Last updated: 08:59 / Wednesday, 17 September 2014

Onshore vs. Offshore: The Latin-American Client Decides

Onshore vs. Offshore: The Latin-American Client Decides

The current reality of high net worth clients in Latin America has little to do with that of 10 or 15 years ago, when, for many of them, political instability and insecurity in their countries, to mention just a few of the issues involved, were reasons to opt for offshore investments before investing their money at home.

This trend has changed, and not because these problems have been resolved in all Latin American countries; they have been resolved in some and diminished in others, while in others they remain the same or are even worse today than they were a few years ago; generally speaking, however, the situation has improved somewhat, although we must understand that the region can never be taken as a whole.

When opting for the onshore versus offshore investment, it is vital to begin with an equity analysis, and to ponder which  jurisdictions are best suited to each case  in order to always obtain the best performance for each private banking customer’s estate.

These were some of the topics discussed at the conference on Monday: “What is happening in Latin America? Local vs. Offshore? Who are the regional drivers?” The conference was held under FIBA Wealth Management Forum, which took place in Miami this week. The panel was moderated by Federico Muxi, partner and managing director of Boston Consulting Group, with the participation of Claudio Prado Arcirio de Oliveira, general manager of Banco do Brasil; José Ramón Rodriguez, international wealth strategies director for BBVA Compass, as well as Nicolas Bergengruen, managing director of UBS WM Americas International (Miami complex) and CEO of UBS FS (Uruguay), and Cristian Gonzalez Lami, managing director of Credit Suisse Securities (USA) Private Banking Latin America.

Federico Muxi pointed out that 2013 was a very good year for the wealth management industry worldwide, as it was a year in which private banking assets negotiated and held in offshore districts totaled $ 8.9 trillion, an increase of 10.4 % from 2012. In its global wealth annual report, which was submitted mid-year, Boston Consulting estimated that by the end of 2018, offshore wealth will eventually reach 12.4 trillion dollars. Latin America currently accounts for 12% of global wealth in offshore jurisdictions. “Therefore, it is not surprising that the region is so attractive for the wealth management industry,” he said.

For José Ramón Rodríguez of BBVA Compass, the decision on whether to invest locally or abroad must always be linked to the needs of the family and its wealth; furthermore, what should be considered is not so much the debate onshore vs. offshore, but rather where to invest in a more efficient way. “I think there are many opportunities locally, but also abroad. Hence the opportunities in alternative investments such as art, real estate ...” Rodriguez believes there are many offshore opportunities and that institutions, being aware of this, create the best solutions for their clients, making it clear that there is no single reason which tips the scale either way on the debate of offshore vs. onshore investing “many Latin American families have both onshore and offshore investments, and that diversification is what drives many of them,” he added.

Nicolas Bergengruen, from UBS WM Americas agrees that diversification is an attraction for the offshore market, as well as political instability, which thanks to some countries in the region shall continue to benefit the sector.

As for Miami’s position as the hub in the offshore market for Latin America, the UBS executive said the city is going through a very sweet moment. “Miami has a great opportunity to leverage its hub status, plus the advantage of being in the same time zone, which translates into an opportunity for US booking centers”.

In this regard, Bergengruen explained that UBS has three booking centers in the country which are benefiting from diversification and their easy access as well: New York, Miami, and the West Coast. What they all agreed on was that the greater the weight of a client, the easier it is for them to opt for the  offshore market; the scale is also more inclined to offshore in clients from countries with higher risk, while in the case of smaller clients, the scale tips towards the onshore side. Thus, the manager of BBVA Compass said that the United States is increasingly gaining more weight as a hub for offshore investment for the Latin American client, while they also stressed that transparency will also help to bring business closer to home.

Meanwhile, Gonzalez Lami, of Credit Suisse said the local position which the Spanish banks have reached in Latin America, being amongst the “big players”, is difficult to achieve in terms of organic growth. There is much local competition in the onshore market; hence the move from Credit Suisse strategically arrives for the offshore market. He also referred to cases such as Venezuela and Argentina, where there are investors seeking jurisdictions which respect the law.

As for the trend of local players providing offshore investments via local firms, González Lami was convinced that the future will be governed by synergies that serve both markets and that conform to the needs of each client depending on their wealth.