Offshore wealth to reach $11.2 trillionStaff writer ▼ | June 4, 2013
Offshore wealth rose by 6.1% in 2012 to $8.5 trillion, with Western Europe the main source and Switzerland the most popular destination, according to the Boston Consulting Group.Offshore wealth rose by 6.1% in 2012 to $8.5 trillion, with Western Europe the main source and Switzerland the most popular destination, according to the Boston Consulting Group.
Despite this increase, stronger growth in onshore wealth led to a slight decline—to 6.3 percent from 6.4 percent, compared with 2011—in offshore wealth's share of global private wealth. Offshore wealth is projected to increase moderately over the next five years, reaching $11.2 trillion by the end of 2017.
Offshore wealth is defined as assets booked in a country where the investor has no legal residence or tax domicile. The offshore model remains viable because wealth management clients - particularly those in the high-net-worth segment (with at least $1 million in wealth) and the ultra-high-net-worth segment (with more than $100 million) - will continue to seek diversification, high-quality service, and discretion.
Some wealth that had previously been repatriated, notably by investors based in Western European countries, has partly flowed back offshore owing to the highly differentiated value propositions that offshore domiciles can provide.
The Boston Consulting Group also brought some prediction about wealth management in 2020.
First and foremost, wealth creation and profit pools are evolving. Private wealth will grow at significantly higher rates in Asia-Pacific and other emerging markets than in developed markets, and entrepreneurial activity will be the primary source of wealth creation.
Moreover, as a capital-light business, asset gathering will become more competitive. In developed markets, some regional and local universal banks will need to protect their HNW franchises in order to survive. Established wealth managers in developed Western markets will need to invent new growth engines as their traditional advantages fade. In emerging markets, incumbents will use distribution and regulatory advantages to capture the newly created wealth of the emerging upper-middle class.
Traditional boundaries between wealth management, asset management, and investment banking will break down. Recognizing the value of "owning" end-investor relationships, global asset-management superproducers will add distribution to their activities, targeting global ultra-rich clients. Such players will increasingly engage in direct relationships with securities issuers and build in-house trading platforms to internalize flows.
Some wealth managers will internalize product development in asset classes that constitute critical elements of multiasset solutions—or when a clear benefit is attainable from closer oversight of performance and risk. Wealth managers with scale will engage in merchant-banking types of activities, including increasing their loan books, in order to build deep relationships with entrepreneur families in rapidly developing economies. ■