Spotlight on family offices: Jersey expertise in investing for sustainability and impact
Fireside chat with Rob Hersov
The New World Wealth South Africa Wealth Report for 2020 identifies family offices as one of the fastest-growing segments of the wealth management market. Typically comprised of a lawyer, an investment specialist and an accountant, these offices allow a more customised wealth management offering for high-net-worth families, coordinating household, educational, philanthropic and intergenerational matters on top of the usual investment services.
Rob Hersov – the South African-born entrepreneur and investor with Chairman and deputy Chairman roles across Invest Africa, African Capital Investments, VistaJet and Adoreum Partners – is well aware of these benefits.
His grandfather founded one of South Africa’s largest mining and industrial companies in the early 1930s, and his father – Basil Hersov – ran the business from 1973 until 2001. The scale, longevity and international complexity of the family’s affairs means that the Hersovs have had a presence on Jersey for over forty years.
“There’s nothing really like Jersey”, he says. “Jersey is a league above everywhere else. Professional, organised, great institutions…well governed, transparent.”
The location, for Rob, is a major plus. Being situated almost exactly in between London and Paris – with each financial centre within an hour’s flight – means his Jersey office can manage the family’s needs seamlessly across Africa, Europe, the United Kingdom and the rest of the world. But even more important than its geographical features are the quality of the Jersey offering itself; the stability, sophistication and effectiveness of its firms, frameworks and professionals that place the island in a league of its own amongst other international financial centres (IFCs).
“It’s been established as an offshore regime…for a very long time. And it’s existed within a very strict corporate governance and financial governance system, which is respectful of the other major international and financial institutions and sectors”, he says. “In terms of stability, this is the most stable IFC.”
“It would be quite rare for anyone in my family or even network to consider anywhere else.”
Integrating ESG factors into offshore portfolios with Melville Douglas
Melville Douglas, a boutique investment management arm within the Standard Bank Group, offers bespoke portfolio management solutions to its investors. Through its positioning in Standard Bank, Melville Douglas enjoys the benefit of trading between domestic and global markets, allowing clients to take advantage of investment vehicles delivered by offshore Melville Douglas funds and Standard Bank Jersey offerings.
The integration of ESG into Melville Douglas’ investment approach and philosophy has allowed for the screening and allocation of client’s capital to quality companies and funds with a strong ESG underpin. This has proven to be of particular interest to high net-worth wealth individuals and families as it strategically places them in an opportune position to invest their capital in funds that will result in positive financial returns as well as positive environmental and social impacts. This means their capital can serve to do good as they ultimately drive investment away from business activities that pose inherent negative environmental and societal impacts, but rather towards those that have minimal negative and, in some cases, positive impacts.
Some of our high net-worth clients have expressed building a legacy is of utmost importance and ESG investing provides a unique way for them to make a meaningful contribution towards a sustainable future, a legacy they want to be remembered for.
Standard Bank investors enjoy the benefit of ESG and/or Sustainability linked offerings, including but not limited to the Responsible Diversified Portfolios managed in Standard Bank Jersey focused on investing in sustainable funds aligned to sustainable infrastructure, water and waste, carbon emissions and sustainable macro. More recently the Melville Douglas Global Impact Fund joined the market allocating investor capital to companies that have a measurable contribution to the sustainable development goals (SDG’s).
However, ESG investing is not limited to driving personal fulfilment to investors who look to make a difference in the world, it also acts as a fundamental risk management tool that shields investors from financial loss. The COVID-19 pandemic painfully demonstrated this as global markets reared from the most severe market crash since the global financial crisis. Investors who invested in companies or funds with ESG alignment saw more resilience in their funds and a higher adaptability to change in the companies in which they invested.
COVID-19 reminded the world that ESG safeguards investors capital. This reinforced Melville Douglas and the broader Standard Bank Group’s stance to continue upholding their responsibility and fiduciary duty to ensure investment processes are underpinned by the assessment of material financial and non-financial/ESG factors in order to yield sustainable, aboveaverage returns on client’s investments. Companies that focus on, and implement, robust ESG policies and practices are inherently better managed, and of higher quality, thereby delivering a better return outcome when included into an investment portfolio.
‘Africa is our home, we drive her growth,” says Mo Baluchi, Senior Business Development Manager at Standard Bank and Chair of the Channel Islands Wealth Management Association. Mo is just one of over 13,600 financial services professionals in Jersey, working to serve African UHNW individuals in accordance with the latest trends, risks and opportunities on the continent.
“We are completely focused on delivering positive outcomes for the future of both South Africa and the wider continent,” says Mo. “We actively source clients from within the continent and diaspora to provide solutions from within our main International Client Solution segments.”
He continues: “Africa presents one of the greatest strategic opportunities in wealth management, both for firms that are committed to the continent and clients seeking sophisticated wealth planning and investment solutions that were previously inaccessible to them. [Professional bodies such as] Jersey Finance and the Channel Islands Wealth Management Association have played a major role increasing awareness of these opportunities and supporting member firms.”
Amidst continued fiscal and political volatility in Africa, Mo’s clients require careful and appropriately professional advice from highly regulated financial institutions and advisers in terms of both on and offshore solutions. “This,” he says, “is what the Channel Islands has been providing for decades.”
Dean Douglas knows this better than most. Having grown up in South Africa he has a strong understanding of how the culture and diversity of the country can be harnessed with Jersey’s financial services expertise to drive success in global markets. As Director of Private Wealth at IQ-EQ he works with a huge range of assets on both Jersey and African continent, including property, quoted investment portfolios, private investment portfolios, alternative assets and luxury assets such as aircraft, supercars and classic collector cars. The key, says Dean, is to “combine global expertise with an unwavering focus on [local] client service delivery”.
Lindsay Bateman continues this theme. As Head of Business Development at Brooks MacDonald, which presides over £17bn in FuM from offices in Jersey, Guernsey and the Isle of Man, he sees the importance of synergies between African expertise, flexible, client-facing service and a global investment footprint:
“It is no secret that the world is an increasingly uncertain place. One only has to look at the global pandemic or invasion of Ukraine to see that hard-earned assets can be at risk through political, social, economic or other macro factors. Investors are increasingly recognising the risks associated with investing within the “comfort zone” of one’s home market, and South Africa is no exception”.
He describes an approach based around the formation of partnerships with local, independent professionals, who can then introduce prospective African clients who are likely to benefit from a global investment solution. “The [South African] annual foreign capital allowance of up to R10m per private individual in good standing with the tax authorities is specifically designed to accommodate residents seeking high quality international diversification of wealth. By working with local advisors, prospective investors can be introduced to Brooks Macdonald International.”
“Once introduced, we engage our investment specialists to develop an understanding of the client’s investment return expectations and risk appetite, then an initial investment proposal is constructed. Once agreed, the new portfolio is established in private name; either via an offshore life wrapper or offshore discretionary trust as recommended by the client’s local adviser. And once funded, both the advisor and client can be given online access to the portfolio, receiving quarterly full valuations, annual tax reporting and ongoing direct support from the islands.”
Paul Douglas, Managing Director of the trust and fiduciary business Accuro, highlights the new sense of responsibility African UHNWIs are applying to their investments. “Our clients increasingly recognise the direct impact of environmental issues on their family, communities and assets,” he says. “They have reflected and re-assessed their purpose by shifting to building a sustainable future for their children and grandchildren. This translates into their structures and investment strategies, and Accuro is assisting them in achieving that purpose.”
Whether providing independent financial advice, structuring international portfolios or maximising investment outcomes in a net-zero world, Jersey’s financial services professionals stand ready to assist.
South Africa and Jersey have a long history based on the ability of Jersey’s firms and professionals to provide bespoke solutions to South Africans’ complex investment needs. Michael Bull, Executive Director of Quilter Cheviot, highlights how Jersey’s connectivity and service provides considerable benefits to South African clients seeking to structure across multiple jurisdictions:
“Our global view, understanding of the varied, sometimes significant, challenges facing South Africans and knowledge built on years of experience provides a solid foundation for our clients.”
He recounts the story of one of Quilter Cheviot’s oldest clients, whose wealth is structured by a local trust company that is able to take a relaxed, partnership-based stance toward QC’s role as the client’s investment manager. This has built trust and understanding, which in turn allows the seamless transfer of wealth across generations, timezones and assets. QC have just overseen the transition of this client’s wealth to the second generation of the family, and Michael describes the complex structuring that has made this transition so seamless.
“Whilst not all the beneficiaries still reside in South Africa, we and the trust company have been able to provide continuity of relationship to all parties. The original trust was split to form individual trusts for each of the beneficiaries, [with] each investment portfolio now looking at the individual needs of those connected to the connected structure. These clients, as with others, still have assets in South Africa, [but] diversification is key for their overall wealth planning, not only in terms of asset class but where the money is held and in which currency.”
Standard Chartered Bank is another Jersey-based firm with extended links to South Africa stretching back over 160 years. Its experienced team of relationship managers, service managers and wealth specialists leverage Jersey’s advantageous time zone to work across standard business hours in both South Africa and Jersey.
The South Africa-Jersey connection is often a family affair. While many African investors prioritise real estate assets, and South Africans are no different, Standard Chartered recently onboarded an existing client’s son who was interested in diversifying on global markets in recognition of the growing trend of South African UHNWIs away from property investment. By helping him offshore, and diversifying his country and currency risk by providing access to an international portfolio denominated across major global currencies, the family’s wealth is safe to grow for generations to come.
“Our global view, understanding of the varied, sometimes significant, challenges facing South Africans and knowledge built on years of experience provides a solid foundation for our clients.”
For most of us, this year was about a return to normal. The pandemic was on the retreat or at least we had started to live with it. It should have been, at least from an African perspective, about getting our economies growing at double digits and ensuring bigger projects such as the African Continental Free Trade Area (AfCFTA) were on-track. But when I ask Amr Kamel, Executive Vice President for Business Development and Corporate Banking at the African Export-Import Bank (Afreximbank), whether he was frustrated that Africa had to respond to yet another crisis with which it had nothing to do, he tells me calmly that this is exactly the sort of thing Afreximbank was created to do.
“Afreximbank was established because of the debt crisis of the 1980s when many international banks that were financing trade pulled out of the continent or were providing financing at very restrictive and exorbitant terms. Clearly, we were established as an institution to respond to market failure and that’s when we perform at our best. I don’t encourage crises, but that’s when we are able to perform and rise to the occasion and address issues to serve the continent’s best interests.”
A bank with a mission
Kamel landed at Afreximbank somewhat by chance. As he explains, he’d worked at a number of international banks, including Bank of America and Chase. It was after Chase (better known today as JP Morgan) decided to close their Egyptian operations that he moved to Afreximbank, which was little known in banking circles at the time.
It turned out to be the best career moved that he ever made, he says. He’s been there for 26 years. “Not long after I joined the bank, I developed a huge respect and love for the organisation, to the extent I consider it a second family to me. They developed in me an urge to contribute to our continent’s growth and to help lift millions out of poverty and to restore the continent’s dignity and pride – and for this agenda to be owned and driven by Africans. It’s been instilled in the bank’s DNA.”
The culture may not have changed but the bank today is unrecognisable from what it was then: “I joined the bank in September 1995. The bank had started operations less than a year before I joined and that was the year the bank released its first full financial results. Our loan portfolio I recall was just over $50m whilst today we are just shy of $20bn and if you add off balance sheet facilities we have, you can say it’s $22-23bn. Clearly a world of difference between the two.”
At the time, he explains, the bank was focused on building a track record. Most of the transactions were through participation in syndicated loans that were being originated by international banks. The products were quite straightforward, such as basic lines of credit.
“Today, you are taking about almost 12 programmes and each programme will have five to 15 facilities, in addition to the numerous initiatives that are aimed at facilitating trade or facilities that are aimed at addressing the needs of our member states at a time of crisis, such as UKAFPA [the Ukraine Crisis Adjustment Trade Financing Programme for Africa, a $4bn facility to manage the impact of the Ukraine crisis on African economies].”
Crises are the ‘new normal’
Kamel does have a point. It’s in crises that the Bank has made a name for itself, or at least made itself heard. In 2009, after the financial crisis, alongside the African Development Bank, Afreximbank acted promptly to ensure the retreat of international banks didn’t lead to the complete freezing of the financial system in Africa. The crisis was averted with the continent continuing on its trajectory of growth, driven by a number of factors, not least growing South-South trade.
Arguably a bigger issue was the end of the commodity supercyle in 2015-16. “Many of the countries [in Africa] faced challenges very similar to the one that led to our creation. We rolled out what was known at the time as the Countercyclical Trade Liquidity Facility Contract, and in two years we disbursed around $10bn.
“That programme gave great visibility to the bank and it meant that when the pandemic hit in 2020, we were able to bring about a similar programme, the Pandemic Trade Impact Mitigation Facility, where we disbursed close to $7bn. And now with Ukraine, the $4bn facility we’ve just launched. We’ve become much better at rolling these out.”
Which is just as well, because for Kamel crises have become the new normal. “We are going to see crises, whether we like it or not. The intervals were longer in the past. Now they seem to be coming one after the other. It’s important that as an institutions we are able to develop internal systems that are able to generate these products and services when required. It doesn’t make our lives easy, but it has allowed us to grow and be more relevant. We’ve become much better at rolling these countercyclical facilities out promptly.”
Helping to power AfCFTA
The bank’s mandate has expanded since Kamel joined and its interventions are far and wide. He’s quick to say, however, that they are careful as a bank to not crowd out private sector players, and as such their products and interventions are there
to complement or correct as opposed to compete.
Despite the bank’s size its coverage is still concentrated in certain big markets, notably Nigeria and Egypt. Does this worry him? Kamel says that they are operating a decentralised approach, opening more regional offices to be able to originate more deals. But he argues that by nature bigger economies will generate bigger transactions. The bank is also working on serving new asset classes, such as SMEs.
But the big focus he says is to ensure the delivery of the AfCFTA from a commercial perspective. It’s an issue that is dear to Kamel: “The Innovation and Product development teams are developing products and platforms that are looking at addressing intra-Africa trade. You’ve heard of the Pan-African Payment and Settlement System; Mansa, the compliance platform, and what we’re doing, through our AfCFTA Adjustment Facility, to help smaller countries who may lose out in the short term to weather any loss from opening up their economies.
“Lastly, we’re active to make sure that goods can transit through numerous countries without necessitating guarantees at each port, our one-stop shop Transit Guarantee Scheme. We’re not only financing trade, we’re facilitating it too.”
Supporting African growth
Kamel may have joined the bank not really knowing its ethos or culture, but as he approaches retirement he’s fully subscribed to the importance of strong development institutions, and that if anything more needs to be done to support them.
“If you look at China today, which has become the biggest participant in terms of global trade, their growth was in large part driven by their development institutions. If you look at Africa – and I’m not only talking about Afreximbank but others who are doing similar things across the continent – the capital they have is negligible if you compare it to countries like China and others.
“It’s important that institutions like ours are supported because the more support we get, the more we are able to deploy this capital to support our economic growth and the economic liberalisation of Africa.” ■
“Afreximbank developed in me an urge to contribute to our continent’s growth and to help lift millions out of poverty”