Money pouring in from high net worth individuals in emerging markets will be one of the key drivers of growth for wealth managers globally, according to a report on the industry by Deutsche Bank and Oliver Wyman.
The investment bank and consultancy estimate that 60 per cent of growth in assets under management over the next five years will come from developing nations. While much of that money from emerging markets would typically go into offshore accounts, a greater portion will be directed to onshore accounts, as a result of regulatory pressures that are making it more difficult for the rich to avoid taxation. That change will favour local and regional wealth managers who have already made inroads while posing a challenge for global wealth managers who are not as entrenched.
"Historically, most emerging markets saw a large portion of their assets under management being managed onshore," the report said.
"The majority of future growth will originate in onshore markets. Local and regional players show early success in growing their onshore platforms, while global players are facing the challenge of how to win onshore. Global wealth managers have a strong position in the offshore hubs serving emerging markets, but with few exceptions, have struggled to find a winning formula onshore."
The authors of the report noted that regulatory changes are continuing to result in money going out of offshore and into onshore accounts as governments continue to offer tax amnesties to those who have avoided paying taxes.
The report said that much of that shift will come ahead of the full implementation of Automatic Exchange of Information between governments at the end of 2018. The bank and the consultancy estimated that about US$1.1 trillion would flow out of offshore accounts as a result of the most recent efforts at regularisation. Most funds that will be impacted will come from Asia and Latin America, it said.
"Offshore players have been seeing large outflows for some time now," the report said. The authors estimate offshore centres in developed markets like Switzerland have already experienced more than 50 per cent of expected outflows from the second regularisation wave, while outflows from offshore centers in emerging markets like Hong Kong and Singapore are expected to pick up over the next quarters.
Assets under management for the industry globally rose 7 per cent in 2016 to $65 trillion, higher than the 5 per cent growth than initially estimated by the authors of the report. However, growth is likely to slow down after a strong performance of global stock markets last year.
