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Pitfalls of Offshore Investment Policy

Like regular investment policy statements, offshore investment policy statements are typically drafted between a client and his portfolio manager. In the policy, the client/offshore investor would stipulate the rules by which he would like his offshore investment portfolio to be administered, as well as his objectives. The offshore investor may endeavor further to indicate the investment strategies he would like applied in the process of meeting his offshore investment requirements. Based o the manager’s own policies the offshore investment policy statement would thus include clauses on key investment matters like liquidity, risk tolerance and asset allocation.

Many offshore investment firms design their own investment policy statements which would elaborate their objectives, duties and legal rights, making the size and wording of offshore investment policies variable depending on format and number of pages which is possible to range from anywhere between a few to as many as fifteen to twenty pages or more. Offshore investment policy statements are also often prepared for clients as samples that can be adopted by new offshore investors.

Offshore investment policy statements have traditionally been a basic standard for investment firms, but this has extended to individual offshore investors due to the increase in offshore investors and their interest in exploring foreign markets.

At this level therefore, offshore investment policies can be very intricate, as managing an offshore investment portfolio may require a higher degree of confidentiality, tax planning, legal demands and international asset management expertise.

If hiring an offshore investment firm to manage an offshore investment portfolio the firm’s offshore investment policy should be carefully reviewed in order to assess whether the provisions are in the best interests of the investor and if the terms are acceptable and satisfy personal considerations.

In order to ensure that an offshore investment plan is sound, follows the right procedures, guidelines and strategies for allocating assets, a well thought out and planed offshore investment policy statement can guarantee successful offshore investment initiatives. However, part of achieving this success may require personal input like drawing up one’s personal offshore investment policy statement and having it reviewed by a professional or colleague for second opinion and comments. Simply adapting an existing offshore investment policy statement may not be recommendable, since each investor is unique, has individual investment interests and objectives and specific time frames over which an offshore investment is required to produce returns. Given the fluctuating trends of markets over the past ten or more years, it is wise to have an offshore investment policy statement specifically tailored based on personal and professional judgment as to what is best for the offshore investor. In fact, elaborating a sound offshore investment policy statement and sticking to it may just be the difference between failing and succeeding as an offshore investor.

If it becomes evident that an offshore investment policy requires adjustment, this must be done as soon as possible so that too much time is not lost before actually beginning to invest or to continue with investments. A factor that must be cautiously considered in offshore investing is time horizon, as individuals tend to think that the time horizon of an investment is much shorter than they really are. Instead, the time horizon of an investment may extend over an entire generation and must therefore must be clearly identified or adjusted to suit the offshore investor’s considerations.

Clear, simple language is essential for a successful offshore investment policy so as to avoid ambiguities and any potential confusion. Heavy legal language may result in the manager’s inability to readily understand, react quickly upon receipt of the policy and hinder the initial process. Heavy legal language can also be daunting especially if the manager may have to refer the document to a lawyer or legal advisor for interpretation which may incur additional expenses. The objectives of offshore investment policies must be precise, realistic and not generalized.

Depending on whether the offshore investor has established long or short-term investment plans or a combination of both, objectives should be formulated to consider these plans. This demands that the offshore investor clearly states his liquidity needs, delegation of fiduciary and or management authority, minimum yield requirements and tailored asset management services or capacities.

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