HNW Offshore Investment: Drivers and Motivations
The proportion of HNW individuals who invest offshore has been on the rise despite the scandals that have shaken the industry. While the reasons are diverse and differ from country to country, an expectation of better returns abroad, international business interests, and local political and economic instability top the list. However, we are seeing notable differences between regions, suggesting that one strategy does not fit all. For example, tax efficiencies as a driver for offshore investments are of particular importance in Europe and North America. This means assisting HNW investors in minimizing their tax liabilities is key in these regions. Meanwhile, in Asia Pacific business interests are a significant driver, so a well-designed business and investment banking proposition neatly integrated with standard private banking services is a must.
This report draws on our 2018 and 2019 Global Wealth Managers Surveys to analyze the drivers behind offshore investments in the HNW space. It examines and contrasts offshore HNW investment preferences across 27 jurisdictions, providing readers with an in-depth understanding of what is motivating HNW investors to look for new homes for their wealth.
- At a global level, 32.5% of HNW wealth is invested outside ones country of residence.
- North American investors offshore the largest proportion of their wealth to achieve tax efficiencies (19%), but only 62% of European providers are able to advise clients on the taxation of their international assets.
- 32% of global HNW wealth is held via equities, 15% via bonds, and 18% via property.
- Economic and political instabilities are driving 16% of global HNW wealth offshore.
- Political and economic uncertainties as an offshore driver are becoming more important, now accounting for 13% of offshore investments.
Reasons to Buy
- Understand the global trends that are driving offshore investments in the HNW space.
- Compare how HNW offshore investment drivers differ across 27 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.
- Learn how political and economic instability affects client preferences and how global markets shape investment behavior in the HNW space.
1. EXECUTIVE SUMMARY
1.1. HNW offshore investment is driven by a multitude of factors
1.2. Key findings
1.3. Critical success factors
2. GLOBAL TRENDS DRIVING HNW OFFSHORE INVESTMENTS
2.1. Increasingly easy access will drive offshore investments across the globe
2.1.1. A third of HNW offshore wealth is booked abroad
2.1.2. A sophisticated offshore proposition has become a hygiene factor
2.2. An expectation of better returns abroad and business interests account for a third of HNW offshore investments globally
2.2.1. HNW investors are looking for better returns abroad
2.2.2. Already the second most important offshore driver, the importance of international business interests is set to increase
2.2.3. Taken together, tax efficiencies and client anonymity are the number one driver for offshore investments
2.2.4. Other drivers include access to better investment options, local political and economic instability, expatriate money flows, and currency volatility
2.3. Significant regional differences exist in the motivations for offshore investment
2.3.1. Offshore propositions must be tailored at a country or regional level
3. DETAILED DRIVER ANALYSIS
3.1. Local market factors drive the variety in HNW individuals' motivations for offshore investment
3.2. Driver one: HNW investors are betting on better returns offshore
3.2.1. Despite a desire to capitalize on returns abroad, HNW investors are taking a more careful and diversified stance
3.2.2. Investors who look for better returns abroad are biased towards the US
3.2.3. Chinese HNW investors look for returns abroad in the property space, but tensions with the US will affect booking center preferences going forward
3.3. Driver two: Business interests as a driver for offshore investments means offering hedging products is a must
3.3.1. Targeting Japanese HNW entrepreneurs requires a sophisticated offshore proposition
3.3.2. Increasing business dealings with the US will see more Taiwanese HNW wealth flow offshore
3.4. Driver three: Political and economic uncertainty
3.4.1. Economic factors are marginally more important than political ones as an offshore driver
3.4.2. Political instability remains an important driver for offshore investments in Europe
3.4.3. Political and economic instability are also major concerns in South Africa
3.4.4. Providing access to safe havens is paramount in countries where economic and political stability rank highly
3.4.5. Hong Kong seeks to defend its safe haven status amid economic and political unrest
3.5. Driver four: Access to a broader and better range of investments is also an important consideration in the offshoring decision
3.5.1. Domestic market sector concentration bias drives offshore investment in the developed world
3.5.2. Access to a broader range of investment options is also an important driver in markets with limited investment options
3.6. Driver five: The desire for tax efficiency represents an opportunity, but achieving anonymity is becoming increasingly challenging
3.6.1. With a few exceptions, the importance of tax efficiency and client anonymity as an offshore driver go hand in hand
3.6.2. Compliance is becoming an increasingly big headache, but technology can assist
3.6.3. The US and fake residency information are the biggest issues facing CRS
3.6.4. Tax efficiencies are a major driver in the UAE despite the lack of income taxes
3.7. Other drivers: The importance of currency volatility, geographic diversification benefits, and expat money flows vary across markets
3.7.1. Players looking to attract offshore HNW wealth should highlight the benefits of geographic diversification, while smaller companies should promote funds
3.7.2. Expat flows are an important driver in countries with high immigration rates
3.7.3. Currency volatility as a driver for offshore investments is becoming more important
4.1. Supplementary data
4.2. Abbreviations and acronyms
4.3.4. Liquid assets
4.3.5. Mass affluent
4.4.1. GlobalDatas 2019 Global Wealth Managers Survey
4.4.2. GlobalDatas 2018 Global Wealth Managers Survey
4.5. Secondary sources
4.6. Further reading
List of Tables
Table 1: Offshore investments as a proportion of total managed HNW wealth, 2018-19
Table 2: HNW offshore investment drivers, 2019 (part 1)
Table 3: HNW offshore investment drivers, 2019 (part 2)
Table 4: HNW offshore investments by asset class, 2019
List of Figures
Figure 1: HNW demand for offshoring is forecast to increase in all but one country
Figure 2: Increasingly easy access is driving demand for offshore investments
Figure 3: An expectation of better returns abroad is the number one offshore driver in the HNW space
Figure 4: Tax efficiencies are a major consideration in the West
Figure 5: After a weak 2019, HNW investors in Singapore are betting on better returns offshore
Figure 6: HNW offshore allocations decreased in 2019
Figure 7: The S&P 500 has outperformed the OMX, SSE, and MSCI World since January 2016
Figure 8: Chinese offshore assets are heavily weighted to property and equity
Figure 9: UBS supports its clients with a wide variety of products to mitigate currency risk
Figure 10: Business interests are a major offshore investment driver in Japan
Figure 11: South Africans are driven offshore by instability
Figure 12: Political stability is a major concern in Turkey
Figure 13: Hong Kong is seeking to position itself as an international and competitive economy as political unrest continues
Figure 14: Access to a broader range of investment options is of particular importance in China
Figure 15: Despite the lack of income taxes, tax efficiencies are a major driver in the UAE thanks to its significant expat population
Figure 16: Kendris app keeps professionals updated on compliance deadlines
Figure 17: Opinions on whether CRS will benefit non-participating jurisdictions are divided
Figure 18: Currency volatility is a major driver in South Africa
Figure 19: The Turkish lira has enjoyed a wild ride over the past few years
Figure 20: Investec provides non-resident mortgages to South African HNW investors
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