Why Cyprus Is an Ideal Location for Managing an International Investment Portfolio - March 2021
As part of its "Cyprus 4.0" series, profiling senior members of the most innovative companies in Cyprus, the Cyprus Mail newspaper recently interviewed Michael Constantinides, our Director of Client Services in Cyprus, who took the opportunity to set out why Cyprus is an ideal location for international portfolio management in the digital era.
Director - Client Services, Cyprus
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“Cyprus is an ideal base for someone to manage an international portfolio of investments from. Long gone are the days where the management of the portfolio had to be based near where the owner was located. It’s now perfectly possible to manage investments in Asia, in Latin America, in other emerging markets, and in the US. Even the time zone is favourable: you can work with Asia early in the morning, the UK opens up at eleven, and then the US and Latin America start at about four p.m.,” Constantinides affirms.
“Cyprus also lends itself as a central location for the management of a global portfolio for a high-net-worth investor, because we have experienced talent that can provide such management.”
Trusted international experience, as we have with a global organisation, is what matters to the HNWI investor, Constantinides points out.
“I think there’s a misconception that the high-net-worth individual has changed, has become more knowledgeable, and therefore is more demanding and/or needs less guidance. I think it’s a fallacy, this is just short sighted. The high-net-worth individual has always been very knowledgeable, always been a kind of pioneer, very successful in their own field and own markets. They still look for expert professional guidance in constructing a global portfolio, and in a world of ever increasing permutations they want to be certain that their investment structuring choices will be right, first time, with no commercial, taxation or compliance surprises down the line.
They want to feel secure, and that has always been the case.
What has changed, and this is what is often misconstrued, is the complexity of the investments, the density of the regulatory framework through which the investments and their management must be performed, and, consequently the sophistication of the services that wealth managers must offer these people, Constantinides notes.
“It used to be much simpler, and unfortunately that made the system susceptible to abuse. And we have all seen the consequences of that.
Regulation, transparency and efficiency
Since then a tremendous cascade of changes have been implemented in the regulatory environment, and not just in Cyprus, but all across the world, onshore and offshore. The OECD, for example, has imposed a new international framework for the exchange of information and addressing many forms of low-tax offers and aggressive tax practices. And to address the previous deficiencies, but also to respond to the aforesaid international changes there has also been a raft of national tax legislation,”
Cyprus has the additional benefit of offering easily comprehensible corporate and tax legislation in Cyprus, and in a world shifting from obscurity to transparency that is an advantage, he continues.
Within this context, clients are concerned about gaining the maximum return within the constraints imposed of the new regulatory environment. We have the expertise to offer the right solutions in respect of the design and, more importantly, the long-term administration of a portfolio that will perform optimally, in the appropriate jurisdictions.
And, managing these portfolios from Cyprus, we can take advantage of the depth of talent in financial services here. Thanks to the years of focus in financial services here, and the interest the success has drawn, the development has been exponential and has resulted in a large community with a high level of expertise to draw on,” Constantinides notes.
It is because of the depth of talent and experience at Trident Trust that the firm is able to offer top level personalised service which makes the client feel confident that their assets are in the hands of a competent crew able to navigate through the complexities of the modern financial world.
Ad-hoc Solutions and Diversification
“You have to cater to the particular circumstances of each client, including goals and risk appetite, and you also need to be able to offer the client a substantial range of choices and solutions, as their circumstances change. I think it’s a fallacy to believe that there is one type of structure or investment that fits all (e.g. that all clients should passively invest their money in a managed, diversified portfolio fund). In some cases it might makes sense, and some do that, but some have a more active portfolio of businesses and investments.
There are always many factors to take into account. We have seen that interest rates have gone down, so there is less interest in fixed income, and we are seeing a greater interest in commodities, including precious metals for security. And there is, of course, interest in new asset classes like cryptocurrencies, particularly bitcoin, and other blockchain-based assets.
The increase in the plethora of possibilities in asset diversification, should be multiplied by the ever increasing array of more sophisticated structures through which assets should be held, like trusts or funds, which offer special advantages for management and succession planning. They also offer the ability for advisors to easily add investors or partners if need be. Flexibility and adaptability to changing circumstances is always very important.
But there is no one successful recipe; to maintain the ability to offer the right solution every time, one must keep abreast of all developments, in terms of structures, in terms of jurisdictions and in terms of the legal, tax and regulatory landscape.”
In the Cyprus jurisdiction, there are still some elements missing from our offering, Constantinides says.
The funds regime is something we’re trying to progress and broaden, because it’s a really useful tool, especially for high-net-worth individuals. One significant drawback is that our tax regime does not differentiate for funds, and imposes taxation on non-equity elements like forex and commodities profit, where some other competitive jurisdictions don’t. And we still don’t have the necessary legal framework for variable capital companies, which other jurisdictions offer. I believe that if we could address these things we could completely transform our funds offering. And while we are discussing changes we’d like to see, the introduction lump sum personal taxation could make Cyprus even more appealing for some!
To be fair, it should be stated that there have already been consultations and initiatives from the financial industry and I believe efforts are made for the necessary changes to be implemented, to keep our jurisdiction competitive.”
Constantinides finds it very satisfying to work with HNWI clients.
“I personally find it fascinating. Most of these people are, you know, really interesting. As is their entourage of advisors. Not only you get to see first-hand how things are done, but you actively influence the outcome. In this field you are always kept on your toes, you are constantly learning and expanding. And every time I am able to help and guide my clients, and see the results of my contribution, I find it really gratifying. Seeing our clients satisfied is extremely rewarding. ” Constantinides concludes.
About Michael Constantinides
Born in Cyprus, Constantinides studied law in England, and took a Masters degree in international commercial law there. He then qualified in England for the Bar, and after some initial experience with English law firms, and returned to Cyprus and also passed the local Bar exams. He joined one of the big four firms, qualified as a Chartered Accountant, and combined the duality of his legal and accounting qualifications by specializing in international tax structuring. He has been with Trident Trust for nine years, assisting clients by addressing the legal, tax structuring and commercial aspects of their activities, whilst also acting as an internal consultant on legal and tax matters.