Investors worldwide have been looking for jurisdictions that can offer expertise and stability without regulatory, legal or economic surprises.
Research conducted by Jersey Finance in recent years has highlighted that clients in the Middle East are gradually refining their views on investment structures.
Additionally, the research found that 75 per cent of clients now stress-test their existing wealth structures, while 42pc see reputation as a critical factor when selecting a jurisdiction to support their international investment requirements.
The ongoing Covid-19 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 advisers and there is a misleading amount of contradictory advice as to the most appropriate course of action and risk minimisation strategy.
During challenging times, it is important to be pragmatic when considering all the information provided.
Timely advice, provided with due considerations of all key factors, both around the investors and the proposed investments, remains critical to avoid costly errors that may be very complicated – and costly – to rectify in the future.
Interestingly, perspectives from stakeholders, including family investors in the GCC, reveal that the use of offshore jurisdictions is driven by the geopolitical climate and fears of instability (25pc) and succession planning (25pc), followed by privacy, confidentiality (17pc) and asset protection (17pc).
This seems to be adding more impetus to clients’ initiatives towards global asset/wealth diversification and structuring.
In such uncertain times it is even more important for investors to be able to rely on strong corporate governance standards. The 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, now more than ever, managers and investors are placing significant importance on the robustness of external oversight and the effective ability of regulators to provide the requisite supervision at an internationally acceptable standard.
Moreover, 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.
Recent research into fund domiciliation by International Funds Institute (IFI) in collaboration with Jersey Finance shows that the most important determinant in domicile selection is whether a jurisdiction is well known and respected by investors that are being targeted by a fund manager – especially when a significant number of these investors are family offices.
Moreover, it is also revealed that investors want to allocate to funds that are domiciled in jurisdictions with good infrastructure, considerable local expertise and knowledge of the asset class in question along with well-established regulations.
The research also uncovered investor dissatisfaction towards recent increases in costs in international fund jurisdictions, but especially in those in the EU.
However, some of these investors attributed that 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 internationally diverse investments.
As we head towards greater global transparency and more robust regulatory standards, consolidating information and installing the appropriate reporting and governance protocols will also become more essential.
Against this backdrop, there is clearly a significant opportunity for the funds advisory industry to expand and educate their client base, and thereby to enhance the asset management and broader wealth management scope in the region.
With many GCC family businesses seeing reputation as a critical factor when selecting an IFC, offshore jurisdictions, such as Jersey, that can demonstrate their dedication to transparency, regulation, and quality will survive and prosper in this changing environment.
The author works with Jersey Finance