Navigating a new level of volatility

An article written by Dr Juerg Steffen FIMC, CEO of Henley & Partners for the IM Yearbook 2023.

Dr Juerg Steffen, CEO of Henley & Partners, writes that turmoil and instability have become the common denominators of the 21st century, which have accelerated demand for investment migration pathways.

A twin dynamic is at play in the investment migration arena as investors pursue sovereign diversification at the same time as nation states seek to boost their sovereign equity – in both cases, residence and citizenship by investment provides the optimal solution. Relentless volatility and uncertainty continue to drive wealthy individuals across the world to explore the most suitable investment migration solutions to manage the risks of abrupt changes in policy or legislation that could threaten their capital and lifestyles.

Sovereign diversity

Although historically investment migration programmes might have been considered a convenient add-on for globally minded investors and entrepreneurs, today, faced with so many ever-fluxing dynamics on the global stage, sovereign diversity has risen to the fore, and this asset class is now deemed a necessity. Investors are looking to protect themselves and their families from ongoing political insecurity and economic instability by having the option to live, work, and conduct business in an array of different jurisdictions across the world.

Another paradigm shift is taking place at the sovereign level with more governments increasingly keen to engage with the global community of high-net- worth investors and talented individuals, encouraging them to their shores by introducing new immigration pathways, including residence and citizenship by investment programmes. Nation states can use these programmes as an innovative financing tool by allocating inflows to social, infrastructure, and development projects that benefit their citizens. In so doing, they also boost public finances, foster economic growth, and create employment opportunities without increasing debt.

Crisis after crisis

The 21st century certainly began as it meant to go on. Merely a year into this millennium, the world was upended in 2001 by the 9/11 attacks, a single event that catapulted humanity into an ideological tug-of-war, deepening fissures between sovereign states and shaking the geopolitical scales of power.

War and volatility have also fuelled the mass migration of people looking to escape hardship and authoritarian rule and added pressure to the seemingly irresoluble refugee crisis the world confronts. The ongoing conflict in Ukraine has become the current centre of global political instability as Europe responds to warfare on its own turf. The conflict has also awoken the sleeping dragon of ideological, political, and economic warfare between East and West, taking us back to an era reminiscent of the Cold War. It has also driven wealthy individuals, entrepreneurs, and business owners to invest in residence and citizenship by investment programmes in countries that offer more stable socio-political environments that grant them peace of mind.

Asset devaluation

Less than a decade after 9/11, international markets suffered the global financial crisis of 2007–2008, with the collapse of the American housing market having a dramatic domino effect the world over. Now, 15 years later, on the back of a devastating global pandemic, we are staring yet another economic emergency in the face, with inflation rates soaring and a painful global cost-of-living crisis further widening the wealth gap. The World Economic Forum’s Chief Economists Outlook for September 2022 was grim, warning that a global recession is possible in 2023, with growth stifled by “once-in-a- generation inflation” in the US and Europe.

Economic volatility of this scale heightens risk, and risk prompts affluent individuals to look for ways to protect their wealth, their capital, and their families, and future-proof their investments. Demand for investment migration pathways has accelerated in recent years as wealthy families seek to safeguard their legacies and retain the optionality to move to, or invest in, more secure jurisdictions. The record inflation we are experiencing across the world is devaluing liquid assets with each passing day, making residence and citizenship programmes linked to real estate investments in budding property markets, or those tied to funds in lucrative financial hubs, very attractive to astute investors.

The conscientious investor

When borders shut in 2020, humankind shared the life-changing experience of the Great Lockdown, albeit to varying extents. It highlighted the immeasurable value of freedoms once taken for granted, emphasised the importance of robust healthcare access, and prompted many to explore truly effective ways of safeguarding their wealth and lifestyles. It is now of paramount importance to high-net-worth individuals to mitigate exposure to volatility at home and protect against the barrage of multi-faceted crises that the world is enduring by accessing a greater number of jurisdictions through a diversified portfolio of residences and citizenships.

The way we interact and the way we work have changed thanks to technological advancements and, with this digital transformation, the world has become truly interconnected. Many who have explored new locations from which to work or run their businesses during the pandemic have started examining more permanent options available to secure additional passports and the rights to live in attractive, stable, and cosmopolitan locations. And now, more than ever, countries need their talent and their investment to boost their own resilience to future shocks. It’s a win-win situation. Nation states can leverage their sovereign equity to provide investors with the sovereign diversity they are looking for, to the benefit of both.

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