Uber-rich casting offshore for stability, choice
High-net-worth South Africans are increasingly taking advantage of their R11 million allowance to invest abroad, away from over-concentrated local assets.
Investors are investing in more stable economies for better returns, a wider choice of investment options and as a currency hedge.
For instance, JSE pharmaceutical options are limited to three companies – Aspen, Ascendis and Adcock Ingram.
But global markets offer over 60 pharmaceutical companies, and that’s just on the LSE. They have a wider horizon and can hedge against rand volatility.
Foreign equities are also attractively priced relative to bonds and cash. Due to low interest rates, equities receive better returns than bonds and money in the bank.
Some high-net-worth individuals are opting to fund international study plans for their children by investing offshore.
Offshore investors have two options to consider – invest directly, or via a rand-denominated offshore or asset swap fund.
Investing directly requires tax clearance and various approvals.
With an asset swap fund, returns are based on the movements of another currency, but paid out in the base currency (the rand).
But costs are often higher and taxing is less favourable.
Various investment structures also need to be considered, as well as tax implications and estate planning consequences.
All of these factors can impact the ultimate success of an investment.
For example, if an investor with offshore assets were to pass away, there may be consequences of not having an offshore will.
This is where an adviser can add a great amount of value.
Ultimately there is no “best” route or pre-defined portion of wealth that should be invested offshore, as this is dependent on the individual's specific financial situation and goals.
Wayne Sorour is the head of Old Mutual International South Africa