Wealthy Investors And Their Managers Do Well As Markets Rally
by Phillip Morton, Investors Offshore.com
24 November 2004

Private banks and wealth managers saw their profitability improve substantially over the past 18 months as a result of recovering stock markets and sales of hedge funds and structured investments, although the offshore sector continues to come under pressure from regulators, according to a new report released this week by The Boston Consulting Group.

Based on a survey of around 100 of the world’s leading wealth managers, the report, entitled ‘The Rich Return to Richer Returns: Global Wealth 2004’ highlights how new and fast-growing wealth-management markets such as India and Greater China, Eastern Europe, Latin America, and the Middle East are providing a promising alternative to more traditional markets.

“The trends are encouraging, but many firms are missing promising opportunities, particularly with emerging wealthy investors,” noted Christiande Juniac, a senior vice president and director in BCG’s London office.

Bruce M. Holley, a vice president in BCG’s New York office added: “We believe that wealth management will continue to see strong growth due to healthier markets and continuing demographic trends.”

However, the offshore market, which is now worth some $5.7 trillion in terms of assets, continues to come under pressure from regulators and other initiatives such as the European Savings Tax Directive and various tax amnesties by European governments.

The report observed that these factors are serving to increase business for the onshore market, particularly in Europe, whilst the pressure for consolidation is also increasing among institutions that focus on offshore markets, although it noted that well-run offshore players continue to generate high pretax margins.

“Offshore wealth managers will need to face up to this new reality and shift their offering from ‘discretion’ to performance,” observed Victor Aerni, a vice president in BCG’s Zürich office.

Nevertheless, BCG said that wealth managers in all regions managed to increase their profitability across all business models, driven by improved margins and better product mix as wealthy investors returned to the equity market.

Wealth management is also becoming increasingly important for institutions, making up as much as 20% of economic profits in many cases.

The US was the largest wealth management market last year, accounting for 60% of the industry’s overall profit according to the BCG report.

A comprehensive report describing the investment fund sector in most key offshore jurisdictions, with details of the regulatory structure, is available in the Tax News Reports Shop at http://www.tax-news.com/reportshop/