Last week in Moscow, Shorex organised their annual wealth management forum at the Lotte Hotel. The event, which gathered over 150 leading advisers to Russian HNWIs and oligarchs, proved to be an invaluable platform for gauging the impact of the economic sanctions on Russian businesses and taking the pulse of Russian investors after the recent events in Crimea.
The mood was not as gloomy as predicted by many foreign participants, but the overall consensus was that Russian entrepreneurs are confused by the direction taken by the government. Most professional advisers who attended the event, mainly lawyers, tax specialists, family offices, private bankers and asset managers, felt that economic sanctions will have a negative impact on their clients’ businesses. The Russian stock market lost 15% since the beginning of the crisis, showing an overall loss of confidence by investors in the prospects of the Russian economy. However, it is still early days to assess the long term effects of the crisis as the MICEX index already partially recovered from its lowest point on March 14th (1237.43) when it had lost 30% in one month. Uncertainty is currently driving decisions and with so many parameters at play, the short term evolution of the Russian stock market is hard to predict.
There are two sides to the coin and some of the forum speakers and delegates are seeing clear signs of hope. Emmanuel Cohen, Chairman of the RM Group who also chaired the conference, said after the event: “There are still a lot of excellent investment opportunities in Russia, especially in start-ups, once the political situation settles down. An interesting offshoot of the Crimea crisis is that there are rumours that many Russian speculators are now going to Crimea to invest.” Prime Minister Dmitry Medvedev announced on Monday that Russia will make Crimea a special economic zone offering tax breaks and reduced bureaucracy to attract investors. "Our aim is to make the peninsula as attractive as possible to investors, so that it can generate sufficient income for its own development," Medvedev said at a special cabinet meeting in Simferopol. Olivier Jarny, partner of Reference Corporate Services, a Luxemburg fiduciary, said after the conference: “Despite the current crisis, Russia is still economically strong and many of our high net worth clients do not understand what the fuss is all about. For them it is business as usual.”
Russia’s political instability offers many interesting business opportunities for foreign banks and fiduciaries as wealthy Russians are seeking ways to secure their assets abroad and protect their family should the situation worsen. Among the investment and tax planning themes presented at the forum, there was a heightened interest for real estate in the UK and second citizenship programmes.
The uncertainty has led to a rise in the number of wealthy Russians and Ukrainians looking to buy a property in London. "We have seen renewed interest from Russian and Ukrainian buyers in the last few weeks" said Shirley Humphrey, Director of Harrods Estates, specialising in prime residential properties in Central London, "Our Russian desk has been active since 2002. I’m really pleased we attended the event this year and encouraged by the level of interest in some of our new developments." According to the annual Knight Frank Wealth Report, in 2013 Russians were the biggest foreign buyers of London homes worth over £1m, spending in excess of £500m in London over the course of the year.
Fears that Russia's military incursions into Ukraine could trigger a deeper economic and political isolation are prompting some wealthy Russians to make contingency plans and acquire second citizenship or a change of residence. Russian and Chinese entrepreneurs have been the prime candidates for Economic citizenship programmes and the latest economic sanctions on Russia can only accelerate this trend. Economic citizenship has developed swiftly over the last 10 years in response to perceived political instability in emerging markets and more than 20 countries are now actively promoting citizenship programmes whereby investors typically buy a piece of real estate in approved schemes or invest in government backed projects in return for obtaining citizenship or residency. Countries currently offering citizenship and residency programmes include the UK, Portugal, Austria, Malta, Cyprus, Canada, USA, Singapore, St. Kitts & Nevis, Dominica and Antigua.
One thing is certain for 2014, Russian investors will remain the priority for professional advisers specialising in high net worth individuals looking for business opportunities in emerging markets.
The Investment Climate in Russia – Fears and Opportunities