The coronavirus (COVID-19) has dramatically impacted nearly every facet of the global economy. In a very short period, it triggered large, adverse supply and demand shocks that initially disrupted industries like travel, hospitality and healthcare. Now, with more than one-half of humanity being told to stay home, a second wave has extended into retail, restaurants, manufacturing and services sectors with resulting furloughs and layoffs that are cascading across the landscape.
As the full extent of COVID-19’s economic impact becomes more apparent, and the timeline for a return to normalcy becomes more uncertain, we are seeing businesses across industries take extraordinary action to cut costs, preserve financial capital and maintain basic operations as a means of enduring the pandemic.
Publicly traded companies are in the midst of a dramatically volatile period and have experienced significant devaluation. We are seeing them take unprecedented measures to boost liquidity: reducing or foregoing senior executive salaries, drawing down credit, drastically cutting capital expenditures, reducing or suspending dividend payments and withdrawing guidance for 2020.
Members of the IPA community are pursuing similar tactics to fortify their position and be responsible stewards of investor capital. Many monthly distribution payments have been reduced or halted; share repurchase programs have been suspended; and sponsors have drawn down, or are seeking, credit facilities in an attempt to supplement working capital. Additionally, as the impacts spread from tenants and property owners to lenders and beyond, we are seeing the Board of Directors of our asset managers proactively working with their valuation firms to reflect NAVs that appropriately capture the impact to their business and underlying assets.
None of these decisions are being made lightly, and the leaders of these companies recognize the impact they will have on investors in the short run. However, we believe these actions will help businesses strengthen balance sheets not just to weather current market conditions, but to emerge in the strongest financial position possible for their investors.
As dramatic as it has been to see much of the economy at a standstill, we believe the economic recovery will demonstrate vigor and vitality. Unlike the 2008 global financial crisis and the Great Depression before that, this economic crisis was sparked by a global health crisis, not a pervasive problem with underlying fundamentals. Our economy had been performing well and our industry was on an early pace to have one of the best years in recent history. This, coupled with global governments acting aggressively to enact broad fiscal stimulus packages, should lead to a strong and swift recovery once we get back to normal.
The IPA provides you with this information in our ongoing effort to support our community and our industry during this unprecedented time. Should you have any questions, please do not hesitate to contact the IPA staff or myself. We will continue to provide updates on this unique situation as information becomes available.
Best Wishes,
Tony Chereso
President and CEO
Institute for Portfolio Alternatives
