Offshore Investment: Booking Center Preferences 2017

Table of Contents

1 EXECUTIVE SUMMARY 1

1.1. Offshore investment is ever more skewed towards institutional investors 1

1.2. Key findings 1

1.3. Critical success factors 1

2. THE GLOBAL OFFSHORE MARKET IN CONTEXT 8

2.1. The overall offshore investment market was worth $68.5tn in 2016 8

2.1.1. Offshore investment growth is being driven by institutional investors 8

2.1.2. Ireland joins the top 10 offshore markets off the strength of its fund market 11

2.1.3. Broader investment outflows declined in 2016 as Europe turned off the taps 12

2.1.4. Offshore deposits are growing fast once again, as policy rates begin to rise 14

2.1.5. Continuing a long-term trend, offshore mutual funds advanced again in 2016 16

2.1.6. 2016 was particularly weak for offshore holdings of equities 17

2.1.7. Bond holdings increased as offshore investors rediscovered European debt 18

2.2. Offshore centers are typically adjunct to major financial markets but there is a role for specialists 19

2.2.1. The largest offshore centers are major financial markets, not tropical islands 19

2.2.2. Traditional offshore booking centers have fared poorly relative to the rest of the non-resident market 21

2.2.3. The Panama Papers caused a considerable storm and have stalled Panama’s rise as an offshore private wealth hub 23

2.3. The fastest-growing centers include markets being rediscovered by international finance and key Middle East IFCs 25

2.3.1. Offshore investors have rediscovered the charm of some developing markets 25

2.3.2. Qatar and the UAE led the Middle East in attracting offshore investment 26

2.3.3. Switzerland continues to lose AUM, though it is coming to the end of its drought 27

2.4. CRS implementation has altered the calculus of HNW offshoring 29

2.4.1. The offshore wealth management sector now needs to deal with FATCA on steroids 29

2.4.2. 2017 is a watershed year for the offshore industry due to the initial CRS reports among early adopters 30

2.4.3. Booking centers dedicated to offshore wealth management need not lose out under the CRS 30

3. BOOKING CENTER PREFERENCES OF HNW INVESTORS 33

3.1. HNW individuals globally hold on average

14.7% of their wealth offshore 33

3.1.1. HNW investors from developing markets hold far more of their portfolios offshore 34

3.2. The varied and liquid financial markets of the US make it the top HNW offshore booking center 35

3.2.1. HNW booking center preferences vary significantly depending on nationality 36

3.2.2. European HNW investors are content to use local booking centers, while millionaires from MEA seek out global destinations 37

3.3. HNW individuals in the Americas make use of a range of booking centers to diversify 40

3.3.1. HNW clients from North America are driven by a desire for diversification and tax efficiency 40

3.4. HNW investors in Asia Pacific are less geographically diversified than in the past 43

3.4.1. HNW investors in Asia Pacific have become increasingly biased towards the US 43

3.4.2. The importance of property in Asian offshore investment has led to the rise of Australia as a booking center 44

3.5. The integrated nature of the European economy means offshored money does not travel far 45

3.5.1. Switzerland is still the European capital of offshore private banking 45

3.6. Middle Eastern & African HNW investors aim to limit their exposure to small domestic investment markets 48

4. APPENDIX 51

4.1. Abbreviations and acronyms 51

4.2. Supplemental data 52

4.3. Definitions 54

4.3.1. Compound annual growth rate 54

4.3.2. HNW 54

4.3.3. Investments 54

4.4. Methodology 55

4.4.1. GlobalData’s 2017 Global Wealth Managers Survey 55

4.4.2. GlobalData’s 2016 Global Wealth Managers Survey 55

4.5. Bibliography 56

4.6. Further reading 57

List of Tables

Table 1: Panamanian deposits by sector ($m), 2011-16 25

Table 2: Non-resident liquid asset balances in Switzerland, 2011-16 ($bn) 28

Table 3: Non-resident deposits and mutual fund balances in Guernsey, 2011-16 ($m) 32

Table 4: Regions by offshore investment booking centers, 2017 40

Table 5: Non-resident investment balances split by sector in the top 10 IFCs ($bn), 2011-16 52

Table 6: Non-resident investment balances split by sector in the top 10 IFCs($bn), 2011-16 cont’d 53

List of Figures

Figure 1: After stalling in 2015 the offshore market is growing again, driven by the institutional sector 10

Figure 2: Most of the offshore AUM in Ireland is from institutional funds, which drove growth in 2016 12

Figure 3: Total FDI flows declined in 2016, continuing the long-term decline since the financial crisis 13

Figure 4: Europe no longer dominates cross-border investment outflows, resulting in a decline in the flow of money into offshore markets generally 14

Figure 5: The retail portion of the deposit market is growing faster than institutional offshore deposits 15

Figure 6: Offshore mutual fund AUM in the top centers was boosted by strength in the institutional sector 16

Figure 7: Holdings of offshore equities grew the least of any asset class, though retail investment was strong 17

Figure 8: Growth in offshore bonds was balanced but neither sector was bullish on adding to their holdings 18

Figure 9: Only the financial centers of the US and Europe feature strongly in all asset classes 20

Figure 10: Publicity is generally bad for offshore centers; witness Panama’s anemic growth after the release of the Panama Papers 22

Figure 11: US dollar correspondent relationships have been squeezed the most 23

Figure 12: Qatar’s fast-growing offshore deposits make it an outlier in the more sluggish market of 2016 27

Figure 13: While the CRS has had a negligible impact on most markets, niche offshore financial centers have been hurt 31

Figure 14: European and American HNW investors have been moving away from the offshore market 34

Figure 15: The top HNW offshore booking centers are generally the same as the largest offshore financial markets 36

Figure 16: Different strokes for different folks – the top booking centers vary widely by their offshore HNW clientele 37

Figure 17: Barring the Middle East and Africa, wealth is offshored as close as possible to HNW investors 39

Figure 18: North American HNW investors keep a minority of their wealth offshore, often in neighboring markets 41

Figure 19: North American HNW investors maintain diversified offshore portfolios 42

Figure 20: A quarter of the portfolio in Asia Pacific is offshored, with the US attracting the greatest share 43

Figure 21: Offshore investors from Asia Pacific seek out property plays abroad 44

Figure 22: European HNW investors mostly book elsewhere in the region 46

Figure 23: European investors are mostly focused on obtaining pro-growth equity exposure offshore 47

Figure 24: European booking centers are favored by the developing markets of the Middle East & Africa 49

Figure 25: Sophisticated alternative investments lure wealth offshore in the Middle East & Africa 50