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Any kind of human activity is associated with a certain risk: sports – the risk of injury, driving a car – an accident, eating food – food poisoning or weight gain, and marriage, in the end, – divorce and division of property. In general, no matter what we do, there is always a chance to face unpleasant “side” consequences. But does this mean that it is better to do nothing at all? Surely someone can choose this “samurai path”, but most people choose risk management, even if they themselves are not aware of it.
Investment and investment management is no exception. Asset management activities, whether carried out by the owner of the assets or transferred to them by an external manager, are also subject to a large number of risks, the main of which is a significant decrease in the value of the portfolio or a complete loss of assets.
And in this article, we have combined the expertise of the Russian law firm Mikhailov & Partners PSG and the specialists of FACTUM AG (Liechtenstein) in order to understand when the totality of accepted risks inherent in asset management crosses the line beyond which the actions of the manager openly harm the interests of the client. We will also focus on the issues faced by HNWI level clients [1], whose well-being is provided by private banking services in foreign banks.
During the crisis, many private investors lose money. But there are professionals who are able to make money in falling markets or talk about it loudly and convincingly. Our task is to give you a fairly simple toolkit for assessing the risks of interaction with “confidently declaring” asset managers.
Let’s imagine a conventional Russian – Ivan Borisovich Kuznetsov, a businessman who received (absolutely legally, of course) an amount equivalent to 1 million US dollars. Ivan Borisovich, in principle, is ready to invest in foreign financial assets in order to save the money received. Our hero plans to spend additional profit from time to time on his personal needs.
Primary placement
And the first question facing Ivan Borisovich is, let’s call it this, the initial placement of 1 million dollars abroad. Our client has two principal possibilities:
1) open an account in a foreign bank and transfer money to a bank account;
2) transfer money to the account of a financial manager or management company directly chosen by him.
In principle, both of these methods have the right to exist, the amount of $ 1 million is also interesting to private banks (although many foreign private banks talk about $ 3.5 and even 10 million dollars as an “admission ticket”), and, of course, financial companies.
But here are the significant differences:
A bank is a bank. As a rule, it is a large, regulated, highly “cross-supervised” organization with a large amount of equity capital and a huge amount of attracted funds from other clients. Even if we are talking about a relatively small bank, $ 1 million is a percentage of the total volume of its capital. Usually Russian clients choose Swiss, other European and British banks. Keeping “savings” accounts in Bermuda, Belize, Cayman and other offshore banks, few people think of.
If we talk about a financial company, then the choice is much wider: a financial company can be registered in good old Europe (Switzerland, Luxembourg, Liechtenstein), and in Cyprus, and in offshores – Gibraltar, Channel Islands (Guernsey, Jersey, Maine ), Cayman Islands, Belize, Singapore, Hong Kong and so on. In principle, there is nothing reprehensible in the fact of registering a company in an offshore jurisdiction, as many really large and successful financial managers do. Just look at the giants of the Russian financial market – they all have subsidiaries in offshore jurisdictions. On the other hand, the more “offshore” the jurisdiction is, the easier and cheaper it is to register a company in this country with initially bad faith intentions.