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Pragmatism in the face of uncertainty

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In his latest monthly blog, Joel Press, formerly a senior partner and Head of the Global Hedge Fund Practice at Ernst & Young, and a leading voice on hedge fund operations and co-ordination services, looks at how social distancing might work as businesses begin to consider a return to office working…

As the world comes to grips with Covid-19, one of the next biggest challenges will be how countries develop their exit strategies post-lockdown. 

How will businesses approach going back to the office and how will social distancing work inside the office? Practical, physical office considerations will need to be thought through. Will the physical office need to reconfigured from the open plan spaces designed in recent years? Will the cafeteria continue to prepare and serve food, or must it be delivered to individual work stations? Will you permit outsiders to come to your office for meetings? Will you limit how many people can be in an elevator at a time and will you require (and provide) masks to be worn all day in the office, regardless of whether personnel have a private office or only in elevators or open or common spaces? 

The list of concerns and questions related to making sure the office is safe is mind boggling yet critical to a safe, measured opening of the office and getting back to some degree of normalcy. Added to those considerations is the key factor of the health and safety of your employees. 

It may take some time to understand and implement the modifications required so that the physical space and new protocols comply with the recommendations of our health professionals. Local governments will likely dispense specific guidelines.

During this period of time as the list of adaptations is finalised and the alterations are made you should be thinking of who and when it is necessary for the team to begin returning to the office. The past months have exhibited that having a strong disaster recovery plan that anticipated the possibility of the necessity of working remotely and intensive IT support can enable an entire office to work together seamlessly out of each employee’s individual home. 

If that is, in fact, the situation with your firm, you need to consider if, given all of the potential issues outside of your control, it is essential for your employees to return to the office right away.

As you begin to tackle the personnel issues it is important to think about what roles might be having their efficiency compromised by working remotely and having the individuals performing those roles be at the top of the list to work to re-enter office workspace. 

Many firms have been continuing team calls during this period and managers of each team should be speaking with their team members individually and as a group to see how they are thinking about returning to the office. Those with small children who are likely to have had their children’s school, daycare and after school activities cancelled for the balance of the school year are likely grappling with child care issues if they return to the office. 

For offices, particularly in New York City and other metropolitan areas, the issue of commuting by public transportation is problematic. You may find resistance from many on physically returning to the office due to these concerns. And we haven’t even touched on medical issues. 

There continues to be a lot of uncertainty with respect to testing both in terms of availability and accuracy. This disease which initially seemed to have the highest impact on the elderly and those with co-morbidities has managed to hit every demographic. We cannot presume that because those who work in this industry skew to younger, healthier, fitter individuals they are immune. It is probable that if a younger person is infected their symptoms may be milder or their likelihood of survival is higher. 

Anecdotally, I have heard that many young people have taken residence with their parents, including those with partners and children. This may be because they live in smaller apartments or with roommates and appreciate the space in a parent’s home. Those with children and working partners may have appreciated child care support from their extended family. Regardless of the reason, those employees cannot risk bringing the virus home to parents and grandparents. 

At least for the short term, this group may request to continue working from home.

Realistically a vaccine is at best 9 to 12 months away. We have no assurance that having had the virus makes one immune to future infections after exposure, and if so, how long that immunity might last. The best you can do right now is to actively monitor your staff to make sure that those who might be sick are identified and sent home for isolation immediately. Larger companies are setting up to check the temperature of every person coming in to the office every day. 

That may not be realistic with smaller organisations. 

As a baseline do you require every employee to be tested to see if they have antibodies? (And until there is assurance that antibodies can prevent recurrence of the virus, does it matter?) What do you do with those employees with no antibodies? 

Given the prevalence of those with antibodies who were asymptomatic do you test for the virus on those without antibodies on a regular basis? All of these questions related to personal health and testing of employees touches on privacy issues. In a pandemic, many will argue that the impact on community health is paramount. You may find members of your staff that disagree and find that privacy issues are far more important. 

Over the medium term, one of the questions managers face is, ‘How do we think about office space? Do we need to be paying so much rent?’ As leases come due will firms want or need as much space as before? 

I suggest not, as most groups have been surprised at the efficiency with which firms have operated during this shelter at home period. 

Wall Street has found that a virtual office can work and you can create community in many different ways. Employees have also appreciated having a two minute commute and are utilising that time effectively. While informal surveys indicate that most employees do not want to work remotely at all times, this experience has not been all bad. Those with families are enjoying the balance that reallocating “commuting time” to family time has given them. 

I suspect the future will hold that up to 30 to 50 per cent of the work force will be randomly rotated into the office and work from home.

On Wall Street, moving to a virtual work environment has also been seamless for the service provider relationships. 

To my knowledge, prime brokers have had no serious breaches or trade execution issues. Fund administrators have continued doing their NAV valuations and calculations – it has all worked perfectly fine. Disaster Recovery and Business Continuity Plans have worked well. Infrastructure has proven to be flexible. The effective conversion of a physical office to one where all members of the team work remotely is something for managers to communicate with investors; especially those who are actively fundraising. 

This is arguably one of the greatest market opportunities for hedge funds to have outstanding performance in coming years. 

Some stocks have been crushed – especially in sectors such as aviation and hospitality – while distressed credit now presents huge opportunities. The Lehman trade was one that kept on giving in the wake of the ’08 financial crisis. I think you’ll see many Lehman-like trades (as a result of bankruptcies) emerging over the coming months – but how do you say that to investors, when there are people dying from this virus?

My advice to managers is, while this is definitely an environment for raising money, make sure it is a thoughtful, carefully worded conversation: you never know what impact Covid-19 might have had on an investor. Explain that with such depressed values in the market, this is now an opportune time to be investing and planning for the future. 
Life is full of potholes. The Great Depression, World War II, 9/11…all of these were terrible events. Market crashes have always existed but so have market recoveries. After the devastation of the Spanish Flu pandemic in 1918 the world got through it and what followed was the ‘roaring 20s’; a decade or widespread economic growth. 

This is one of the worst events most of us will have seen in our lifetime and hopefully we’ll never see it again. But there is always light at the end of the tunnel. Wall Street has shown it is resilient. The financial markets, post-pandemic, will be more necessary than ever and Wall Street will be crucial to supporting the changes in how we live as a society.

For hedge fund managers, there are lots of questions to ponder in these unprecedented times. You will likely find the firm engaging not only tax advisors and lawyers to work through the recent tax changes, and potential employment issues but Occupational Health advisors to insure that you are properly implementing necessary changes to safety and cleanliness processes to protect your employees.

At this time we need to be dedicated to the safety and well-being of our employees, their families and our firms, while maintaining a positive and thoughtful approach to getting back to normal and delivering great performance to our investors.

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