Tax efficiency no longer primary driver for offshore investment
Access to greater or better range of investment options has become a primary driver for the high net worth (HNW) offshore investment, rather than the commonly believed tax efficiency, according to Verdict Financial.
The firm's report found that HNW individuals' decisions to invest offshore in 2015 were generally based on a multitude of reasons, which often included geographic and demographic factors, as well as political, economic or monetary conditions in their country of residence.
Verdict Financial's senior analyst, Heike van den Hoevel, noted that due to recent scandals and increased media attention, the word offshore became "overwhelmingly associated with tax avoidance or even evasion".
"Wealth managers need to understand that there is no single reason driving HNW offshore investment, and that providers have to factor in pronounced regional differences when designing their offshore propositions," he said.
"For example, German HNW investors, who traditionally only invest a small proportion abroad, have been increasing their offshore holdings, mainly due to the lack of returns that can be earned at home, while HNW individuals in South Africa have been eager to channel wealth offshore to escape currency volatility in their own country, which suggests that offering hedging tools is essential," he said.
According to Verdict Financial, in 2015, 24.1 per cent of investors using offshore HNW investment to access a greater or better range of investment options.
This was followed by tax efficiency (23.2 per cent) and better investment returns offshore (21.9 per cent).
Other important drivers to look for investment options elsewhere included expectations for the local currency to weaken (10.4 per cent), local politics (7.6 per cent), economic (5.4 per cent), instability as well as client anonymity (3.5 per cent), and the familiarity with a given geography where individuals used to live (1.8 per cent).
"Verdict Financial believes that local wealth managers would do well to offer a wider range of investment funds providing exposure to international markets to avoid losing funds to offshore providers. On the flipside, providers looking to attract offshore wealth should highlight more beneficial investment conditions in their country," van den Hoevel stressed.
AUTHOR
Oksana Patron
Recommended for you
Australian fund managers are actively seeking to launch Cayman versions of their funds to attract offshore flows, with Regal Partners set to launch its latest offering this month.
As private markets gain traction in Australia but only a limited pool of talent is available, three recruiters explore whether fund managers should consider looking overseas to find top talent.
With an explosion of private credit managers appearing in the market, two alternatives experts believe a consolidation is needed to maintain the quality of the sector.
Bentham Asset Management has become the latest fund manager to expand its distribution team as it reports increased interest in its credit strategies.
