18 Feb
2020

Global Investors Look to Diversify Portfolios amid Coronavirus Chaos


investors

The outbreak of the coronavirus, coupled with record valuations in equity markets, has triggered a global sell-off of high-risk investments and a significant shift in sentiment among global investors

In South Africa alone, foreign investors had sold off over USD 4.8 billion worth of assets by the end of last year, prompting domestically based high-net-worth (HNW) individuals to rethink their wealth preservation and growth strategies.

Investment in traditional safe-haven assets such as gold is on the rise, with inflows into gold exchange traded funds standing at 30% higher than last year. Henley & Partners Managing Partner for South, East and Central Africa, Amanda Smit, says there is also growing interest in residence- and citizenship-by-investment programs as a result of increasing market volatility. “Investment migration programs enable countries to grant residence or citizenship rights to individuals in exchange for a substantial investment. Savvy investors are embracing investment migration – the newest option in the safe-haven asset class – as it unlocks novel risk management and optimization options for the HNW portfolio.”

Over 100 countries have some form of investment migration legislation in place, and there are over 60 different programs active around the world. In terms of the industry’s size, citizenship-by-investment contributes about USD 3 billion a year to the global economy, while the residence-by-investment sector contributes about USD 15 billion a year, putting the industry as a whole at around USD 18 billion.

Henley & Partners Chairman and pioneer of the modern investment migration industry, Dr. Christian H. Kaelin, says visa rules and governments can and do change, but citizenship is for life and can normally be passed down to future generations. “On the one hand, holding additional residence and/or citizenship provides security, reliably diversifying risk through greater protection from volatile markets and political instability. It also prevents individuals from being dependent on a single country. On the other hand, investment migration programs permit access to a significantly expanded suite of opportunities for travel, investment, and access, creating substantial value. In either case, the benefits that accrue from multiple citizenships and residencies generate unique value for the investor that goes beyond simply providing political risk insurance.”

For an investment of between EUR 1 million and EUR 2 million, Malta and Cyprus offer the most sought-after citizenship-by-investment programs in the EU, and along with most other EU member states, the two countries also offer residence-by-investment, at lower price points. The minimum real estate investment requirement for the Malta Residence and Visa Program is EUR 270,000, while the most affordable qualifying investment for the Cyprus Permanent Residence Program is purchase of real estate with a total market value of at least EUR 300,000 plus VAT. The minimum real estate investment requirement for the popular Portugal Golden Residence Permit Program is EUR 350,000, and the permit enables one to apply for full citizenship after five years.

Dr. Kaelin points out that another benefit of holding more than one citizenship is that it prevents individuals from being at the mercy of a single government: “Acquiring alternative citizenship of an EU country, for example, guarantees the right to travel, trade, and settle anywhere in the EU without restriction, as well as granting access to all the benefits enjoyed by other citizens of the state in question. For business owners it can also foster business expansion and facilitate overseeing international operations. Alternative citizenship dilutes the power that a single state can exercise over individuals, enabling strategic investors to make autonomous decisions regarding the deployment of capital.”

Smit adds “This has a major impact on wealth planning and financial services providers. Advisors who don’t recognize the power of investment migration as a key risk diversification tool for their clients will ultimately lose market share to those who do. Given the unequivocal value that wealthy individuals see in citizenship planning, it’s a prudent move to include this innovative asset class alongside more traditional wealth management options.”

 

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