HNW Offshore Investment: Drivers and Motivations 2017
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.
This report draws on our 2016 Global Wealth Managers Survey to analyze the drivers behind offshore investments in the HNW space. It 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 -
- Understand the global trends that are driving offshore investments in the HNW space.
- Compare how HNW offshore investment drivers differ across 17 countries.
- Learn why certain HNW offshore drivers are more relevant in some countries than in others and how this affects your business.
- Understand how to react to the constantly changing tax environment and adjust your offshore proposition accordingly.
- 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
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 OECDÂ’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. GlobalDataÂ’s 2016 Global Wealth Managers Survey 48
4.4.2. GlobalDataÂ’s 2015 Global Wealth Managers Survey 48
4.5. Bibliography 48
4.6. Further reading 49
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
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
Secondary Research Information is collected from a number of publicly available as well as paid databases. Public sources involve publications by different associations and governments, annual reports and statements of companies, white papers and research publications by recognized industry experts and renowned academia etc. Paid data sources include third party authentic industry databases.
Once data collection is done through secondary research, primary interviews are conducted with different stakeholders across the value chain like manufacturers, distributors, ingredient/input suppliers, end customers and other key opinion leaders of the industry. Primary research is used both to validate the data points obtained from secondary research and to fill in the data gaps after secondary research.
The market engineering phase involves analyzing the data collected, market breakdown and forecasting. Macroeconomic indicators and bottom-up and top-down approaches are used to arrive at a complete set of data points that give way to valuable qualitative and quantitative insights. Each data point is verified by the process of data triangulation to validate the numbers and arrive at close estimates.
The market engineered data is verified and validated by a number of experts, both in-house and external.
REPORT WRITING/ PRESENTATION
After the data is curated by the mentioned highly sophisticated process, the analysts begin to write the report. Garnering insights from data and forecasts, insights are drawn to visualize the entire ecosystem in a single report.