How Ultra-Rich Protect & Grow Their Wealth in Crisis
Alex Ogario, Head of the Private Office at Knight Frank Finance, UK
How shrewd investors have been nimble during the Covid-19 pandemic?
The Covid-19 pandemic has been a brutal reminder of how quickly conditions can change in a crisis. Everywhere you look during the past 14 months, change happened at breakneck speed. Not all capital can move this quickly. At various key moments, ultra-high-net-worth individuals have found themselves ill-prepared for a world transformed overnight. Many portfolios, though carefully planned, were packed with illiquid investments, leaving investors unable to react with the speed needed to match the manner in which markets were moving.
Debt comes into its own in conditions like this. Since the onset of the crisis, shrewd investors have maximised the potential of debt in order to protect jobs, optimise returns or to be more nimble than competing buyers. That has manifested itself in a number of ways:
How UHNIs are leverage borrowing for businesses and reallocating capital
Many wealthy individuals are large employers, and the loans enabled many to avoid making redundancies while they reallocated capital tied up in more illiquid investments. We’ve also been working with wealthy homeowners seeking to take out mortgages on prime properties in order to reallocate funds elsewhere.
This also reveal why property debt in its various forms is always on the menu of strategic wealth managers. Product innovation, particularly in sectors like Equity Release, offer new ways to reallocate funds to secure other significant benefits, including minimising inheritance tax bills.
How property investment opportunities are favourable?
We’ve worked with individuals seeking to move quickly while overseas investors are out of the market. Much of the data we’re seeing suggests a rebound in international purchases is imminent, and domestic buyers able to act now stand to benefit from any subsequent increase in capital values.
Viewings of properties fell 36% in the year to January while travel restrictions prevailed. During the same period, new prospective buyers registering climbed 109%. If even a fraction of those decide to transact once travel becomes possible, we are in for a very busy market.
It’s worth remembering the pandemic has also given us a glimpse of the other side of the coin. At the outset of the crisis, when economic uncertainty was at its peak, lenders withdrew while they assessed what might happen next. The subsequent lack of liquidity, though temporary, left many borrowers with few options to protect their wealth.
Longer-term strategy prevailed. Many lenders in this space have been slimming down investment banking divisions in favour of wealth management. Strategically, these institutions view relationships with high-net-worth-individuals as a more stable and ultimately more profitable choice for the coming economic cycle. With the right advice, however, it is the wealthy that stand to gain the most.
The cost of debt is at record lows and the global economy is set to expand 5% this year, according to the OECD. That makes now a great time to assess your borrowing potential in order to ensure you’re properly positioned for the opportunities that lie ahead.
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