MGR: Israel’s hedge fund industry has grown fast and steadily during the last years. Please give us an overview of the current situation in the industry.
Lital Dagan: The hedge funds industry in Israel includes over 170 active hedge funds that manage approximately $10B in Assets Under Management (AUM). This is a 20% growth in AUM since last year. Since 2007, the TGI Index, the index of the hedge funds industry in Israel, has returned 190% more than the Tel Aviv 125 Index.
The investment strategies- Israeli Equities, Emerging Managers, and Global Equity provided the best returns while illiquid strategies favored for stability. The largest category, Israeli Equities, continues to shine as compared to passive benchmarks. There has also been significant growth in private credit and other illiquid strategies in 2019-2020. Private credit funds gained a lot of momentum in the last couple of months. These funds are perceived as less volatile and performed well during the COVID-19 crisis. These funds include P2P, Corporate Lending, and Infrastructure funds. In a zero-interest rate environment, investors, including institutional and high net worth investors in Israel are looking for alternative investments, like hedge funds, venture capital funds, private equity funds, and private credit and illiquid strategy funds.
Hedge funds can assist the recovery of the local economy in the post-pandemic era, by participating IPOs and other capital markets transactions, providing liquidity at the Tel Aviv Stock Exchange (TASE). In fact, Israeli hedge funds provide between 20-30% of the daily liquidity at the TASE. Hedge fund managers are often the first to adopt new financial tools and techniques that assist in the development of the local capital markets in Israel.
The Coronavirus crisis created opportunities for local managers by new ways of building strong long-term relationships with investors and potential investors for raising capital during the pandemic. Funds shifted quickly to using remote working tools like Zoom and Slack both to manage employees as well as for marketing and they have become indispensable tools for the new environment.
MGR: IHFA was formed to act as a bridge to connect the local Israeli industry and its overseas peers, among other objectives. Please describe some notable achievements of the association.
Lital Dagan: The IHFA was formed eight years ago with a clear vision of helping grow the Israeli hedge fund ecosystem.
Our task is to raise market awareness about the fund industry and to represent the industry in discussions with the relevant regulators. Through the IHFA activities, we act as a bridge between the local industry and its overseas peers, bringing together professional managers, investors, technologies, and service providers. We created a unique platform that supports the local hedge fund managers with the best advisors. The Israeli hedge funds industry has become a significant part of the domestic capital market. Today we are witnessing a thriving local industry that helps to develop Israel’s economy and capital markets.
Another key factor to consider is the performance of the Israeli hedge funds. According to the Tzur Gilboa Israeli Fund Index (TGI), Israeli funds returned 85% since our first conference back in 2013.
The IHFA work benefits the Israeli Economy and the country, and it is well known that hedge funds play a key role in financial markets around the world. We believe that a strong hedge fund industry will create more jobs and business opportunities for local finance professionals and for global professionals to return to Israel or make Aliyah without changing their profession. Hedge funds provide benefits to Israeli investors, whether they are institutions or family offices, and they increase the liquidity of Israel’s capital markets through the TASE. After a few years of negotiations with the tax authority, the IHFA achieved equivalent tax to gain tax to the individual investors at the funds.
The IHFA will continue to create an environment in which the hedge fund managers could thrive; attract global allocators and investors to the Israeli funds, increasing collaboration among stock exchanges, investors, asset allocators and more.
Hedge funds can assist the recovery of the local economy in the post-pandemic era, by participating IPOs and other capital markets transactions, providing liquidity at the Tel Aviv Stock Exchange (TASE)Lital Dagan, CEO of IHFA
MGR: A few words on the future of Israel-Cyprus Investment Funds relationship
Lital Dagan: The main advantage of Cyprus is that it is a gateway to the EU, and under certain conditions, the fund managed by Israelis can be marketed to EU residents. Cyprus has the potential to become a European hub of funds, a kind of competition to Luxembourg.