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Offshore Investment: Booking Center Preferences 2017

Offshore Investment: Booking Center Preferences 2017

Summary

Offshore investment market is growing once again, reassuring all banks and wealth managers serving this lucrative, if challenging segment that the Common Reporting Standard (CRS) and recent scandals have not put it into a terminal decline. However, the shape of post-CRS world is likely to be very different than what it was before: more concentrated, institutionally oriented, and with slower growth.

Key findings include in this report -

  • Growth will slow in the retail non-resident sector as the CRS inclines more investors to book onshore, and obtain their geographic diversification via other means. Amongst the largest international financial centers (IFCs), those with the largest portion of institutional AUM such as Luxembourg, witnessed the strongest growths.
  • The impact of the CRS upon wealth managers in the largest IFCs is likely to be quite muted, both because they tend to be diversified in terms of their offerings to both institutional and retail investors, and because they are attractive as major financial markets in their own right.
  • Booking centers with particularly fast growth in 2016 benefited from one-off adjustments, such as the reopening of the economy to international investors (Argentina), or being rediscovered by investors as the local economic cycle turned back towards growth (Canada and Brazil).
  • Though the proportion of HNW wealth booked offshore has declined compared to the previous years, there remain strong sectors in the Middle East & Africa along with sectors of Asia Pacific.
  • Branches in regional wealth management hubs remain critical, even as the offshore markets consolidate due to the preference for offshoring wealth only to the near-abroad.
Critical success factors -
  • Institutional investors: International wealth management propositions need to be geared towards institutional investors, as they will make up for an even larger portion of the market in the future.
  • Build Middle East & African teams: While HNW investors are turning away, investors in these regions continue to offshore the bulk of their wealth.
  • Embrace the CRS: Wealth managers in IFCs that have pushed forward with the CRS have fared the best as they are able to provide certainty to customers, something that international HNW clients crave.
The report Offshore Investment: Booking Center Preferences 2017: draws on our 2017 Global Wealth Managers Survey and Offshore Investment Analytics to analyze the performance of key booking centers over time. It has a particular focus on HNW individuals booking assets abroad. In particular it examines the propensity to invest offshore and booking center preferences for 20 key markets.

Specifically, this report -
  • Analyzes the largest offshore investment centers and how this breaks down by asset class.
  • Examines the performance of the offshore centers compares and what is driving this performance.
  • Tracks how much wealth HNW individuals hold offshore and how this varies by country and region.
  • Provides insight into the preferred centers for HNW offshore investments and how this varies by country.
Scope
  • Growth will slow in the retail non-resident sector as the CRS inclines more investors to book onshore and obtain their geographic diversification via other means.
  • The impact of the CRS upon wealth managers in the largest IFCs is likely to be quite muted, both because they tend to be diversified in terms of their offerings to both institutional and retail investors, and because they are attractive as major financial markets in their own right.
  • Booking centers with particularly fast growth in 2016 benefited from one-off adjustments such as the reopening of the economy to international investors (Argentina), or being rediscovered by investors as the local economic cycle turned back towards growth (Canada and Brazil).
  • Though the proportion of HNW wealth booked offshore has declined from previous years, there remain strong sectors in the Middle East & Africa along with sectors of Asia Pacific.
  • Branches in regional wealth management hubs remain critical, even as the offshore markets consolidate due to the preference for offshoring wealth only to the near-abroad.
Reasons to buy
  • Understand how to best promote your offshore proposition
  • Gain insight into the impact of the CRS upon offshore investment trends
  • Understand HNW investors’ booking center preferences and how this is expected to change
  • Learn how different offshore centers have performed in recent years and adjust your offshore proposition accordingly.


  • Executive Summary
    • Offshore investment is ever more skewed towards institutional investors
    • Key findings
    • Critical success factors
  • The Global Offshore Market in Context
    • The overall offshore investment market was worth $68.5tn in 2016
      • Offshore investment growth is being driven by institutional investors
        • Table Figure 1: After stalling in 2015 the offshore market is growing again, driven by the institutional sector
      • Ireland joins the top 10 offshore markets off the strength of its fund market
        • Table Figure 2: Most of the offshore AUM in Ireland is from institutional funds, which drove growth in 2016
      • Broader investment outflows declined in 2016 as Europe turned off the taps
        • Table Figure 3: Total FDI flows declined in 2016, continuing the long-term decline since the financial crisis
        • Table Figure 4: Europe no longer dominates cross-border investment outflows, resulting in a decline in the flow of money into offshore markets generally
      • Offshore deposits are growing fast once again, as policy rates begin to rise
        • Table Figure 5: The retail portion of the deposit market is growing faster than institutional offshore deposits
      • Continuing a long-term trend, offshore mutual funds advanced again in 2016
        • Table Figure 6: Offshore mutual fund AUM in the top centers was boosted by strength in the institutional sector
      • 2016 was particularly weak for offshore holdings of equities
        • Table Figure 7: Holdings of offshore equities grew the least of any asset class, though retail investment was strong
      • Bond holdings increased as offshore investors rediscovered European debt
        • Table Figure 8: Growth in offshore bonds was balanced but neither sector was bullish on adding to their holdings
    • Offshore centers are typically adjunct to major financial markets but there is a role for specialists
      • The largest offshore centers are major financial markets, not tropical islands
        • Table Figure 9: Only the financial centers of the US and Europe feature strongly in all asset classes
      • Traditional offshore booking centers have fared poorly relative to the rest of the non-resident market
        • Table Figure 10: Publicity is generally bad for offshore centers; witness Panama's anemic growth after the release
        • Table Figure 11: US dollar correspondent relationships have been squeezed the most
      • The Panama Papers caused a considerable storm and have stalled Panama's rise as an offshore private wealth hub
        • Table Panamanian deposits by sector ($m), 2011–16
    • The fastest-growing centers include markets being rediscovered by international finance and key Middle East IFCs
      • Offshore investors have rediscovered the charm of some developing markets
      • Qatar and the UAE led the Middle East in attracting offshore investment
        • Table Figure 12: Qatar's fast-growing offshore deposits make it an outlier in the more sluggish market of 2016
      • Switzerland continues to lose AUM, though it is coming to the end of its drought
        • Table Non-resident liquid asset balances in Switzerland, 2011–16 ($bn)
    • CRS implementation has altered the calculus of HNW offshoring
      • The offshore wealth management sector now needs to deal with FATCA on steroids
      • 2017 is a watershed year for the offshore industry due to the initial CRS reports among early adopters
      • Booking centers dedicated to offshore wealth management need not lose out under the CRS
        • Table Figure 13: While the CRS has had a negligible impact on most markets, niche offshore financial centers have been hurt
        • Table Non-resident deposits and mutual fund balances in Guernsey, 2011–16 ($m)
  • Booking Center Preferences of HNW Investors
    • HNW individuals globally hold on average 14.7% of their wealth offshore
      • HNW investors from developing markets hold far more of their portfolios offshore
        • Table Figure 14: European and American HNW investors have been moving away from the offshore market
    • The varied and liquid financial markets of the US make it the top HNW offshore booking center
      • Table Figure 15: The top HNW offshore booking centers are generally the same as the largest offshore financial markets
      • HNW booking center preferences vary significantly depending on nationality
        • Table Figure 16: Different strokes for different folks – the top booking centers vary widely by their offshore HNW clientele
      • European HNW investors are content to use local booking centers, while millionaires from MEA seek out global destinations
        • Table Figure 17: Barring the Middle East and Africa, wealth is offshored as close as possible to HNW investors
        • Table Regions by offshore investment booking centers, 2017
    • HNW individuals in the Americas make use of a range of booking centers to diversify
      • HNW clients from North America are driven by a desire for diversification and tax efficiency
        • Table Figure 18: North American HNW investors keep a minority of their wealth offshore, often in neighboring markets
        • Table Figure 19: North American HNW investors maintain diversified offshore portfolios
    • HNW investors in Asia Pacific are less geographically diversified than in the past
      • HNW investors in Asia Pacific have become increasingly biased towards the US
        • Table Figure 20: A quarter of the portfolio in Asia Pacific is offshored, with the US attracting the greatest share
      • The importance of property in Asian offshore investment has led to the rise of Australia as a booking center
        • Table Figure 21: Offshore investors from Asia Pacific seek out property plays abroad
    • The integrated nature of the European economy means offshored money does not travel far
      • Switzerland is still the European capital of offshore private banking
        • Table Figure 22: European HNW investors mostly book elsewhere in the region
        • Table Figure 23: European investors are mostly focused on obtaining pro-growth equity exposure offshore
    • Middle Eastern & African HNW investors aim to limit their exposure to small domestic investment markets
      • Table Figure 24: European booking centers are favored by the developing markets of the Middle East & Africa
      • National Bank of Abu Dhabi International has operated from London since the 1970s and launched NBAD Private Bank (Suisse) in 2007
      • Wealth managers should highlight alternative investments alongside superior access to traditional securities
        • Table Figure 25: Sophisticated alternative investments lure wealth offshore in the Middle East & Africa
  • Appendix
    • Abbreviations and acronyms
    • Supplemental data
      • Table Non-resident investment balances split by sector in the top 10 IFCs ($bn), 2011–16
    • Definitions
      • Compound annual growth rate
      • HNW
      • Investments
    • Methodology
      • GlobalData's 2017 Global Wealth Managers Survey
      • GlobalData's 2016 Global Wealth Managers Survey
    • Bibliography
    • Further reading
  • About GlobalData

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