Offshore investing trends in the adviser space

Offshore investing has transitioned from a specialist allocation to a core component of South African client portfolios.

Today, advisers have access to a far broader range of offshore solutions than two decades ago, including offshore endowments, sinking funds and discretionary portfolios, each catering to different client needs. While adoption continues to grow, there remains significant opportunity for advisers to expand their use of offshore solutions in response to rising client demand.

This is the view of Daniel van Andel, head of Platform and Adviser Proposition at Allan Gray, who recently addressed financial advisers at Allan Gray’s The Times event.

“Over the last 20 years, client portfolios have started to shrug off their home-country bias, with offshore exposure sitting at over 50% on a look-through basis,” said van Andel, citing Allan Gray Investment Platform insights.

This is more than double the allocation seen in 2005, reflecting both growing demand for global diversification and a progressively more enabling regulatory environment – including the South African Reserve Bank steadily increasing the foreign investment limit and, more recently, National Treasury increasing the Single Discretionary Allowance (SDA), from R1 million in 2011 to R2 million in 2026 (see graph below).

“It is encouraging that South African investors are increasingly taking a global view when diversifying and seeking investment opportunities,” said van Andel.

Product innovation is expanding the adviser opportunity
While most investors have some offshore exposure through the foreign component of their local investments, and others have over the years opted for rand-denominated offshore feeder funds as an easy way to increase exposure but using rands, van Andel said that product innovation is now expanding the advice opportunity. Investors who want to take advantage of the increased offshore limits, and better understand the product offerings if they want to invest both in rands and foreign currency, are increasingly in need of good, independent advice.

“We’ve seen new products come onto the market and investors require guidance. Look at the recent explosion of actively-managed exchange traded funds with offshore exposure – investors need assistance understanding the opportunity set.”

Growth of endowments
Another notable industry shift van Andel highlighted is the appetite for offshore endowments.

“Offshore endowments have become increasingly popular given their tax and estate planning benefits,” said van Andel.

Allan Gray’s Offshore Endowment has more than doubled in size over the past year, reflecting growing demand for offshore investment solutions. “However, only around one in three advisers contracted with the Allan Gray platform use our offshore platform solutions,” van Andel notes. Given that Allan Gray also offers a sinking fund and that it is important for clients to understand the different role players in endowment structures, there is plenty of opportunity for advisers in this space.

Younger investors are coming up
A notable development is the shift in the demographics of offshore investors.

“Since 2010, we’ve seen a meaningful increase in younger investors using the Allan Gray Offshore Investment Platform,” van Andel said. “Under-50s now make up about half of new investors on our offshore platform, up from roughly a third, and we’re also seeing growth in the under-30 segment.”

He said this points to improved accessibility and a growing comfort with global investing among younger clients, providing yet another opportunity for investors.

Integration as a competitive edge
For van Andel, the opportunity for advisers is to integrate offshore solutions into their core advice process, giving it due priority in the conversation. “This ultimately benefits clients and adds value to businesses,” he said.

Data presented at the session suggests a link between offshore platform adoption, stronger inflows and larger average client portfolios, reinforcing the idea that offshore capability is increasingly tied to practice growth.

“Clients are increasingly thinking globally when it comes to their investments. Advisers play an integral role in helping them navigate the complexity of offshore investing, and those who are able to incorporate it seamlessly into their advice proposition, rather than treating it as a specialist offering, will be well positioned for future growth,” concluded van Andel.