The subject, for most Singaporean investors , is
actually somewhat "moot", as the availability of "offshore
funds" to them is greatly restricted. Perhaps in reviewing
the subject, it is worth considering taking another look at
funds, as a whole, and then returning to the primary
objective that most investors and savers need to consider:
Is their money safe?
"Offshore Funds" as a classification is in itself
incorrect. While it was originally a term used from the UK
to describe funds set up in the Channel Islands of Guernsey
and Jersey, these days the vast majority of such funds are
not actually offshore at all, but very much land-locked.
Since the early 1980's, Luxembourg has become the major
centre of cross-border marketed investment funds. In recent
years, Dublin, Ireland, has become quite popular as an
offshore funds centre, and it competes with Luxembourg.
What both Luxembourg and Dublin offer, and thus the
central issue for their appeal, is a well-developed set of
regulations to enable the registration of investment funds
with their financial regulator. As a result of this
registration, the sponsoring fund company can then, subject
to furthur local approval, market its funds throughout the
European Union. In addition, many other countries and places
, such as those in Latin America, some in the Middle East,
Hong Kong, Taiwan and South Korea, have also accepted the
validity of Luxembourg or Dublin fund regulation, to allow
these funds to be marketed domestically.
What then is Luxembourg or Dublin attractive for funds?
Well in simplicity, the whole of the appeal can be summed up
in one word. TAX. Funds organised in both places have
virtually no tax liability locally, neither on the income
arising nor on capital gains achieved. Thus, for someone say
in Asia, the only tax liability applicable on their
investment into such funds is that applied by their country
of residence. In most parts of Asia this also is nil, and
thus investment into offshore funds becomes very attractive.
But care does need to be taken, as while Luxembourg and
Dublin have well-defined regulation and pro-active
regulators, many other of the offshore havens, where funds
can be established, attract the unscrupulous, and thus
dangers exist. To avoid getting caught by perpetrators of
fraud, the prospective investor should abide by a number of
maxims, such as :
Size - Identify the size of the fund in which you are
being invited to invest. Small funds are a danger signal.
Also identify the size of the fund company, and how many
funds it offers. A single-fund fund company should be
avoided.
Reputation - Luxembourg and Dublin have an excellent
reputation for their regulation. Jersey and Guernsey,
Channel Islands, Bermuda, Bahamas and the Cayman Islands,
are all well regulated as well. Be wary of places such as
Gibraltar, Malta or Cyprus.
Offers - Any fund promoter that offers a deal to buy
into their fund that promises returns that seem too good to
be true is probably offering just that, i.e. returns that
are too good to be true.
Guarantees - Many are only as good as the institution
offering it. And many funds have been closed or wound up
because they cannot meet the guarantee.
Risks - Investment risk is something to be accepted as
part of the deal, values do go down as well as up. Do not
compound your risk by "taking a chance on the manager" as
well.
Leverage - An old investment maxim is to not invest more
than you can afford to lose. The danger in many investments
is that you can find you lose more than you invested.
Check the "small print" - Established locations require
fund companies to issue a detailed prospectus of the offer
being made. If what you receive is too short or not
detailed, be careful.
Regardless of being "offshore" or "onshore", ultimately
the key issue is to know and understand what it is you
invest in, and be patient for the returns.
Stewart Aldcrof(This column has the support of
Investment Management of Singapore and the Stock Exchange of
Singapore. The writer is Marketing and Sales Direc
