and fast, action. The overwhelming feedback from those who have acted is that there is benefit in seeing what others are doing, watching patterns among those who responded first here and offshore, then adapting that for your own situation.
5. WHO TO FOLLOW (UPDATED)
Tomas Puyeo, author of “Coronavirus: Why you must act now” (over 35m views) has reputedly helped influence a number of governments’ responses away from “herd immunity” (and the resulting predictable health system overwhelm resulting in higher fatalities) towards “flatten the curve”.
His new article “Coronavirus: The hammer and the dance” speaks to what we can expect if we do / don’t flatten the curve – it looks beyond the peak of deaths.
In summary, strong coronavirus measures today should only last a few weeks, there shouldn’t be a big peak of infections afterwards, and it can all be done for a reasonable cost to society, saving millions of lives along the way. If we don’t take these measures, tens of millions will be infected, many will die, along with anybody else that requires intensive care, because the healthcare system will have collapsed.
Within a week, countries around the world have gone from: “This coronavirus thing is not a big deal” to declaring the state of emergency. Yet many countries are still not doing much.
Why?
Every country is asking the same question: How should we respond? The answer is not obvious to them.
Some countries, like France, Spain or Philippines, have since ordered heavy lockdowns. Others, like the US, UK, or Switzerland, have dragged their feet, hesitantly venturing into social distancing measures.
Our healthcare system is already collapsing. Countries have two options: either they fight it hard now, or they will suffer a massive epidemic. If they choose the epidemic, hundreds of thousands will die. In some countries, millions. And that might not even eliminate further waves of infections.
If we fight hard now, we will curb the deaths. We will relieve our healthcare system.
We will prepare better. We will learn. The world has never learned as fast about anything, ever.
And we need it, because we know so little about this virus. All of this will achieve something critical: Buy Us Time.
If we choose to fight hard, the fight will be sudden, then gradual. We will be locked in for weeks, not months. Then, we will get more and more freedoms back. It might not be back to normal immediately. But it will be close, and eventually back to normal. And we can do all that while considering the rest of the economy.
This is an excerpt from today's client COVID-19 CEO response briefing. If you’ve received this from someone else, you can join the daily call (7.40am AEDT) and receive these notes directly by emailing us.