With more and more HNWIs turning to wealth and investment managers – even as a digital approach to wealth and investment management sees it transform into an increasingly borderless process – it is clear that the new normal is opening up a fresh avenue of possibilities for wealth management hubs such as Mauritius
The seminal Wealth-X World Ultra Wealth report 2021 notes that, despite the disruption caused by the pandemic, the volatile capital markets, and the deepest contraction in world economic output for a generation, the global population of Ultra High Net Worth Individuals (UHNWIs) grew 1.7% in 2020 to a total of 295,450. In addition, the net worth of the entire UHNWI population increased by 2% in 2020, taking the consolidated amount to $35.5 trillion.
Meanwhile, with US$68 trillion in assets set to transfer to younger generations over the next 30 years, an Economist Intelligence Unit survey notes that younger UHNWIs are substantially more enthusiastic about foreign investing. The US is a particularly high-profile example of a country where a long-standing preference for investments in local markets appears set to be transformed.
Given that the Wealth-X Report 2021 states that the US is the country with the most UHNWIs, such a borderless approach is definitely indicative of new avenues for private wealth jurisdictions. In particular, this exciting trend opens up fresh opportunities for wealth management hubs such as Mauritius, which are already attractive to global investors from a financial reputation and political stability standpoint.
How Mauritius is positioned to capture the wealth market
Significantly, the Blueprint for the Financial Services Sector commissioned by the Ministry of Financial Services and the Financial Services Commission (FSC), and published by global consulting firm McKinsey in June 2018, had emphasised Mauritius’ potential as a private wealth structuring jurisdiction.
More recently, a report issued by Capital Economics for the Economic Development Board of Mauritius in August 2021 highlights how the island economy serves to mediate investment from private individuals. For investment into Africa, this accounts for almost one-fifth of the foreign investment activity, while it represents a lower share of investment activity outside of Africa. This likely reflects the increased risk in doing business in parts of Africa, which can be duly mitigated by the use of Mauritius as a secure, well-regulated, and cost-efficient jurisdiction that offers security to individuals from countries where their wealth is not necessarily safe. Such security is critical to encouraging growth in developing countries, as entrepreneurs want the assurance that the wealth they create will be their own.
Harking back to the Blueprint, it crucially noted that offshore private banking and wealth management is the IFC’s third-largest sector, with a banking revenue pool of USD94 million, Assets Under Management (AuM) of USD8.2 billion, and approximately 300 full-time employees. Within this, offshore private banking and wealth management for Africans was identified as a major opportunity, offering potential growth of 7-8% per annum to create a USD20 billion revenue pool by 2030.
How the global landscape of wealth management is shaping up
Looking beyond the shores of the island, it is clear that the wealth and investment management industry is entering unchartered territory. Indeed, the global economy as a whole has entered a period of significant uncertainty, with Covid-19 presenting a dramatically changed reality and placing investment management firms under pressure to deliver returns in a muted economic environment.
Soberingly, a report by Morgan Stanley Research and Oliver Wyman sees global HNW wealth lose more than a year of growth versus pre-Covid-19 forecasts before rebounding to growth in 2021. The volatility of the markets in the past year is seen as a sound reason for HNWIs to pass their portfolio management to experts and improve their risk management via diversification.
Complementing this study, Accenture’s recent survey of C-level executives in wealth management affirmed their desire to focus on responsible leadership and strategy, differentiated client experience, intelligent operations and technology, and empower talent and change, by 2025 – all with a view to drive outperformance over the next five years. The report also forces us to confront the deeper question of how wealth managers can grow their businesses sustainably in these testing times.
A borderless and digital wealth management world
Going forward, industry observers note that while 2020 proved the industry’s resilience and its evolving role in societal and environmental trends, 2021 is expected to see greater innovation that is delivered at scale through new enabling technologies.
In this context, an insightful thought leadership on Forbes by Forrester examines how innovative wealth-tech firms are using digital technologies to drive better digital experiences for customers and render financial advice more efficiently. With digital transformation accelerated by Covid-19, such technologies include digital onboarding that allows customers to open and fund a new account in less than five minutes and digital servicing that allows customers to connect short-term financial wellness with longer-term financial goals.
Certain changes go far beyond the pandemic though, with environmental crises such as wildfires in the western United States and global social unrest highlighting the importance of sustainability like never before. No wonder then that the environmental, social, and governance (ESG) theme is increasingly coming up in client conversations. Consumers, especially those hailing from the young, millennial generation, now include ESG factors such as addressing climate change and supporting social causes in their investing agenda. Hence, Forrester sees ESG playing a significantly larger role in wealth management in 2021 for retail investors, wealth management firms, and portfolio managers.
With its compelling value proposition for private banks, wealth managers and HNWIs, Mauritius in an ideal position to capture a significant share of this market. And, with the Bank of Mauritius having recently published the guide for issue of sustainable bonds, it is clear that the island economy is well aligned with the expectations of global investors for ESG-centric investments.
Ultimately, as the world of wealth and investment management becomes increasingly borderless in a post-COVID context, it appears that wealth management hubs such as Mauritius are uniquely poised to help HNWIs from Africa – as well as the rest of the world – to meet their wealth planning aspirations and to grow their assets sustainably.