Emerald Ilse: why Ireland is attracting high net worth individuals
More high net worth individuals are making their homes Ireland, with an eye on increasing investment opportunities in the country.
The Irish economy has been performing strongly for many years– even in 2020 when the country was in lockdown– so it is perhaps no surprise there are now more ultra high net worth individuals (UHNWIs) and high net worth individuals (HNWIs) than ever before in Ireland.
Consultancy Knight Frank’s 2020 Wealth Report found there were nine billionaires and 1,343 UHNWIs – people defined as worth more than €27 million – resident in the country. Meanwhile, 100,000 HNWIs – those worth at least €900,000 – were also living in the Republic. The latter figure had almost doubled in the five years from 2014 to 2019.
Knight Frank predicts these statistics will swell further in the next five years, with the number of billionaires set to rise by 33%; overall, UHNWIs by 17% and HNWIs by 35%. [www.irishexaminer.com/news/arid-30985842.html]
But with the economic uncertainties brought on by theCovid-19 pandemic, wealthy investors are also looking for investment opportunities with solid returns.Many are diversifying their portfolio of investments, spreading the risk in the event of a more sustained economic downturn. Fortunately, however, Ireland offers a diverse range of investment opportunities across the country.
Ireland as a destination for HNWIs
Ireland does not just have its own home grown wealthy individuals – there are plenty of thriving businesses and financial institutions that are making people rich – it is also a top destination for global HNWIscoming into the country. According to Chinese research company Hurun Institute, Ireland was rated the third favoured destination in the world behind the US and UK for Chinese millionaires in 2018. [www.independent.ie/business/irish/dark-horse-destination-ireland-is-new-favourite-for-millionaire-chinese-emigrants-37102673.html]
The Institute cited several reasons for why Ireland was the destination of choice for Chinese HNWIs. These included the high standard of living, strong social welfare, internationally regarded educational facilities, and not forgetting the stunning scenery and places of historical interest. In addition, the low tax burden in Ireland was a big attraction.
Allied to this is the Immigrant Investor Programme (IIP), which is also likely to be attractive to overseas wealthy individuals. The IIP gives investors Irish residency – and EU residency –in exchange for an approved investment in Ireland’s economy. Applicants have to demonstrate they have a wealth of at least €2 million – and that it has been legally acquired – and invest a minimum of €1 million into one of the IIP’s approved schemes.
But once applicants have been successful, they do not have to relocate their entire families as soon as they arrive – which is a stipulation in similar schemes run by other countries. Indeed, once an investor has had their permanent residency approved, they only have to reside in Ireland for one day per year.
Another, more recent, reason why overseas HNWIs have come to Ireland is that it is now the only native English-speaking country in the European Union, following the UK’s protracted exit at the end of 2020. This means Ireland is a convenient place to access the single market and the other 26 countries that comprise the EU. It is also part of the euro, which has been a stable currency for many years.
Of course, traditional ways to invest such as stocks and shares are still popular among HNWIs and can provide decent returns – although with the old caveat that stocks can go down as well as up in value. Ireland’s main stock exchange is the Euronext Dublin and all stocks trade on the Euronext, the pan-European trading platform.
Private equity also continues to be a popular investment for wealthy individuals. With interest rates at an all-time low, private equity investment has remained popular because of the higher potential returns. While the major private equity firms may be generally inaccessible to HNWIs looking to invest thousands or even as much as a €1 million as they don’t want a fragmented portfolio of investors, there are plenty of smaller funds that are ambitious and buying up high growth – and potentially high profit – companies.
Investing in property
One of the most common forms of investment by UHNWIs is in property, be it residential or commercial. Dublin is understandably the focus of this and there are numerous high-profile developments being built, with more planned.
Commercial property prices in Dublin are reasonable compared to cities in the UK and therefore investors can get more for their money in relative terms. Prices are rising in Dublin – or they were before the pandemic – and generally deliver a healthy yearly rental yield.
Investments can be made through vehicles such as real estate investment funds (REIFs), which tend to have three main investment strategies. The first is ‘hold and rent’, where property is bought and then retained and rented out – and is the most common strategy. ‘Hold and sell’ sees large property portfolios acquired, which are then sold off in smaller lots or individually; however, these are relatively rare. The final strategy, ‘develop and sell/rent’ sees plots of land, or part-finished developments acquired and then developments, are finished or new ones started. The properties are then sold or rented out once built.
Similarly, infrastructure projects such as schools and hospitals are becoming increasingly popular, often offering long-term revenue streams. Through the use of investment trusts, HNWI individuals are finding infrastructure projects increasingly accessible.
It is also worth noting that if, as hoped, the Covid-19 pandemic eases later this year, the government is likely to spend on infrastructure projects to help kick-start the economy.
For more socially conscious investors, renewable energy is becoming an increasingly popular option. As well as contributing to the development of a more sustainable and lower carbon future, renewable energy can also provide attractive returns –more than 75% over five years, compared to just 9% for fossil fuels, according to recent research by Imperial College London and the International Energy Agency.[www.forbes.com/sites/davidrvetter/2020/05/28/just-how-good-an-investment-is-renewable-energy-new-study-reveals-all/?sh=6c8eee834d27]
While traditional investment routes remain popular, other types of investments are gaining popularity in Ireland among HNWIs. For instance, alternative assets, which encompasses private capital, hedge funds, mutual funds and investment trusts, all are proving popular with wealthy investors.
And it is easy to see why: Preqin estimated in 2018 they would be worth $14 trillion globally by 2023. [reports/Preqin-Future-of-Alternatives-Report-October-2018]
Alternative assets have an established track record in providing healthy returns to investors for an acceptable amount of risk Consequently, investments are being made in areas that have previously been overlooked as too ‘niche’, with investors looking to broaden their portfolios.
Other assets are becoming more popular as investments including Irish wine and whiskey. Several investment vehicles have been set up in recent years focused on buying aged, rare or sought-after wines and whiskies on behalf of an investor and holding it for them. Returns have been good – about 10-12%- and are becoming a more established option for investors.
For wealthy investors, managing assets can be a challenge, and that’s why getting the right advice is vitally important. For wealthy individuals, it isn’t just about managing money in the most tax effective way, it can be about anything from family matters to philanthropy. Skilled accountants can provide advice on all these issues, as well as things like legal and audit compliance.
With such a number of investment opportunities in Ireland, it is critical to choose the right advisor with specialist knowledge of the software sector in the country. Malone & Co Accountants can assist on all the relevant aspects from setting up a company to providing diligence services as part of an M&A deal or funding round in the tech sector. We can also provide in-depth information to ensure any deal achieves the value hoped for at the outset.