Wealthy families in the US and Europe have been transferring wealth abroad due to domestic uncertainties and market volatility, but it is time for them to revise their portfolios with a worldwide perspective.
Recent market gyrations have been unsettling for long-term investors. Price drops and volatility across asset classes have challenged the reliability of traditional safe havens.
Following president Donald Trump’s global tariff impositions, US stockmarkets suffered losses and turbulence not seen since the Covid-19 pandemic or the 2008-2009 global financial crisis. The VIX — a volatility index known as Wall Street’s “fear gauge” — hit a level only witnessed twice before. Hong Kong’s stockmarket posted its biggest decline since the 1997 Asian financial crisis. Yields on UK 30-year gilts hit their highest level since 1998. Oil prices fell to their lowest since February 2021.
Investors usually flock to US Treasuries and the US dollar in such crises — but this time, political uncertainty has weakened demand for US-backed assets, with yields on Treasuries soaring and the dollar plunging.
Mr Trump’s subsequent volte face regarding “reciprocal” tariffs brought a rebound in stockmarkets, while also emphasising the current administration’s volatility. The reprieve did not include China, which retaliated with a trade war and its own tariffs.
Both investors and consumers expect rising global inflation and stagnant growth, for which the Federal Reserve may be unable to cut rates to re-stimulate the economy.
Safe havens and stability
Concern for the US economy has led many ultra-high net worth (UHNW) investors — already globally diversified — to start shifting wealth abroad. Private bankers, multi-family offices, and asset management groups in Switzerland and the UK report increased enquiries from US citizens on the transfer of their assets. However, Americans cannot open a Swiss bank account due to Fatca regulations, which require foreign banks to report US account holders to the IRS. Only SEC-registered firms in Switzerland can help clients open and manage their accounts.
In the UK, changes to the ‘non-dom’ system that offered lower taxes to people not UK-domiciled mean that new residents’ foreign income and gains are only free of UK tax for the first four years, provided they have been non-resident for the previous 10 years. Afterwards, they must pay tax on worldwide income and gains. Shifting wealth to the UK may be a stop-gap measure, especially considering US citizens are still required to pay US tax on worldwide income regardless of their residency.
These factors mean many investors are looking both for local knowledge and a much more global perspective from a wealth manager, in order to transfer, protect and grow their assets. UNHW families and foundations need a view of the bigger picture and access to specific expertise and bespoke global solutions. Most need institutional-grade investment opportunities, strong returns and risk diversification in keeping with their broad and complex needs during this tumultuous time.
New opportunities
The immediate concern is to protect wealth and evade fear that would otherwise hold investors back from taking advantage of new market opportunities. In the short term, service industries could offer a safe haven by remaining relatively unaffected by the imposition of US tariffs. In the medium term, companies and countries with lower relative tariffs could see exports to the US grow as the costs of their products become comparatively lower for American consumers.
That said, it is possible that trade flows will reorient away from the US in the long term with Mr Trump’s current trade policy. While the global supply chain is complex and transformation takes time, the pandemic demonstrated how a crisis can incite faster-than-usual change.
A reduced role for the US in global trading — and an intensifying US-China trade war — could enable other countries to take a larger role in some industries, like Europe has in the development of AI. If China loses the US as the main export destination and opens new trade routes, costs for consumers in the UK and Europe will lessen with the threat of inflation. This may create new, exciting investment opportunities, which expert local knowledge can help identify.
Navigating uncertainty
Cutting through the recent vacillations in Mr Trump’s policies, America’s average tariff rate is now the highest it has been in nearly a century — jumping from roughly 3 per cent to more than 20 per cent. No matter what the US administration decides to do next, the global trading landscape has decisively changed.
In this climate of uncertainty, it is vital for global families to be able to see the bigger picture and access bespoke investment strategies that offer simplicity and clarity.
Robert Weeber, president, international wealth management, AlTi Tiedemann Global
