Mayfair 101 Group Update on COVID-19 Global Pandemic

1. The Grey Rhino

At this time the globe is gripped by a difficult-to-quantify, complex and rapidly evolving challenge which has the potential to negatively impact the health of many members of the community. 

Whilst the potential ramifications of COVID-19 warrant a level of alarm and anxiety, the global reaction suggests there are other underlying drivers of our fear and concern.

COVID-19 has been widely categorised by so-called experts in investment circles as a “black swan” event, a metaphor for an extremely rare event that is unforeseen and has an enormous impact. This theory was developed by economist Nassim Nicholas Taleb in 2001 - inspired by a 2nd-century Roman poet who presumed that such birds didn’t exist - and has been applied to such disparate outliers as the 9/11 attacks and the development of the internet.

The Mayfair 101 Group prefers to subscribe to the “grey rhino” metaphor that is perhaps less mainstream and refers to highly probable but neglected threats that have an enormous impact. It was coined by Michele Wucker, a policy analyst who came up with the term after the 2012 Greek financial crisis.

Regarding the COVID-19 crisis, Wucker recently wrote: “Given what we know about pandemics and their increasing likelihood, outbreaks are highly probable and high impact. I coined the term “grey” for exactly such events: obvious, visible, coming right at you, with large potential impact and highly probable consequences.”

The human race has survived and continues to endure far worse from a pure fatality standpoint. 

  • Seasonal flu is estimated to have killed 34,200 people in the United States in 2019-2020 (down from 61,000 in 2017-2018), representing 29,200 more than have died to date from COVID-19 worldwide;

  • Traffic accidents which kill about 1.25 million annually yet seem to be accepted as the status quo. 

Furthermore, despite the likelihood that the majority of people are unlikely to contract the virus (based on current projections), and the vast majority who do will survive, people and governments are reacting in some extreme ways.

Short term ‘weathering the storm’ behaviours like wearing damp and porous surgical masks (which at best stop the passing on of the infection) or accumulating toilet paper (which is not in short supply until people overbuy), create self-perpetuated temporary supply shortages which inevitably subside. 

COVID-19 has highlighted the vulnerability of society and financial markets to pandemics, with only 7 of the ASX’s top 200 stocks remaining in the black in recent weeks.  It has emphasised the world’s vulnerability of interdependence, and the importance of diversification in any portfolio.

At the end of the day, the gap between our fear and the actual risk will close – the key question is how long this will take and what economic damage will result.  

The Mayfair 101 Group expects that markets will start to normalise in the short term providing virus isolation measures are implemented.  We expect the recovery to be swift due to the nature of the virus being health-related (compared to the GFC, which was largely due excessive leverage against overpriced assets, and therefore more systemic within the financial services industry).  This will provide considerable opportunities to purchase quality assets at below-market prices until conditions normalise.

2. The Australian Government’s response as COVID-19 reaches global pandemic status

COVID-19 is thought to have originated in China (Wuhan province). Significant outbreaks are now occurring across the world with more than 100 countries reporting infections. 

At this time, cases in Australia have been relatively small in number, but the medical advice is that the COVID-19 will continue to move throughout the Australian community. 

Drastic measures such as shutting workplaces and schools are likely to be taken as precautionary measures to minimise risk of longer-term economic damage.  It is evident that the virus is unlikely to effectively be contained, and therefore the collective view is that the Government is not necessarily looking to completely contain the virus; they are really focusing on slowing the spread and rate of infection (which is expected to be at the forefront of government agencies globally).

The Australian Government has emphasised that our health system is well prepared to manage an outbreak of COVID-19, and we are seeing the Government move swiftly to mobilise a number of important short term initiatives such as activating the National Incident Room, releasing masks from the National Medical Stockpile, enhancing border controls and imposing strict travel restrictions. 

This week the Australian government announced an economic response totalling AU$17.6 billion across the forward estimates, representing 0.9 per cent of annual GDP. The Government’s economic response targets four key areas: 

 

  • Delivering support for business investment;

  • Cash flow assistance for employers;

  • Stimulus payments to households to support growth; and

  • Assistance for severely affected regions.

The Mayfair 101 Group considers the Australian Government’s prudency measures will continue to be deployed over the next few weeks, and will therefore help contribute to rapid containment of the spread of COVID-19.  The Government’s response will boost investor confidence in line with the perceived and actual effectiveness of its actions.

 

3. How COVID-19 is impacting commerce

The coronavirus has negatively impacted the global tourism industry and extended to interrelated sectors, such as retail, technology, and manufacturing.  Supply-chain disruption stemming from COVID-19’s rapid escalation in China has resulted in significant disruption to core industries such as manufacturing which are running well below capacity.

Other affected countries, including South Korea, US, Italy, Spain, Japan, Singapore and many others may also see their economies slowing as they ramp up measures to protect the health of citizens as COVID-19 continues to spread.

 

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The real test is whether businesses will have enough resilience to operate through the slowdown.  Government support is absolutely necessary as is a general understanding from consumers that our demands may not be capable of being met until conditions normalise.

The fear of the unknown is a large factor, and there’s no doubt the government agencies are acutely aware that maintaining business confidence; coupled with the belief that this crisis will be relatively short lived is the only way that will allay many from having to make meaningful cutbacks to address falling revenues, such as cutting back on workforces, reducing overheads and holding off on investment. Should businesses feel compelled to cut back due to the crisis being drawn-out, the potential for a deeper and more damaging recession increases.

 

4. Investment strategy

The Mayfair 101 Group is driven by the fundamental investment principle to adhere to in late-cycle investing, which is to maintain exposure to growth potential without assuming more than an acceptable level of risk across the Group’s portfolio.  The Group’s focus on unlisted assets means a lower susceptibility to valuation fluctuations, which has proven a sound strategy following the COVID-19 outbreak.

The Mayfair 101 Group has identified three key areas to allocate capital toward in the current environment, those being:

  • Undervalued or easily re-valued real estate;

  • Private/business credit (secured by real assets); and

  • Emerging countries (which are in the growth stage of the credit cycle).

The key attraction to these sectors are that they are not as susceptible to existential shocks such as the impact that COVID-19 is having (unlike stocks and publicly trade debt), and each have the potential to provide an acceptable level of liquidity, a hedge against rising (or surprising) inflation, as well as a portfolio diversifier.

Historically, real assets tend to do well in a late-cycle investment environment as supply of both goods and services falls behind the demand for them. This has contributed to the Mayfair 101 Group’s current push to accumulate well priced real assets. 

 

5. Proactive measures being taken by the Mayfair 101 Group

The Mayfair 101 Group continues to actively monitor and act on the advice of our State and Federal Governments and subject matter experts with respect to the best ways to protect our staff, their families, and our broader community from any health risks posed by COVID-19.

At an operational level, the Group is taking steps to contribute to the stabilisation of the spread of COVID-19 by having staff in its London, Melbourne and Sydney offices work from home.  Additional hygiene measures have been implemented, including a comprehensive office clean to ensure the workplace is safe for staff and guests, and travel has been reduced to an essential basis only.

The Group has implemented capital prudency measures and various contingencies to minimise the impact of COVID-19 with a focus on frugality whilst continuing operations as normal.  These measures will enable the Group and our various portfolio companies to benefit from the expected normalisation of conditions in the short-medium term.

6. How you can help

The best way for Mayfair Platinum and IPO Wealth’s investors to play their role in ensuring we collectively see through the COVID-19 storm is by taking no action with their investment.  This enables our investment management team to focus on developing our assets and readying the Group to benefit from the abundance of opportunities that will (and already are) presenting themselves.

Our Client Relationship Management team is on hand for any investor queries as is our investment management team that prudently manages our Group’s assets.

 

7. Out of crisis comes opportunity 

The Mayfair 101 Group is positioning itself to take advantage of undervalued assets stemming from the COVID-19 pandemic.  We are focused on increasing our cash reserves to higher than normal levels to enable us to act swiftly when opportunities arise to further strengthen the Group’s balance sheet.

This action has included suspending certain contracts until conditions normalise, which provides the advantage of freezing our position without incurring additional costs, enabling the Group to boost cash reserves whilst retaining its entitlements under the investment agreements.

Our investment management team is comfortable that the series of steps taken to protect the Group during COVID-19 have been implemented carefully and promptly to ensure sustainability and strength such that the Mayfair 101 Group can capitalise upon the unprecedented adversity.

Other affected countries, including South Korea, US, Italy, Spain, Japan, Singapore and many others may also see their economies slowing as they ramp up measures to protect the health of citizens as COVID-19 continues to spread.

 

---

The real test is whether businesses will have enough resilience to operate through the slowdown.  Government support is absolutely necessary as is a general understanding from consumers that our demands may not be capable of being met until conditions normalise.

The fear of the unknown is a large factor, and there’s no doubt the government agencies are acutely aware that maintaining business confidence; coupled with the belief that this crisis will be relatively short lived is the only way that will allay many from having to make meaningful cutbacks to address falling revenues, such as cutting back on workforces, reducing overheads and holding off on investment. Should businesses feel compelled to cut back due to the crisis being drawn-out, the potential for a deeper and more damaging recession increases.

 

4. Investment strategy

The Mayfair 101 Group is driven by the fundamental investment principle to adhere to in late-cycle investing, which is to maintain exposure to growth potential without assuming more than an acceptable level of risk across the Group’s portfolio.  The Group’s focus on unlisted assets means a lower susceptibility to valuation fluctuations, which has proven a sound strategy following the COVID-19 outbreak.

The Mayfair 101 Group has identified three key areas to allocate capital toward in the current environment, those being:

  • Undervalued or easily re-valued real estate;

  • Private/business credit (secured by real assets); and

  • Emerging countries (which are in the growth stage of the credit cycle).

The key attraction to these sectors are that they are not as susceptible to existential shocks such as the impact that COVID-19 is having (unlike stocks and publicly trade debt), and each have the potential to provide an acceptable level of liquidity, a hedge against rising (or surprising) inflation, as well as a portfolio diversifier.

Historically, real assets tend to do well in a late-cycle investment environment as supply of both goods and services falls behind the demand for them. This has contributed to the Mayfair 101 Group’s current push to accumulate well priced real assets. 

 

5. Proactive measures being taken by the Mayfair 101 Group

The Mayfair 101 Group continues to actively monitor and act on the advice of our State and Federal Governments and subject matter experts with respect to the best ways to protect our staff, their families, and our broader community from any health risks posed by COVID-19.

At an operational level, the Group is taking steps to contribute to the stabilisation of the spread of COVID-19 by having staff in its London, Melbourne and Sydney offices work from home.  Additional hygiene measures have been implemented, including a comprehensive office clean to ensure the workplace is safe for staff and guests, and travel has been reduced to an essential basis only.

The Group has implemented capital prudency measures and various contingencies to minimise the impact of COVID-19 with a focus on frugality whilst continuing operations as normal.  These measures will enable the Group and our various portfolio companies to benefit from the expected normalisation of conditions in the short-medium term.

6. How you can help

The best way for Mayfair Platinum and IPO Wealth’s investors to play their role in ensuring we collectively see through the COVID-19 storm is by taking no action with their investment.  This enables our investment management team to focus on developing our assets and readying the Group to benefit from the abundance of opportunities that will (and already are) presenting themselves.

Our Client Relationship Management team is on hand for any investor queries as is our investment management team that prudently manages our Group’s assets.

 

7. Out of crisis comes opportunity 

The Mayfair 101 Group is positioning itself to take advantage of undervalued assets stemming from the COVID-19 pandemic.  We are focused on increasing our cash reserves to higher than normal levels to enable us to act swiftly when opportunities arise to further strengthen the Group’s balance sheet.

This action has included suspending certain contracts until conditions normalise, which provides the advantage of freezing our position without incurring additional costs, enabling the Group to boost cash reserves whilst retaining its entitlements under the investment agreements.

Our investment management team is comfortable that the series of steps taken to protect the Group during COVID-19 have been implemented carefully and promptly to ensure sustainability and strength such that the Mayfair 101 Group can capitalise upon the unprecedented adversity.

“The team at Mayfair 101 is professional and forward thinking when it comes to making strategic investments. I was most impressed with their thorough and methodical due diligence process which ensures that they identify and make quality investments in scalable businesses with higher ROIs, thus enabling investors to earn a strong, consistent return on their money. I would gladly recommend Mayfair 101. ”  
- William Wong, Liven (Founder & CEO)
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This website is published by Online Investments Pty Ltd (t/a ‘Mayfair 101’) (ABN 981 34 785 890, AFSL Auth. Rep. No. 001 274 568 of Quattro Capital Group Pty Ltd (ABN 88 128 914 965, AFSL 334653)). It is provided by way of general information only, is subject to change, and may not be relied upon by any person. Mayfair 101 is an Australia-based provider of investment and corporate advisory services, including funds management, asset management, capital raising, corporate advisory, mergers and acquisitions advisory, and direct investment, either directly or through members of its corporate group. Mayfair 101’s authority under its appointment by Quattro Capital Group Pty Ltd under the Corporations Act 2001 (Cth) is limited to the provision of financial services to wholesale clients in Australia only, including general (not personal) financial product advice relating to deposit products, foreign exchange contracts, derivatives, interests in managed investment schemes and securities. Mayfair 101 and the members of its corporate group may have a beneficial interest in the financial services and products of that group. Mayfair 101 provides advice in relation to financial products of its corporate group only, and terms, conditions and risks apply in respect of such financial products. Such financial products are not a comprehensive range of all possible investment products, are not bank deposits and (like most investments) may be subject to greater risk of capital loss and negative returns than traditional investment products. Prospective investors are strongly encouraged to seek independent professional legal, financial, accounting, taxation and valuation advice before deciding whether they consider any financial products to be suitable for them, and to request any relevant disclosure documents (such as Product Disclosure Statements and/or Information Memoranda) to ensure that they are fully informed before making any investment decision. Past performance should not be relied on as an indicator of future performance. The financial products offered by Mayfair 101 and its corporate group are available to wholesale clients resident in Australia only. Mayfair 101 does not accept investment from retail clients, non-wholesale clients or residents of countries other than Australia. Mayfair 101 and the members of its corporate group are not deposit-taking institutions in Australia or elsewhere and are not authorised to conduct banking activities under the Banking Act 1959 (Cth).

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