Investors have been looking for jurisdictions that can offer stability without regulatory, legal or economic surprises.
Research by Jersey Finance has highlighted that clients in the Middle East are gradually refining their views on investment structures. Additionally, 75 per cent of clients now stress test their existing wealth structures, while 42 per cent see reputation as a critical factor when selecting a jurisdiction to support their international investment requirements.
The pandemic has presented various stakeholders, particularly in the funds industry, with an opportune time to evaluate domiciliation and incorporation considerations. Private investors and family offices are receiving negative news on a regular basis from their financial advisors, and there is contradictory advice as to the most appropriate course of action and risk minimisation strategy.
It is important to be pragmatic when considering all the information provided. Timely advice, provided with due consideration of all key factors centred around investors and their proposed investments, remains critical to avoid errors that may be very complicated – and costly – to rectify
Interestingly, perspectives from stakeholders, reveal that the use of offshore jurisdictions is driven by the geopolitical climate and fears of instability (25 per cent) and succession planning (25 per cent), followed by privacy, confidentiality (17 per cent) and asset protection (17 per cent). This seems to be adding more impetus to clients’ initiatives towards global asset diversification and structuring.
In such uncertain times, it is even more important for investors to be able to rely on strong corporate governance standards. Recent high-profile insolvencies in the region provide insight on businesses that lacked robust internal and external governance, which in its turn, led to substantial loss in equity. As such, managers and investors are placing significant importance on the robustness of external oversight and the effective ability of regulators to provide supervision to an acceptable standard.
HNWIs and wealth managers are urged to stress-test structures and analyse their quality, as well as the level of professionalism of the international finance centre (IFC) in which they are housed.
Dissatisfaction over costs
Research into fund domiciliation shows that the most important determinant in domicile selection is whether a jurisdiction respected by investors, especially when a significant number of these investors are family offices. It also uncovered dissatisfaction towards recent increases in costs in international fund jurisdictions, especially those in the EU.
But some investors attribute the recent growth in regulations has contributed to the increase in costs which they ultimately have to pay for.
As GCC investors look to capitalise on historically low asset valuations coupled with the depreciation in sterling and other major currencies, it is best to seek a robust internationally recognised compliant platform to structure these diverse investments. As we head towards more robust regulatory standards, consolidating information and installing the appropriate reporting and governance protocols will also become more essential.
Against this backdrop, there is a significant opportunity for the funds advisory industry to expand and educate their client base, and thereby to enhance the broader wealth management’s scope in the region. With many GCC family businesses seeing reputation as a critical factor when selecting an IFC, offshore jurisdictions that can demonstrate their dedication to transparency, regulation, and quality will survive and prosper in this changing environment.
• Ella Moldoveanu is Director - Gulf Region, and Faizal Bhana is Director for Middle East, Africa and India at Jersey Finance.