Asian investors expect to use offshore centres significantly more in the near term to structure growth and shield against risk, new research across the Asian investment spectrum has revealed.

New research commissioned by BVI Finance, the marketing arm for the British Virgin Islands, shows that a sizable proportion of institutional investors and high net worth individuals are planning to increase their use of IFCs in the next 12 months. These include major investors from China, Singapore, Hong Kong and Vietnam.

Managing risk and international portfolios were the top reasons given for using an IFC. Institutional investors see the biggest opportunities during the next 12 months in emerging markets (47 per cent), China’s Belt and Road initiative (44 per cent), and research by banking analysts East & Partners for the BVI revealed.

Asset management and easy investment were given as the leading benefits for going offshore, with business most active among Hong Kong investors (53 per cent), followed by China (40 per cent) and Singapore (30 per cent).

IFCs are likely to intensify marketing efforts by jockeying for APAC business, being the first markets to emerge from the early impact of the pandemic. Fresh turmoil between China and the US over China's handling of new security laws for Hong Kong is also causing investors to take stock. In this survey, HNWs based in Hong Kong were among those most actively planning to ramp up offshore activity in the near term.

A fifth of corporate investors said they expect to engage more with IFCs in the coming year and forecast a 31 per cent growth in their IFC business investments. They identified most activity being in trust structures (65 per cent) followed by business companies (55 per cent).

In terms of the merits of IFCs, investors ranked them top for their multi-jurisdictional coverage, second for providing a single administrative hub for offshore assets, and third for their consistent regulation and experienced management.

These are all competencies which the BVI and other centres courting Asian wealth (as one of the few bright spots) will be keen to convey as they too weather the damage to global AuM. There may well be new tax regimes chasing offshore money as states rally internationally to recoup the massive bankrolling.

“This is now all about how BVI can help structure growth in the future,” Elise Donovan, chief executive of BVI Finance, said in commissioning the research. “In a world where managing and mitigating risks is paramount... it is clear that major groups and significant individuals in Asia plan to significantly increase their use of international finance centres,” she said.

East & Partners interviewed 700 investors in Asia over a seven-week period earlier this year for their outlook. Among them were 200 institutional investors with an average AuM of $12.5 billion; 400 HNWs with investable assets averaging $10.2 million; and 99 corporates ranked in Asia’s top 100 by revenue.

"Significant"
Paul Downing, principal analyst at the firm called the research “significant” because “it is the first time we have talked to the asset owners themselves and in large numbers. From those we interviewed, it is clear that safety, reliability, trust and confidence are critical factors that can be found via established international finance centres, such as the BVI, which have developed partnerships in Asia.”

As a side note, Robert Horrocks, CIO and portfolio manager at Matthews Asia commented on the longer-lasting impacts to politics, economics and investments that are starting to become clear from the pandemic. "I would point to one potential development in particular—the transformation of the world into a bipolar world—the United States at one pole and China at the other," he said in a note this week. Calling Europe's ecomomic response to the lockdowns "insufficient," Horrock's said that China's One Belt One Road initiative can be seen more clearly now "for the economic diplomacy that it always was."

He suggested that political parties in Italy see the Chinese as a potential source of spending to come from the crisis. "Meanwhile, the conversation in the US is about who can be toughest on China and that is likely to mean a recommitment to the region and to geopolitics through military diplomacy rather than investment," he said.

If the trend continues, "it is very hard to see how the US emerges from confrontation with China as a winner. China, as problematic as some of its internal policies are, is winning the diplomacy of global outreach," Horrocks said.