Kenyan Investors Go Offshore

Published on 5th June 2007

Recently, I interacted with a client who happens to be a diversified investor (holding a chunk of portfolio in local market while still keeping part of her investment offshore).  The client was able to utter her disgrace and concluded by saying, “I am not investing in shares again!”

 

Choosing not to invest locally could mean a switch to other investment options. One of them that is slowly gaining popularity in Kenya is the offshore investing. Unfortunately though, offshore investing is often demonized in the media to refer to investors throwing in their money to companies (mostly illegal) located on an obscure Caribbean Island where tax rate is next to nothing.  In most instances, offshore investing is very legal and offers a wide range of options for the ordinary investor that the local market may not offer. 

 

It is important to first draw one distinction of what offshore investing is and what it is not.  It entails a wide range of investment strategies that capitalize on advantages offered outside an investor’s home country.  Offshore investing, as many people believe, is not buying equities outside one’s home country.  For example, buying of Stanbic shares in Uganda’s stock market does not give one the multiple advantages due to the geographic proximity and shared economic trends.

 

Offshore investments are administered by the best fund managers in the world such as Fidelity Group, Merrill Lynch, Franklin Templeton, Scwhab, Vanguard, and Puntam among others.  Each of these fund managers have numerous funds and are among the top ten. Historical records show that Frankin Templeton is the most diversified with over 24 percent of its portfolio held in investments outside the domicile country, the United States.

 

The performance of the offshore markets over the past five years has been astounding.  Indeed, this has been to an extent that our market has not reached except for 2005 when the equity market is said to have had an annual return of over 60 percent.

 

All offshore investments are fund based. This means investor funds are pooled together and invested jointly.  This gives an investor the tax advantage he would have incurred if he had invested independently. Options that exist under the joint investment are equities, bonds, REITs and other high yielding investments.

 

The fund concentration is usually in emerging market economies (EME).  These are economies with low-to middle per capita income and they constitute approximately 80 percent of the global population representing about 20 percent of the world’s economies.  These countries are considered emerging because of their development and reforms.  They can range from small countries like Tunisia to large ones like China.  Other examples are the Former Soviet Union and the Eastern Bloc countries. 

 

The global arena comprises of a number of funds.  Most common in the Kenyan market are the Friends Provident, Royal Scandia, and the Generali International.  These three are marketed by The Inter-Alliance International and Franklin Management Consultants while Franklin Templeton Funds is marketed in Kenya by Dry Associates.  Inter-Alliance International and Franklin Management, who are local agents, have over 140 funds through their affiliates while Dry Associates currently has over 40 through the Franklin Templeton Management Funds.

 

Based on a combination of one’s investment objectives, risk profile and cash outlay, a local financial advisor can guide you through all available funds and help you decide on one that best suits you and one that can work based on what you have.  For example, Generali International offers a long term option to an investor who can save up to a minimum of US$300 per month for a period of 5 years.  Conversely, an investor with a minimum of US$5,000 can opt for any of the Franklin Templeton’s class A Funds that yield up to 37 percent per annum.  Franklin Templeton Funds are categorized by the payment mode that an investor opts for, for example, an investor who opts for a class A attracts an initial sales charge of 5.25 percent for an Equity Fund and 4 percent for debt fund plus an annual approximate charge of 1 percent per annum.  For a class B fund, there is no sales charge but there is an annual charge of approximately 1.5 percent.

 

With all funds, one can easily access market information online just as with the stock market trades.  Dealing through local agents has no difference with buying directly into a fund from its headquarters.  In fact, it has the advantage over direct investing because it creates an easy way as pertains the transfer of funds, administration and use of available information.  Local agents also summarize information provided by global fund managers to suit their clients’ specifications in relation to where they have invested.

 

To invest offshore, all that one needs is filling in an application form through the Offshore agents.  The form will require among others, full names, bank account details, address, financial adviser details, tax ID, country of taxation and investor signature among others.

 

There are disadvantages of investing offshore among which are the changing tax laws safety and cost.  However, some countries have countered the security threat.  Offshore funds based in Jersey, Guernsey and the Isle of Man for example, offer government backed protection. This means if a fund collapses, an investor will be refunded a minimum of 90 percent of the investment value of his portfolio and in most cases the full amount. 


This article has been read 1,865 times
COMMENTS