As Brexit’s uncertainty cascades to all aspects of the global economy, high net worth individuals (HNWIs) share with the nation a great deal of uncertainty, albeit of a slightly different variety.
Many HNWIs are poorer post-Brexit
With the majority of HNWIs in the UK (14.3%) owing their wealth to the financial services industry, the billions that have been wiped off markets recently would have directly hurt the pockets of many HNWIs. Moreover, the storm has not yet passed for HNWIs with investments in certain macro funds which have revealed deep losses. Bloomberg data has shown that 15 of Britain’s wealthiest individuals lost $5.5bn in the immediate market fallout following the announcement.
Non-doms thrown into uncertainty
New rules on non-doms – the unique tax status many foreign born HNWIs subscribe to – were announced in the summer of 2015 and expected to be published following the referendum. Their delay, however, will add to the uncertainty of UK resident and non-UK domiciled individuals in the run up to the new rules coming into force on 6 April 2017.
Luxury spending may decline as luxury assets flourish
This is recessionary behaviour: As 2008’s credit crunch forced HNWIs to clamp down on their luxury spending, it also saw an increase in the art, wine and precious stone markets. Gold is already rising, but if financial uncertainly looks set to stay, many investors will buy into such tax deductible assets as safe investment options.
HNWIs in manufacturing will prosper
The manufacturing industry at-large, could see an upturn in its fortunes as a weaker sterling helps UK exports. Billionaire Brexit supporters, Sir Anthony Bamford and James Dyson will lead the way for a temporary or prolonged boom for British manufacturing business owners, depending on the state of sterling.
Central-Prime Real Estate could make a comeback
Again, a weaker sterling carries with it certain advantages, this time for centralprime property markets – mostly the areas of London around Mayfair, Knightsbridge and Chelsea. Having seen prices plateau recently – partially in anticipation of the referendum – the same areas are now looking more attractive to HNWIs from overseas as the sterling devalues against their own currencies, notably the US dollar.
Lighter regulation could benefit some HNWIs
The bonus-cap may be one of the more symbolic pieces of regulation imposed on the City of London – and HNWIs – from Brussels. However, other areas of finance many benefit from lighter regulation, anticipated as Brussel’s laws are replaced with Westminster’s. One example is the Alternative Investment Fund Managers Directive (AIFM), which affects hedge funds, private equity, real estate and other alternative investment fund managers. According to Deloitte, most UK-based asset managers think AIFM reduces the competitiveness of the EU’s alternative investment funds industry, while Open Europe thinks that it costs the UK £1.3 billion a year (based on 2014 estimates). SMEs and other non-financial industries – from fisheries to farming – may also benefit from a lighter regulation, though any immediate changes are unlikely.
Changes in the Private Banking sector
Private banking – an industry combatting over-regulation and fin-tech disruption – could yet see better years. In the immediate future, private banking will come into its own as proper financial planning and risk management are required to mitigate current market volatility. Long term, the UK’s private banking industry may appeal to overseas HNWIs as the UK sets its own rules on laws affecting HNWIs, such as antiavoidance tax legislation. Should uncertainty in the Eurozone surpass that within the UK, British banks may also benefit from capital flight.
HNWIs will continue to come to London
Whatever the outcome of Britain’s negotiation with the EU, it will not diminish London’s lure among HNWIs (as reported by Spears and WealthInsight last month, it currently has more UHNWIs than any other city in the world). London’s superior education standards and quality of life will continue to be as much an appeal to migrating HNWIs as its financial prowess. The capital’s strong judicial system is already being used by foreign billionaires to settle disputes in their home countries, while its world class culture and education attracts many with families. With resident business leaders, London’s financial sector will maintain its place both in UHNWI rankings and among financial capitals
Next Finance , July 2016
According to Ronen Israel, principal at AQR Capital Management, four investment “styles” — Value, Momentum, Carry and Defensive — have emerged as compelling sources of alternative returns, backed by economic theory and decades of data across geographies and asset (...)