– By Vivek Subramanyam
Cross-border investments are now a crucial component of family offices’ business strategies as they increase their global presence. To diversify their portfolios and pursue greater returns, these organisations are increasingly moving outside their home markets, with a projected US$5.9 trillion in assets under administration globally as of 2024. Cross-border ventures, however, come with several challenges, from complex legal frameworks to volatile exchange rates and geopolitical unpredictability.
Geopolitical Risks and Uncertainty
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One of the most significant risks for family offices investing internationally is geopolitical instability. The political climate in a foreign country can impact asset performance, especially in emerging markets where governance may be less stable. Regional conflicts, sanctions, or sudden regulatory changes can turn an otherwise lucrative investment into a liability overnight.
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To mitigate these risks, 85% of family office deals in 2023 (Link) were conducted through consortiums. These shared-risk investments enable Family offices to pool resources and knowledge, minimising exposure to any single geopolitical event. Consortium investments also allow family offices to access markets that would otherwise be too volatile or complex to navigate independently.
Political risk Insurance (PRI) can protect investors against government expropriation, political violence, currency inconvertibility, and breach of contract. PRI policies from organizations like the World Bank’s Multilateral Investment Guarantee Agency (MIGA) can provide a safety net.
Complex Tax Regulations
Tax compliance is another major hurdle for cross-border investors. Every country has its own set of tax laws that can impact capital gains, income tax, and inheritance tax, adding layers of complexity to managing a global portfolio. Family offices are increasingly relying on third-party advisory services, with 34% of family offices planning to increase this reliance in 2024 (Link). These advisors specialise in navigating the intricate web of international tax regulations, ensuring that Family offices maximise their returns while remaining compliant.
Family offices are also adopting sophisticated risk management strategies to handle tax-related challenges. However, a survey conducted by FINTRX in 2023 showed that only 35% of family offices actively use comprehensive risk management strategies (Link),
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