Middle East’s preference for offshore wealth managers on the rise

Markus Massi Courtesy: BCG

Dubai: Millionaires from the Middle East and Africa region increasingly prefer to manage their wealth in the offshore centres according to the latest world wealth report from Boston Consulting Group.

According to the report, globally private wealth booked in offshore centers grew by a modest 3 per cent in 2015 to almost $10 trillion (Dh36.7 trillion). A key factor was the repatriation of offshore assets by investors in developed markets.

Offshore wealth held by investors in North America, Western Europe, and Japan declined by more than 3 per cent in 2015 but the annual growth of offshore wealth globally is expected to pick up through 2020, although at a lower rate than onshore wealth (5 per cent versus 6 per cent).

Middle East and Africa and Latin America are the front runners among the new growth areas for offshore wealth both with roughly 25 per cent of total private wealth held offshore.

“Economic and political tensions as well as access to financial products continued to contribute to the flow of wealth offshore as investors actively search for the most attractive locations in which to domicile their assets, said Markus Massi, Partner & Managing Director of BCG Middle East’s Financial Services practice.

Largest destination

Among offshore centres, Hong Kong and Singapore saw the strongest growth of around 10 per cent in 2015. Offshore wealth booked in these domiciles is projected to grow at roughly 10 per cent annually through 2020, increasing their combined share of the world’s offshore assets from roughly 18 per cent in 2015 to 23 per cent in 2020. Switzerland remained the largest destination for offshore wealth in 2015, holding nearly one-quarter of all offshore assets globally.

The findings of BCG’s report also revealed that, in 2015, for Middle East and Africa (MEA) wealth booked offshore, Switzerland emerged the top destination of choice accounting for 30 per cent, followed by the UK (23 per cent) and Dubai (18 per cent).

According to the report, over the next five years, wealth in the Middle East and Africa region is set to reach $11.8 trillion — and the UAE, Saudi Arabia, and Kuwait’s contribution will account for 22.7 per cent of that sum with about 25 to 30 per cent of the wealth expected to be managed from offshore centres.

“A significant share of Middle Eastern wealth is managed from offshore centres because of the huge diversification opportunities these centers offer. Global managers operating from these centres offer exposure to a wide range of asset classes while the offerings from local and regional managers are limited in scope,” said Massi.

Shift in offshore preference

Historically, on a regional basis, the largest sources of offshore wealth were Western Europe (mainly the UK, Germany, and France), Asia-Pacific (mainly China, Taiwan, Hong Kong, and Indonesia), and MEA (mainly Saudi Arabia, Nigeria, and the UAE).

Overall, the shift from developed regions (the old world) to developing regions (the new world) as the primary source of offshore wealth has become more pronounced. Today, 65 per cent of offshore wealth originates from the new world, compared with 57 per cent five years ago.

The annual growth of offshore wealth globally is expected to pick up again through 2020. Although regulatory measures aimed at fighting tax evasion will continue to persuade some old-world investors to repatriate their wealth, regulation also stabilises the market and provides new opportunities to move fully taxed wealth offshore in search of better service quality, product diversity, and economic stability.

Strongest growth

Offshore wealth originating in the old world is expected to show positive growth of 2 per cent annually through 2020, compared with 6 per cent sourced from the new world.

Among offshore centers, Hong Kong and Singapore saw the strongest growth (about 10 per cent) in 2015. Switzerland remained the largest destination for offshore wealth, holding nearly one-quarter of all offshore assets globally, followed by the UK and the Caribbean, including Panama.

The outlook for offshore centers located in the new world remains positive given their proximity to high-growth regions. Offshore wealth booked in Hong Kong and Singapore is projected to grow at roughly 10 per cent annually through 2020, increasing their combined share of the world’s offshore assets from roughly 18 per cent in 2015 to 23 per cent in 2020. Despite the high projected growth of most new-world offshore centers, Switzerland is expected to remain the largest single Centre through 2020 owing to its high service quality, diverse product offerings, political stability, safe-haven currency, and attractive location in the Centre of Europe.