This article was first published in the Financial Times.
We are all aware of the aggressive inflation rates that have knocked the world sideways over the last couple of years. Whether that's house prices spiking, sky-high petrol costs, or a £7 pint, everything seems to have gone up, affecting everyone's pockets.
A World Wealth Report conducted by Capgemini found that in 2022, macroeconomic and geopolitical uncertainty triggered the steepest decline in global High Net Worth Indvidual (HNWI) wealth and population in a decade.
"Rising interest rates, combined with the cost-of-living crisis, financial market uncertainty and resulting political winds of change, have paved the way for shifts in HNWI attitudes," said Guernsey Finance United States Representative, Jonny Gamble.
The same report found that 67% of HNWIs prioritised wealth preservation as a critical objective, shifting wealth goals from growth to guarding.
On the bright side, global inflation has decreased a percentile or two recently, so perhaps the clouds are beginning to clear in that respect. Despite desires to preserve wealth, HNWIs remain committed to ESG investments, with 41% of HNWIs surveyed rated investing for ESG impact as a top priority. The report also concludes that measuring ESG outcomes is crucial for wealth management firm growth.
"This shift away from the traditional two-dimensional space of risk and return discussions and towards inclusion of ESG goals derives from some of the younger generation of HNWIs coming into the private wealth sphere," said Jonny.
They certainly seem to have an interest in a broader set of subject matters to be initially discussed than what has historically been the case, which has been investment returns.
"The awareness that there is no planet B, for example, is a huge implication on what drives their discussions and decision making at the initial outset."
This sentiment is backed by recent research by think-tank Philanthropy Impact, based on interviews with professional advisors and millennial and Gen Z wealth holders. The research aimed to identify key changes in the way new generations of wealth holders are approaching sustainability and impact, and found that wealth holders, particularly younger generations, are increasingly seeking to align their wealth with their values.
The research also concluded that they expect advisors to provide professional support in numerous, increasingly complex areas related to responsible investing and philanthropy.
These attitudes not only apply to asset investment, but also governance, said Jonny.
"Whether or not a company's value system aligns with that of a HNWI could be make or break, which is why it is critical to find service providers that are attuned to an individual or family's views."
"If you are a business that plans to be around for a long time, you've not only got to plan internally, but also plan for external drivers, one of which is going to be differing value systems."
While things remain difficult globally, stable jurisdictions offering an ecosystem of professional advisors becomes an ever more attractive prospect to a generation of emerging wealth holders with ESG high on their list of considerations.
And according to Jonny, international finance centres such as Guernsey, which has five decades of experience in servicing private wealth, could be the ticket.
"Guernsey is legally and fiscally independent, meaning it is insulated from the volatility in the UK, EU, US and elsewhere."
He added Guernsey also offers flexible ESG investment options such as the world's first regulated green investment fund product, the Guernsey Green Fund, and Guernsey's Natural Capital Fund, which increase investors' access to green investments.
As one of the only jurisdictions of its kind to report its position in regard to the 21st Century Fiduciary Duty UN Environment Programme, Guernsey does not shy away from corporate transparency, and is a leading sustainable finance thinker.
With years of investment management experience under his belt, Jonny compliments Guernsey's wealth of intellectual power, stating: "The approaches that Guernsey has taken, whether it's been for ESG or adopting corporate transparency, it demonstrates the ability to lead from the front."
This innovative thinking can be seen in its regulator's approach, the Guernsey Financial Services Commission. Responding to the needs of the market, the GFSC introduced a third route into its Private Investment Fund Regime, which enables investors with familial relations to pool their funds and co-invest.
"Guernsey is never afraid to be innovative, never afraid of change. It is a natural function of what we do on the island."
For more information about Guernsey's finance industry please visit www.weareguernsey.com.
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