COVID-19 Updates & News
We started writing this letter, in our office, thinking about how to describe the successes of 2019 and what HRU achieved last year. Today that seems less important than what we are facing. HRU's offices are nearly empty, and instead, we write to you in isolation from our homes, like millions of other people. SinceJanuary, the coronavirus has rampaged over our lives and transformed our world, presenting an unprecedented challenge to economy and civilization. The implications of the coronavirus for our investors, employees, and shareholders are abstruse, and they will echo for years to come.
Director's Letter to Stakeholders
The virus has killed or sickened millions, and for the healthy, it has dramatically altered our daily life and threatened financial stability. For governments, it has presented the overwhelming challenges of implementing isolation and economic fallout on a scale never before seen. For the private sector, it has disarranged how companies operate, and with small businesses and their employees invariably shouldering the most significant burden. In addition, medical professionals, in most cases, are working with insufficient equipment and a lack of hospital capacity. These people, on the frontline in this crisis, are today's heroes.
In our combined 50 years in finance, we have never experienced anything like this. The outbreak has impacted financial markets with swiftness and ferocity only seen in the financial crisis. In a matter of weeks, market benchmarks fell from record highs into an adverse market. Record low liquidity levels exacerbated these conditions in Government Treasuries, which serve as a benchmark for pricing risk across the market.
The outbreak has not only pressured financial markets and near-term growth. In essence, it has sparked a re-evaluation of many assumptions about the global economy, such as supply chains or international trade. More profoundly, people are fundamentally rethinking the way we work, shop, and travel. The world after this crisis will be different. Investors' psychology will change, business will change, consumerism will change.
As dramatic as this be, we believe the economy will recover because this situation lacks the obstacles to recover from a typical financial crisis. Bank of Canada is moving quickly to address problems in credit markets, and governments are now acting aggressively to enact fiscal stimulus. The world's experience profoundly influences the speed and the shape of these policies during the global financial crisis in 2008. We also believe their actions are likely to be more productive and work more quickly compared to challenges from decades ago.
The world is not without risk, and the market is not sure of its bottom. There are significant challenges ahead for heavily indebted businesses. If the government is not careful in the design of their stimulus programs, the economic sequela from the outbreak will fall disproportionately on the vulnerable individuals.
We believe long-term planning has never been more critical than it is today. Investors with a strong sense of purpose and long-term approach will navigate through this crisis and its aftermath much better. The world will get through this crisis, and the economy will recover. For those investors who keep their eyes off of the shaky ground, onto the horizon ahead, there are a tremendous amount of opportunities in today's markets.
HRU's most crucial responsibility – now more than ever – is to help our clients navigate this market environment and stay focused on their long-term goals.
To ensure we can continue to serve clients, despite the pandemic, we rebuilt HRU beyond the walls of HRU. In recent weeks, we have over 90% of our team working from home – managing portfolios, serving clients, and building technology. But above all, it has depended on HRU's deep-seated and robust culture. Our commitment to each other, to clients, and a shared sense of purpose have bound us during this challenging period to continue to serve our communities.
Since the emergence of coronavirus in mid-January, HRU has dedicated itself to educating investors to understand the economic and financial implications of the outbreak, hosting numerous calls for people. Our portfolio managers and financial advisors are in close contact with clients, making sure they are safe, healthy, and get prompt answers to urgent inquiries.
We continue to support clients towards better positioning to achieve long-term objectives, and HRU's engagements over time and understanding of their purpose enable us to serve them in times like these. For some clients, the recent selloff created an attractive opportunity to rebalance into equities. However, others would commit to the reverse and avoid risk by shifting towards fixed income.
HRU thrives during these volatile periods, because of the commitment we have placed on flexibility. Helping our clients manage risk and building a strategy that can weather the unforeseeable.
Flexibility is about much more than withstanding a sudden shock to markets. In essence, it also means proactively understanding and addressing long-term structural changes. We allocate a large part of our time to meeting with clients. From experience, that ability to adapt, to listen to clients, and to deliver what they truly need is what continues to drive HRU’s success.
We manage people's money, and we can only serve them if we address properly to changes that impact investment outcomes. We can only help our shareholders if we focus on the long term, and continuously evolve our business model, driving industry innovations instead of following them. We can only serve our employees and the communities if we continue to make a positive contribution to our society. We remain firmly devoted to our stakeholders by focusing on the leading analysis of asset management.
The Asset Management Landscape
The industry is going through a phase of resource consolidation, fee compression, and technological transformation, business strategy in anticipating these changes evolves the firm from a position of strength.
The decade following the financial crisis is a nurturing environment for most asset managers. A strong market rebound benefited the industry, and managers passed along the benefits to the shareholders by expanding margins and returning capital through repurchases.
HRU has been de-risking our portfolio since November 2019, by lowing our Loan to Value, decreasing lending duration, approving more senior charges, and increasing cash reserve. We are foreseeing the market adjustment coming months ahead of its time and preparing well enough into the storm. Very few managers, apart from HRU, can offer clients that full set of capabilities.
Total return over the last 5 Years
Source: Google Finance. Past performance does not indicate future investment behavior.
Coming Time of Financial Market
From what we know of history, we understand the principals of the economy. The world is entering into a new era of the low-interest-rate environment, and many industries will reset its short term and long-term goals.
To understand the future of the real estate industry, one must consider all of the pulling and pushing factors. Such are interest rate, mortgage policy, consumer financial health, inflation, and immigration policies.
The current mortgage and real estate market are experiencing "freezing" winter. The federal government has issued policies and acts to prevent Prime and Sub-Prime Institutions from defaulting or collecting mortgages despite their conditions. This methodology was utilized back in 2008 to avert market crashing and behold consumer confidence by shading banks away from negative news and troubling financial statements. The federal reserve has opened to an unlimited buyback of mortgage-backed securities and insured mortgage portfolio.
With people stuck in debt, the sense of urgency arrives at the moment of relief. Therefore, by the end of Covid-19, many would transform into panic selling to clear debt and retain cash for security. They will overflood the market with increased supply, dragging the price down in a naturally competitive structure projecting at a 20% range.
Soon after the panic selloff, stability and low-interest environment would incentivize increasing in purchase power. Drive more buyers into the market to pick up the pieces and seek return compare to saving rate in the bank. As the government of Canada printing and distributing more than double of current circulating cash, hyperinflation will kick-in to drive the standard of living much higher. With the economy in a downturn, the federal government is unable to raise taxes to recoup all the cash that will circulate.
In a time of inflation, money flows towards hard assets such as gold, real estate, and the
industrial sector for wealth protection against devaluation. Which, in turn, sling-shots the price of real estate up further than it had dropped for at least a period of one to two years.
To maintain and stimulate economic growth, Canada has to open up to human and financial capital from abroad that also increases the demand by immigration in the millions.
Assurance of HRU Financial Stability
HRU takes a conservative approach to the market since the beginning, leading to financial stability like no other in these times of uncertainty. We are building up our cash reserve and regular investment cashflow with no default in the past four years and for the foreseeable future.
Our bank-level of compliance, risk mitigation, and underwriting has prepared us for years to come. From a solid foundation, our business accomplished growth at an amazing pace. We see our company double in revenue by the end of this year while maintaining the same standard of risk avert strategy and return for our stakeholders.
Not only are we confident in our firm's financial health, but we are also achieving targets and goals set forth to propel us to the next level.
We especially want to thank all of our clients, shareholders, and employees for your trust in us and understandingness in these difficult times.
HRU's Culture and Commitment
Three founders – started HRU four years ago with a commitment to do things differently. During the financial crisis in 2008, we saw people lose much of their life savings in a matter of a few hours. These people and institutions invested in the markets, but they were not intimately aware of the risks associated with their investments. HRU sought to fill a gap by bringing rigorous risk awareness and risk management to the investment industry.
From the earliest days of HRU, we focused on building a robust and unified culture. One that innately focused on the needs of clients, aware of the value of our people, powered by a sincere pledge to making a positive contribution to our society. As we grow, that culture has continued to fuel HRU. It penetrates every level of the organization and differentiates us from other financial services firms.
As businesses adjust to operating in a much virtual environment because of the coronavirus outbreak, staying connected is more challenging, but also more critical than ever before. It requires precise planning, agile use of technology, and a great deal of patience and flexibility. But most of all, it requires an influential culture. Our team works in a challenging environment and deserves increased support and attention. Although we are physically apart, we are continuously strengthening the bond within the firm, which enables us to fulfill the clients and continue to grow.
Our investors, and the capital they provided, have enabled us to build the best possible investment and technology platform to invest for the future consistently. Our investments have helped us to navigate and lead structural change in our industry and generate more potent, more consistent growth and long-term value.
Our clients are why we exist, and everything we do is to help them achieve their goals. By investing in the future, making quality investments accessible, and helping navigate crises, we meet our purpose by helping more people experience financial well-being.
Communities transformed over the past few months. This pandemic is an important reminder of our shared humanity. We must be unified in supporting each other, protecting our health, and continuously strengthening our ability to prepare and respond to crises like this.
To all of our employees, friends, clients, and shareholders, and to all the communities where we operate, please do all you can to stay healthy and be safe.