Diversification via offshore investments is a strategy applied by fund managers to reduce portfolio volatility, whilst maintaining target levels of returns. Actually, financial market reports show that more than 80,000 funds being traded in financial centres across the globe come from offshore accounts, usually in jurisdictions regarded as tax havens.
However, in order to achieve optimum results, offshore investments must be coursed through an entity domiciled in the offshore jurisdiction; allowing fund managers to shift positions with speed and ease. Otherwise, some domestic policies and restrictions in the investor’s home country could hamper fund managers from altering positions at the soonest time possible. This is in consideration of the fact that international investments are denominated in any of the applicable major foreign currency.
Aside from the high degree of flexibility and broader range of investment options, investing in offshore accounts affords greater privacy over financial transactions.
Most Common Examples of Offshore Investments
While we do not present ourselves as investment advisors, our goal is merely to provide explanations about the most common examples of offshore investment products offered to investors looking to diversify their portfolio. While some are open to everyone who meets the basic requirements, some types of offshore investments are available only to accredited investors.
Bank Certificates of Deposit – While this type of financial investment is widely available in an investor’s home country, offshore Certificates of Deposit (CDs) have higher returns especially if placed in tax haven jurisdictions. Mainly because the tax rates imposed on earnings are either very low or in some cases, no tax is imposed at all.
Mutual Fund – This is another type of low risk investment, ideal for individuals looking to grow their hard-earned savings. Mutual fund managers pool money that will be invested collectively but limited to stocks, bonds and other types of short term investment ventures in order to keep the volatility low. MF managers earn bonuses only if the income generated by the pooled fund exceeds the index or level of return promised to mutual fund investors.
Hedge Funds – These are also money pooled but sourced from investors who can afford to place their money on an investment portfolio comprising high risk ventures that may include investing on real estate, foreign currencies, cryptocurrencies, precious metal contracts, agricultural contracts, private equity financing and other similar performance-based ventures, which are in addition to investing on marketable securities, bonds and financial market derivatives.
Hedge fund managers collect commissions by deducting a corresponding amount from the individual revenues of hedge fund investors. Most top-of-the-line hedge funds are available only to accredited offshore or foreign investors.
Precious Metals are the most favored form of asset-protection form of offshore investments since they constantly store value regardless of domestic or global economic conditions. Precious metals, particularly gold, could go up or down in terms of prices, but will always stay up in direct relation to their function as financial backing of a nation’s currencies,
Foreign Currencies as offshore investments are different from financial derivatives that trade mainly on the prices of foreign currencies. Offshore foreign currency investments may be in the form of holdings in government bonds, equities, or funds in non- US dollar denominations.
Foreign Real Estate are attractive to individuals looking to invest on lucrative real estate properties like residential or commercial condominiums, in offshore jurisdictions. They are usually offered for a premium by real estate developers or hoteliers by way of sale or lease contracts.
Other classes of offshore investments include Private Equity Funds, Private Equity, International Finance, Sector Funds and Agricultural Contracts; but are usually offered to sophisticated and savvy investors who apply due diligence in vetting the potentials of the offshore investment.