Repositioning Private Capital: Money Movements Around The Globe

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More than a tenth of the world’s ultra high net worth wealth is managed by Swiss banks and it is estimated at approximately CHF3 trillion (US$3.1 trillion). Over the past six years, there have been substantial withdrawals from offshore client accounts, to the tune of as much as CHF350 billion. According to a report from Pricewaterhousecoopers, the decline in popularity  of offshore accounts is triggered by the global financial crisis, the crackdown on privacy laws and the exit of many smaller private banking players. the larger banks have been the beneficiary of new inflows, especially from emerging markets, which showed net new money of CHF18.6 billion in 2013 and CHF33.7 billion in 2012.

“Switzerland continues to be seen as an attractive place to bank for many clients, in particular those from Eastern Europe and Asia,” said Simon Smiles, chief investment officer of the ultra high net worth business at UBS. Switzerland has seen greater demand from Indian millionaires, for example. In 2013, Indian clients’ money in Swiss banks rose by over 40 per cent during after declining for the previous four years, according to data from the Swiss National Bank.

The classic Swiss bank is clearly still a mainstay for the super-rich, but many are looking further afield. Global socio-political shocks; the uncertainty regarding the EU future, the ongoing war in the Middle East as well as the Crimean crisis, has led to offshore asset upheaval, while the crackdown on Swiss banking secrecy has made other wealth centres more appealing.

According to UK-based corporate immigrant law firm Fragomen, the last ten years have seen the largest inflows and outflows of high net worth (HNW) individuals relocating in history. In the last decade 11,000 HNW individuals left Switzerland, 14,000 left Russia, 32,000 left France, 43,000 left India and a huge 76,000 exited China. Many will keep assets and property in their home countries, and most will buy real estate and set up bank accounts in their new locations. The firm found that over the same period, 14,000 HNW individuals relocated to Canada, 20,000 to Hong Kong, 22,000 to Australia, 42,000 to the USA and a massive 114,000 to the UK.

New international banking centres are luring a different UHNW set. The United Arab Emirates is a strong beneficiary of inflows of private capital from Russia and the CIS regions, according to a survey by asset manager Invesco. Over half of new money coming into the UAE in 2013 was from emerging markets, including Russia, the surrounding CIS (Commonwealth of Independent States), and Africa. Political stability remains a major factor driving flows, pointed out Invesco analysts. “Capital coming from Russia is directly attributed to UAE’s perceived ‘safe haven’ status compared to Russia’s current instability, as well as local investment opportunities,” said the report.

Structural factors are also at play when it comes to explaining the increasing inflows of private capital into the UAE from Africa which is up 9 percent in 2014, from 3 percent in 2013. “There are historic and growing ties between the GCC and Africa, which ultimately means the UAE is well positioned as a hub for business meetings and private banking between Africa and Asia,” explained Nick Tolchard, head of Middle East at Invesco. As a result, many banks are rapidly building their African divisions and assets under management, as opposed to Russian assets, which UAE-based intermediaries see as a short-term trend.

Russian money has been steadily draining out of Russia since 2006, when records began. As much as US$200 billion has left the country in the last 9 years, according to the Russian Central Bank, worsening the collapse of the Ruble which lost 40 percent against the dollar over the last six months.

China has also seen huge outflows in recent years. According to a Deloitte study, wealthy Chinese individuals have been moving money out of the country, particularly into high end property markets in cities such as Sydney, London, New York, Vancouver, and Los Angeles to name a few. It has created a vicious cycle, said the accountant. “This selloff has put downward pressure on the Chinese currency, compelling the central bank to sell foreign currency reserves in order to prevent a sharper decline.”

Meanwhile, Singapore is a clear leader of new asset flows into the country. Regulatory change linked to transparency and disclosure in Switzerland, Luxembourg and the Caribbean has hastened a shift to Singapore as a viable private banking alternative. Reports show that Singapore is the world’s fastest growing wealth centre, with AuM of US$550 billion at the end of 2011, compared to US$50 billion eleven years earlier.

Cash deposit is playing a smaller part of client portfolios than before. Positive financial market developments helped banks that have a greater proportion of client assets invested in non-cash assets. According to Savills, much wealth is being channelled into global real estate. Accounting for just 0.003 percent of the world’s population, the real estate holdings of UHNW individuals together total over US$5 trillion. “Private wealthy individuals are becoming an increasingly important force in the world of real estate,” said Savills analysts.

European assets are flavour of the month among Asian clients, typically stock and real estate, according to UBS. Property in the troubled PIGS countries (Portugal, Italy, Greece and Spain) can be snapped up at bargain prices while the Euro has been trading at all time lows in recent weeks. Private individuals are increasingly vying against institutions for high yield commercial properties, according to Simon Smiles at UBS.

“European equities and property are key areas of interest for wealthy Asian clients,” said Smiles. “We are also seeing strong demand for trophy assets like high end hotels and consumer brands from our billionaire clients in Asia Pacific.”

Asians, Europeans and Oceanians are all most likely to buy in North America than any other global region when investing overseas, followed by Europe. North Americans have overwhelmingly invested second homes, in the US, while other nationalities have more significant direct holdings of commercial property, according to Savills’ recent report in conjunction with Wealth-X, ‘Around the World in Dollars and Cents’.

Residential property in ‘safe haven’ cities like London, New York and Monaco is increasingly a beneficiary of high net worth wealth. Buyers from China, Russia and India support the strongest demand.

Most of the growth in private wealth flows to real estate emanate from Asia and flow into Europe. Private Asian transactions are now over three times that of 2007. This situation is a complete reversal of 2007 when Asia was a recipient of private cross-border activity and EMEA an exporter of funds into property.

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