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Market Research Report

HNW Offshore Investment: Drivers and Motivations 2017

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HNW Offshore Investment: Drivers and Motivations 2017
Published: April 25, 2017 Content info: 50 Pages
Description

At a global level, 18.7% of HNW wealth is invested outside one's country of residence. Almost a quarter of these assets are offshored for general geographic diversification reasons, making it the most important driver. Access to better investment options ranks second, followed by tax efficiencies. Strong market volatility in many parts of the world is also motivating investors to seek better returns abroad. Yet there are notable regional differences, and wealth managers that fail to understand the drivers that motivate HNW investors in a particular country to offshore wealth will have little success growing their offshore book.

Key points include -

  • Global diversification is becoming increasingly important as correlations are on the rise, making it the number one driver to offshore HNW wealth.
  • HNW investors in developing markets invest offshore to gain access to a wider range of investments, while those in developed markets seek to reduce home market bias.
  • Despite a number of tax-related offshore scandals emerging in recent years, one fifth of HNW assets are still held offshore to gain tax efficiencies. However, this driver is only prominent in a number of countries - mainly those with unfavorable and complex tax systems.
  • Recent market volatility and low interest rates in many countries across the globe have seen better returns offshore rank as the fourth most important driver for offshore investments.

Critical success factors -

  • Become a one-stop-shop - Wealth managers looking to attract offshore funds have to be prepared to offer a wide range of investment options and services. Our data shows it is offshore centers with deep and wide financial markets that top the list in terms of offshore rankings. Offering hedging tools, in particular, is becoming increasingly important as forex markets are likely to become more volatile.
  • Offer access to international markets via funds - Low returns at home are motivating investors to look for returns offshore. To avoid losing assets under management to offshore businesses, wealth managers without international operations should provide investors with access to overseas markets through funds.
  • Leveraging election-related and other political uncertainty - Political uncertainty as a driver for offshore investments is on the rise, both in emerging markets as well as some developed markets in Europe that are going to the polls in 2017. Consequently, providers should focus on the safe haven aspects many of the top offshore destinations offer to drive more wealth offshore.

The report "HNW Offshore Investment: Drivers and Motivations 2017" examines and contrasts HNW offshore investment preferences across 17 jurisdictions, providing readers with an in-depth understanding of what is motivating HNW investors to look for new homes for their wealth. Additionally, this report helps to understand the global trends that are driving offshore investments in the HNW space and also helps to learn why certain HNW offshore drivers are more relevant in some countries than in others and how this affects your business.

Companies mentioned in this report: UBP, Citibank, HomeLoan Experts, Investec, Sykes Anderson Perry

Scope

  • Global diversification is becoming increasingly important as correlations are on the rise, making it the number one driver to offshore HNW wealth.
  • HNW investors in developing markets invest offshore to gain access to a wider range of investments, while those in developed markets seek to reduce home market bias.
  • Despite a number of tax-related offshore scandals emerging in recent years, a fifth of HNW assets are still held offshore to gain tax efficiencies. However, this driver is only prominent in a number of countries - mainly those with unfavorable and complex tax systems.
  • Recent market volatility and low interest rates in many countries across the globe have seen better returns offshore rank as the fourth most important driver for offshore investments.

Reasons to buy

  • Understand how to best promote your offshore proposition.
  • Review your service offering, and adjust it based on a detailed understanding of HNW investors' offshore investment preferences.
  • Give your marketing strategies the edge required and capture new clients using insights from our data on HNW drivers for investing offshore.
Table of Contents
Product Code: GF0017IA

Table of Contents

Table of Contents

  • 1. EXECUTIVE SUMMARY 3
  • 1.1. HNW offshore investment is driven by a multitude of factors 3
  • 1.2. Key findings 3
  • 1.3. Critical success factors 3
  • 2. GLOBAL TRENDS DRIVING HNW OFFSHORE INVESTMENTS 9
  • 2.1. There are multiple drivers for HNW offshore investment 9
  • 2.1.1. Global diversification benefits rank first, followed by access to better investment options 9
  • 2.1.2. Tax efficiencies remain important, but only in a number of countries 9
  • 2.1.3. Bearish financial markets and strong currency volatility in many parts of the world are motivating investors to seek better returns abroad 10
  • 2.1.4. Other drivers include expat money flows and political, economic, and currency volatility 11
  • 2.2. Significant regional differences exist in the motivations for offshore investment 12
  • 2.2.1. HNW offshore investment is driven by a multitude of factors requiring in-depth initial scoping by wealth managers 12
  • 3. DETAILED DRIVER ANALYSIS 14
  • 3.1. Local market factors drive the variety in HNW individuals' motivations for offshore investment 14
  • 3.2. Driver one: HNW individuals invest offshore to achieve diversification benefits 14
  • 3.2.1. Risk mitigation is more of a developing market aim 14
  • 3.2.2. Mature economy investors tend to globalize their portfolios to boost returns 16
  • 3.2.3. HNW individuals investing offshore to achieve diversification benefits are more likely to opt for bond investments than their peers 17
  • 3.3. Driver two: HNW individuals invest offshore to gain access to a broader and better range of investments 17
  • 3.3.1. HNW investors in developing markets invest offshore to gain access to a wider range of financial products 17
  • 3.3.2. Domestic market sector concentration bias is an important driver in developed markets 18
  • 3.4. Driver three: HNW individuals resident in countries with complex tax systems look for tax efficiency offshore 19
  • 3.4.1. HNW investors in the West seek tax efficiency when investing offshore 19
  • 3.4.2. With the exception of Taiwan, tax efficiencies are not a major driver in Asia Pacific 22
  • 3.4.3. The OECD's CRS means offshore investing for tax purposes is becoming more restrictive 23
  • 3.4.4. Tax amnesties are becoming more common, but some have proven more successful than others 26
  • 3.5. Driver four: HNW investors are betting on better returns offshore 28
  • 3.5.1. Investors in Europe and Asia Pacific are looking for better returns offshore, while this is barely a consideration in North America 31
  • 3.6. Driver five: political and economic instability is a strong driver for HNW individuals who fear for the long-term future of their assets 34
  • 3.6.1. Economic and political instability remains an important driver for offshore investors in emerging markets 34
  • 3.6.2. Investec provides South African HNW investors with access to the UK market 36
  • 3.6.3. Political instability as a driver for offshore investments is becoming more important in Europe 37
  • 3.6.4. Countries where political or economic instability is less of a concern benefit from strong HNW wealth inflows 38
  • 3.6.5. Those investing offshore to protect their wealth from economic instability tend to shun risky assets 38
  • 3.7. Other drivers: Client anonymity, currency volatility, and expatriate money flows are only relevant in a number of jurisdictions 38
  • 3.7.1. Expatriate flows are an important driver in countries with high immigration rates 38
  • 3.7.2. Currency volatility as a driver for offshore investments is only of relevance in a handful of countries 40
  • 3.7.3. The importance of client anonymity has decreased in recent years 40
  • 4. APPENDIX 42
  • 4.1. Abbreviations and acronyms 42
  • 4.2. Supplementary data 42
  • 4.3. Definitions 45
  • 4.3.1. Affluent 45
  • 4.3.2. CRS 46
  • 4.3.3. DTC 46
  • 4.3.4. HNW 46
  • 4.3.5. Liquid assets 46
  • 4.3.6. Mass affluent 46
  • 4.3.7. Residency 46
  • 4.3.8. Exchange of information 47
  • 4.3.9. TIEAs 47
  • 4.4. Methodology 48
  • 4.4.1. GlobalData's 2016 Global Wealth Managers Survey 48
  • 4.4.2. GlobalData's 2015 Global Wealth Managers Survey 48
  • 4.5. Bibliography 48
  • 4.6. Further reading 49

List of Tables

List of Tables

  • Table 1: Financial Secrecy Index - 2015 results 26
  • Table 2: Offshore investments as a proportion of total managed HNW wealth, 2015-16 42
  • Table 3: HNW offshore investment drivers in Asia Pacific, 2016 43
  • Table 4: HNW offshore investment drivers in Europe, 2016 43
  • Table 5: HNW offshore investment drivers in other countries, 2016 44
  • Table 6: HNW offshore investments in Asia Pacific by asset class, 2016 44
  • Table 7: HNW offshore investments in Europe by asset class, 2016 45
  • Table 8: HNW offshore investments in other countries by asset class, 2016 45

List of Figures

List of Figures

  • Figure 1: Global diversification is the primary driver for offshore investment among HNW clients 11
  • Figure 2: The reasons for investing offshore vary greatly by region, making a single global offshore proposition difficult 13
  • Figure 3: Global diversification benefits is a key driver for offshore investment in markets at various stages of development 15
  • Figure 4: UBP's emerging market offering represents an attractive proposition for HNW investors in slow-growth markets 16
  • Figure 5: A better range of investment options is an important driver behind offshore investments in many of the countries surveyed 18
  • Figure 6: Tax efficiency is one of the main drivers behind offshore investments for many countries with high taxation 20
  • Figure 7: Sykes Anderson Perry provides offshore tax planning services 21
  • Figure 8: Taiwanese HNW investors prefer traditional offshore havens 23
  • Figure 9: 53 early adopter jurisdictions will start sharing information in September 2017 under CRS 25
  • Figure 10: Tax efficiency is not an important consideration among Russian offshore investors 28
  • Figure 11: Better returns offshore are motivating many investors to internationalize their portfolios 29
  • Figure 12: MSCI Index performance, annualized returns 30
  • Figure 13: Home Loan Experts offers non-resident mortgage broking services 31
  • Figure 14: Central bank interest rates, April 2017, and inflation rates, 2017 32
  • Figure 15: Funds that provide international exposure allow for further diversification 33
  • Figure 16: Political instability as a driver for offshore investments is becoming more important 34
  • Figure 17: Importance of political and economic instability as an offshore driver, political stability index, and economic equality index 36
  • Figure 18: South African HNW investors are offshoring their wealth to the UK to escape political and economic instability 37
  • Figure 19: Key residency requirements of selected countries 39
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