Switzerland: The World’s Offshore Wealth Centre
Switzerland remains the ultra-rich’s choice of wealth storage - but for how much longer?
The latest Global Wealth Report published by the Boston Consulting Group (BCG) shows that Switzerland remained the world’s preferred choice for offshore wealth storage. Last year, Swiss banks and institutions managed a combined CHF 2.1 trillion (USD 2.4 trillion) of assets belonging to wealthy foreigners from around the globe.
South-East Asia is well-represented on the list, with financial centres Hong Kong and Singapore in second and third place on the list and putting pressure on the Swiss hegemony. Hong Kong remains Switzerland’s nearest offshore rival for another year, with a USD 2.2 trillion industry, with Singapore accounting for USD 1.5 trillion cross-border assets. Rounding out BCG’s list of the top seven were the USA (USD 1.1 trillion), the UK (mainland - USD 885 billion), the Channel Islands and the Isle of Man (USD 627 billion) and the United Arab Emirates (USD 538 billion).
Cross-border banking is going through somewhat of a booming phase, driven in part by the level of political and economic uncertainty across the globe over the last 12-18 months, including rampant inflation and the Russian invasion of Ukraine. Consequently, roughly USD 12 trillion worth of wealth crossed national borders in 2022, according to the BCG. However, their 2022 report estimated that Hong Kong would in fact have overtaken Switzerland as the world’s leading offshore wealth centre by the end of this year. However, the impact of China’s incredibly strict COVID-19 lockdown policies for the majority of 2022 was also felt in Hong Kong as the regular inflow of Chinese wealth into the city did not occur. Accordingly, it is now not expected to overtake the Alpine country’s offshore wealth totals until 2025 at the earliest. Michael Kahlich, a partner at BCG Zurich, who co-authored the study, said “One of the main reasons for the delay is the slowdown in growth of Chinese assets as well as asset outflows towards Singapore, which is positioned as a ‘safe haven’, closely aligned to the West,”. The BCG report estimates that over the next five years Singapore will see a rise of 9% annually in terms of the assets booked, whilst Hong Kong can expect around 7.6%. Switzerland, by contrast, is predicting to receive only 3%. The United Arab Emirates will continue to drive development in this field, with predicted growth of 9.6%.
How much of this is linked to the adaptation Switzerland’s banking is going through following the collapse of Credit Suisse in March? As was widely reported, Credit Suisse itself saw huge volumes of client withdrawals in the first quarter of this year, totalling almost CHF 60 billion. This of course followed a further CHF 110 billion withdrawn in the final quarter of 2022. In a recent report KPMG estimated that 2022 saw a slowdown to the tune of about one third of the 2021 volumes transferred to 73 Swiss private banks, which excludes UBS and Credit Suisse. This slowdown coupled with the vast sums withdrawn from Credit Suisse paint a rather more morose picture than usual. Despite this, you would be ill-advised to write off Switzerland’s appeal to wealthy foreign investors. Swiss wealth managers continue to set incredibly high standards. In fact, the data shows that last year Switzerland took 4.1% more cross-border wealth from emerging market nations compared to 2021, as well as 2.3% more from developed economies.
In terms of the wider global picture and global wealth, though 2022 was a tumultuous year for the financial markets, investments in property saw a huge boost globally, tipping the total wealth measured in the BCG report to over USD 459 trillion. BCG predict that this will rise further to USD 600 trillion by 2027, with Switzerland’s share alone accounting for USD 6.1 trillion, or over 1%. A staggering sum for a relatively small nation, albeit one with a reputation for financial stability and invention replete with wealth and investment managers. Switzerland currently sits in 14th place on the list of the world’s richest countries when measuring the net worth of its most affluent citizens, with an increase of 2.5% in 2022. Switzerland currently has 580,000 millionaires domiciled here, a larger number than Germany, despite having a population roughly one ninth of the size.
by Charles Glover