Investing offshore – your questions answered

WAYNE SOROUR Head of Old Mutual International Sales & Distribution

The current political and economic landscape in South Africa has led to a surge in interest in offshore investment from local investors. The decision to invest offshore is predominantly influenced by the search for better returns, in addition to stability and security of assets, says Wayne Sorour, head of Old Mutual International Distribution and Sales.

However, navigating a complex environment of offshore investing can be challenging.

The key motivation for an investor to invest offshore should be to have an appropriately diversified investment portfolio in pursuit of real capital growth at an acceptable level of risk. Sorour adds that it is estimated that between 65% and 80% of South African investors’ total wealth is exposed directly to the SA economy.

The majority of South African investors may have too many eggs in one basket, says Sorour. Regardless of the economic and political climate in the country, from an investment perspective, developed and other emerging markets offer more depth and breadth relative to the local market. This allows an investor to diversify risk and to access far more investment opportunities for growth. Global investment markets present more opportunities to invest in long-term growth sectors such as technology and healthcare.

Simply put, if you want to mitigate risk and grow your investments in real terms over the long term, you will do

well to adopt the mindset of a global investor.

When investing offshore, you have two options: you could invest directly, in hard (foreign) currency such as the US dollar or the British pound; or through an indirect vehicle, such as a feeder fund or a unit trust, which uses an asset swap.

Direct offshore investing

Direct offshore investing involves converting rands to a hard currency and investing it abroad. Investors apply through the South African Revenue Service and the South African Reserve Bank for direct investment clearance. For direct investment, investors can apply for R10m

per annum as an individual or R20m per annum per household. Individuals may also use their R1m allowance. Investors can then choose to invest directly in funds or in shares abroad. Or you could, of course, invest through an endowment wrapper. The advantage here is that the company with which you’ve taken out that policy does all taxes payable within the wrapper. Tax rates on a wrapper are generally more favourable.

Indirect offshore investment

Indirect offshore investment allows you to invest in offshore assets without the money physically leaving South Africa. When you decide to invest offshore indirectly, you need a mechanism to get this money abroad – referred to as an asset swap, it is essentially an investment manager’s offshore allowance. No tax clearance is needed; however, the investment performance and value are reported and paid out in rands in South Africa.

Where do you invest?

Offshore investing has the added complexity of a choice of thousands of companies and funds to invest in, says Sorour. This is where intimate knowledge and expertise of the offshore investment space plays a crucial role.

Based on medium- to long-term investment horizons, money allocated to offshore investing invariably forms part of an investor’s discretionary investment amount. Due to the added complexity of geographical exposure to equity markets in the US, UK, EU or emerging markets, among many others, finding an adviser familiar with offshore investing is crucial, says Sorour.