At a global level over one third of HNW individuals invest their assets offshore because they expect more promising returns on their investments, or in general broader investment opportunities than they would otherwise get onshore. At the same time, tax efficiency was only the second most common reason for investing offshore.
Datamonitor estimates that in the 12 centers examined, over $3.1tn is held by HNW individuals. While this is an impressive number it is still more than $500bn lower than the peak in 2007, a trend that is mostly due to an outflow of deposits and mutual funds from certain centers toward the various onshore markets or other offshore markets.
Asian HNW investors tend to book assets locally and dominate most of the Asian booking centers, especially Hong Kong and Australia; however these investors also have significant assets in many other booking centers globally, such as the UK and Switzerland. HNW individuals invest just under 20% of their liquid assets offshore. At a global level, tax efficiency is only the second most important reason for HNW individuals to invest offshore. Asian booking centers have grown together with the economic importance of their region
THE GLOBAL OFFSHORE MARKET IN CONTEXT
Despite international pressures the offshore market is stable ?The total size of the offshore market reached $14.2tn for 12 of the largest offshore centers in 2011 – Datamonitor estimates that HNW individuals hold $3.1tn of the total $14.2tn in offshore assets. The largest offshore centers are OECD countries, not small tropical islands. For the HNW segment Hong Kong, Switzerland, the UK, and the US are the most important. Pressure exerted by Western governments is diminishing the importance of certain offshore centers. HNW individuals hold an average of 18% of their liquid assets offshore.
The propensity for HNW offshore investment varies greatly by country. HNW and mass affluent individuals generally have extremely different offshore allocations
DRIVERS OF HNW OFFSHORE INVESTMENT
There are multiple drivers for HNW offshore investment. At a global level, tax efficiency lies second to better investment options offshore. Other drivers include client anonymity, concerns over political stability, and expatriate money flows.
Significant regional differences exist in the motivations for offshore investment. The mass affluent have different motivations to HNW individuals for offshore investment. Country-level analysis reveals greater insight into HNW individuals’ motivations for offshore investment.
- Driver one: HNW individuals invest offshore to gain access to a broader and better range of investments
- Driver two: HNW individuals resident in countries with high tax rates look for tax efficiency offshore
- Driver three: the HNW individual used to live in the offshore center
- Driver four: the importance of client anonymity for investing offshore has been waning since the financial crisis
- Driver five: political instability is a strong driver for HNW individuals fearing for the long-term future of their assets
BOOKING CENTER PREFERENCES OF HNW INDIVIDUALS
At a global level, the Asian booking centers are rising in prominence. Regional analysis shows HNW individuals tend to invest close to home. Hong Kong is the traditional center of choice for Chinese HNW individuals. The Channel Islands and the Isle of Man are popular among UK HNW investors. US HNW individuals prefer Bermuda and the Cayman Islands. However, Singapore and Switzerland have a broader appeal beyond their immediate region. Singapore is used to servicing the broader Southeast Asian region and much of the large expat market. Switzerland has long been a safe haven for HNW individuals in case of political instability onshore