pressures on a number of fronts, including the global financial
crisis, according to Boston Consulting Group’s global wealth trends
study.
It estimates assets under management held offshore totalled
$7.3 trillion in 2007 – or only slight larger than the $6.7
trillion for offshore holdings in 2006. Offshore is thus still
contracting in relative size compared with the onshore
market.
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Switzerland, with $2 trillion remains the largest offshore centre,
with 27 percent of the total. But Asia is coming up fast, with
Singapore and Hong Kong between them holding $0.7 trillion to
account for 10 percent of the global total.
The UK, including offshore Channel Islands, Isle of Man and Dublin,
holds $1.7 trillion or 24 percent of the total.
BCG analysts found the credit crisis is impacting offshore private
banking as many clients shift their offshore assets toward “more
cash-driven investments, which tend to have relatively low
margins.” In addition, some of the largest offshore players have
had significant exposure to the financial crisis and so are likely
to undermine clients’ confidence.
“It may also lead clients to move their wealth to independent asset
managers or boutique banks,” BCG found. “As a result of the crisis
– as well as increasing regulatory pressure – wealthiest clients
may elect to start their own family office, join a multi-family
office or establish their own private bankers.”
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By GlobalDataAnother threat to Western offshore centres is the rise of rivals,
particularly in Asia. Singapore for example now has an estimated
$500 billion in offshore AuM.
“Investors from China, Taiwan and Hong Kong are gravitating towards
Singapore, which is closer to home, rather than relying on
traditional European offshore centres,” BCG added. “This makes it
easier for them to meet with their relationship managers and access
regional investments.”
The same trend is apparent in the Gulf, where younger clients in
the Middle East frequently use Dubai as an offshore location
because they prefer to invest in regional private equity and real
estate.
Still, centres like Switzerland remain “formidable hubs,” BCG
conceded. These centres should take steps to ensure their continued
competitiveness at a time when their role as safe havens is
diminishing.
They should up their ability to deliver a comprehensive range of
investments, strong performance and strategic advice. The
traditional offshore players also enjoy an advantage over emerging
players in Singapore and Dubai, which have far fewer specialist
investment bankers or asset managers.
Ultimately, regulatory changes and the crisis will prompt private
banks in traditional offshore centres to revisit their strategies.
Tighter tax rules and stricter banking regulations have caused many
investors to shift onshore.
Stringent regulations could have a “silver lining” for certain
offshore centres, BCG thinks, in a veiled message that the
traditional flight offshore to avoid tax is still around. Some high
net worth individuals “may consider relocating to foreign offshore
centres as a roundabout way of complying with domestic tax
regulations”, it suggests diplomatically.
