Welcome to the first instalment of news and views from PBI’s sister company WealthInsight. WealthInsight is the leading provider of business intelligence on HNWIs and the wealth sector. With an extensive database as the foundation for our research, we are able obtain an unsurpassed level of insight and authority on HNWIs and the wealth management industry
The UK and the world will be closely monitoring the Scottish in-out referendum due next month as the results may have repercussions for the future of the European Union (EU). Even though Scotland will remain part of the EU the move will be detrimental to businesses and investors and may have an unfavourable effect on its financial services sector and the wider goals of the EU.
Although Scotland will remain part of the EU after independence certain players in the private banking and wealth management industry have been considering relocating. Among them one of the UK’s largest financial institutions, RBS, has been speculated to move its headquarters to London from near Edinburgh: taking along jobs and making a significant dent in the financial services sector. According to WealthInsight, most of UK’s 675,100 millionaires generate their wealth from the financial services sector with 13.8% of individuals.
Despite Scotland planning to boost its attractiveness to businesses and support for fast-growing industries by reducing corporate tax rate by three percentage points it will be perceived as the weaker part by potentially losing out on the sterling. Due to uncertainty in the future of its currency investors will be prone to risk aversion when considering making a move while local private banks can expect to lose out on clients.
The referendum has also coincided with the European Central Bank soon becoming the primary supervisor for over 120 banks across Europe. Forthcoming protocols will consist of a comprehensive assessment in risk, asset quality, stress and capital shortfall.
An advantage of this will be increased transparency, which could lead to brand loyalty. Yet, much of the debate about the UK’s position in the EU has been about the UK gaining more control over its own reforms. And with Scotland seeking independence will it be willing to abide by the EU soon after it exits the UK? On the face of it will have to keep its economy afloat.
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Ouliana Vlasova is the head of content at WealthInsight (www.wealthinsight.com)
(Ad)venturous millionaires explore emerging markets
Though Venture Capital is well established in the developed world, the benefits of providing early-stage capital to high growth start-up companies has recently come to the attention of HNWIs, who, according to WealthInsight’s study, are rapidly scaling-up venture capital investments in emerging markets. Not as cut throat as private equity, nor as lacklustre as microfinance,venture capital has been heralded a win-win solution for the less developed world, generating returns not only for investor, but also for invested.
Emerging markets are becoming increasingly attractive to millionaire angel and venture capitalists. Already 36.4% of millionaire angel investors and venture capitalists are located in emerging markets, a figure WealthInsight expects to increase by 2020.
Venture capital in emerging markets is fast becoming a global trend among HNWIs, and not usually for the sake of philanthropy itself. High risk though any investment in an emerging market may be, an overcrowded venture capital market and lacklustre economy at home are two factors turning HNWI’s venture capital investments abroad. Then there are the rewards: rapidly rising economies in Asia and Africa, plentiful start-up investment opportunities, a vastly underfunded private sector and business trips to interesting corners of the world.
Though not without its critics, venture capital (and its little sister, angel investment) is the best answer to the third world’s cry for ‘trade not aid’. It provides a service (capital and mentoring), where there is none and in private sectors that serve the needs of a population. Best of all, it generates returns for the investor.
Paraguayan wealth creation boosted by export opportunities
The Paraguayan economy has been growing at a fast pace, currently being one of the fastest-growing economies in the world and surpassing the growth in Brazil. Evidence of progression in wealth is shown by the 50.4% increase in HNWIs between 2009 and 2013, from 3,946 to 5,935. These HNWIs held US$21 billion in wealth. The number of HNWIs is forecast to grow by 20.9% to reach 7,712 by 2018, and HNWI wealth is expected to grow by 32.5% to reach US$31 billion.
In the Paraguayan private banking sector, financial services are largely dominated by domestic banks such as Banco Continental and Banco Regional.
High levels of dollar deposits, low government debt and the third-highest level of GDP growth in the world in 2013 of 11.9%, created a stable and expanding private banking system in Paraguay, which has the capabilities to progress due to a structured macroeconomic system. This is demonstrated by the pegging of the Paraguayan Guaraní against the dollar, which has fluctuated only a minor amount since 1989.
An overreliance on agriculture has caused the fluctuation of GDP levels, as seen in 2009 and 2012, with a reduction in GDP of 5.5 percentage points between 2011 and 2012. Elevated levels of growth are expected to become more stable as the exports of raw manufactured goods will create opportunities for wealth creation in emerging sectors, such as retail, fashion and luxury goods. Export opportunities in Brazil and Argentina, will also contribute to wealth creation by increasing levels of demand for raw products.