The value of investment hubs
Investment hubs facilitate international investments
The annual value of international investments made through investment hubs is estimated at 5.45 trillion EUR. These figures clearly illustrate the role investment hubs play in the global economy. It is estimated by the United Nations Conference on Trade and Development (UNCTAD) that around 30 % of all international corporate investments have been routed through investment hubs before reaching the destination country.
There are multiple reasons why investors choose to set-up an investment structure in an investment hub. As these jurisdictions benefit from a stable legal and political environment, a sound financial infrastructure and a highly professional ecosystem, they offer the highest possible level of legal and financial certainly. In addition to that, when engaging in an international transaction like a merger or an acquisition, investors often prefer to set-up the investment vehicles in a neutral third country to avoid the other party having a competitive advantage due to a better knowledge of local rules and regulations.
Investment hubs enable investments in developing countries
Developing countries have a great need for private and public investments. Over the last decades, investment hubs have come to play a crucial role in facilitating FDI flows to developing countries. These hubs offer the much-needed financial infrastructure and legal certainty to invest in developing countries with an unstable political situation or where a sound financial infrastructure is missing.
As pointed out by EURODAD, the European network on debt and development, both National and International Development Finance Institutions widely use investment hubs to finance their development projects. As a spokesperson for the World Bank, for example, rightly acknowledges: “the appropriate use of these hubs can result in increased mobilization of capital for investment that helps the poor”.
Investment hubs maximize the return for institutional investors
In addition to companies, private investors and development organisations, investment hubs are also widely used by institutional investors, like pension funds and insurance companies. They heavily depend on investment hubs to protect the investment capital and increase the returns on this capital, for pensioners and beneficiaries of insurance policies.
Both for pension funds and insurance portfolios, the regulatory infrastructure in investment hubs is crucial to maximise risk-mutualisation and grow their capital they get from the premiums paid by individuals. By doing so, investment hubs help maximising the pay out in the case of insurance claims or in case of retirement.
Investment hubs help prevent non-compliant transactions
Setting up a structure for a cross-border investment is no day-to-day business for most investors, be it private companies or public investors. It is a particularly complex affair, as it requires in-depth knowledge of regulatory requirements, rules and policies in the different jurisdictions impacted by the investment.
The highly experienced Corporate Service Providers in investment hubs are best positioned to evaluate whether their clients comply with the reporting requirements in the different jurisdictions they operate in. Corporate Service Providers make sure that the investors comply with local and international laws and regulations as well as with Anti-Money Laundering regulations. By overseeing whether their clients’ reporting obligations are met, these companies actively prevent non-compliant transactions, thereby contributing to the integrity of the financial system, and effectively providing a public service.