Wealth managers have to understand the reasons why High Net Worth (HNW) investors want to channel their assets offshore, and design their service propositions accordingly. In Europe, this means risk mitigation has to become a more prominent theme in a provider’s international investment offering, according to GlobalData, a recognized leader in providing business information and analytics.
The company’s latest report on asset allocation trends found that an increasingly large proportion of European HNW wealth is invested offshore to escape political uncertainties.
HNW individuals invest offshore for a multitude of reasons. However, GlobalData’s research shows that the importance of political instability as a driver for offshore investments has risen dramatically over the past year.
Heike van den Hövel, Senior Financial Analyst for GlobalData, explains: “Traditionally, HNW investors in the developing world would invest offshore to protect their assets from political instability, while those in Western Europe would invest offshore to reduce home market bias or to minimize tax liabilities.”
However, GlobalData’s insight shows that the proportion of European HNW wealth invested offshore to escape political instability rose by eight percentage points within 12 months, to a noteworthy 11% in 2016.
Source: GlobalData’s 2014-2016 Global Wealth Managers Surveys
Van den Hövel continues: “The European political landscape is becoming increasingly fragmented and polarized. Recent political uncertainties surrounding Brexit negotiations, the refugee crisis, and upcoming elections have left investors worried.”
Additionally, risk mitigation is becoming an increasingly important consideration for European offshore investors. For example, GlobalData found that those investing offshore to protect their wealth from political instability tend to allocate an above-average proportion of offshore wealth to bonds.
Van den Hövel adds: “Providers should also focus on the safe haven aspects that many of the top offshore destinations, such as the US and Switzerland, offer to drive more wealth offshore. As the economic and political landscape is changing, so are the reasons for offshore investment. Clearly, wealth managers have to take this into account when designing and marketing their offshore propositions for European investors.”
Information based on GlobalData’s report: HNW Asset Allocation Trends 2017.