European-based high net worth investors (HNWIs) are moving investments offshore due to increased political uncertainty in the region, according to a new report published this week.
As a result of the changes, wealth managers need to try to understand the reasons why HNWIs 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 research and consulting firm GlobalData.
The company’s latest report on asset allocation trends found that an increasingly large proportion of European HNWI 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, said: “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.
“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,” Van den Hövel added.
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.
“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,” added Van den Hövel.
“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.”
Image source: GlobalData’s 2014-2016 Global Wealth Managers Surveys.