[ U P D AT E ]
I
Israeli hedge
funds growth
soaring while
regulation and
taxation issues
linger
ISRAEL’S HEDGE FUND INDUS-
TRY RECORDED 50% GROWTH
IN 2017, WHILE BEGINNING
TO LURE IN INTERNATIONAL
INVESTORS, HOWEVER A LACK
OF REGULATION AND TAXA-
TION ISSUES PERSIST.
16
Global Custodian
srael’s nascent hedge fund industry re-
corded 50% growth in 2017 with the sector
now looking after $6.15 billion in assets,
according to a study by Tzur Management,
a Tel Aviv-based fund administrator. The
sector, added the study, remains highly
concentrated with 21 managers – each with
AuM in excess of $50 million – looking after
85% of investor assets.
Private investors remain the dominant
source of capital for local hedge funds,
accounting for 69% of assets, versus 31%
from institutional clients. “Israeli institu-
tional investors are not big buyers of hedge
funds generally, but we are noticing this
trend is beginning to change. At present,
however, most of the money raised by
domestic hedge funds comes from private
investors such as high net worth individuals
(HNWIs) and family offices,” said Yitz Raab,
managing partner at Tzur Management.
“It is positive though that asset flows into
Israeli hedge funds are continuing to grow,
and I expect the industry could be running
up to $20 billion in the next five to ten
years.”
While most investors are domestic,
foreign allocators comprise 21% of the
industry’s AuM, many of whom are trying to
obtain exposures to the Israeli market. “57%
of managers invest in the Israeli market,
whereas 43% run global assets. A number
of foreign institutions like the domestic
focus of our industry, as the local market
is niche and it is full of a lot of promising
companies,” said Raab.
Growth does face a number of imped-
iments. Firstly, Israeli hedge funds re-
main unregulated by the Israel Securities
Authority (ISA) as the industry is so small.
While this is advantageous insofar as
managers are unconstrained by costly rules
The Hedge Fund Annual 2018
$6.15 billion
in assets now looked after
by Israeli hedge funds
and requirements, it creates a problem for
institutional investors who do not want to
put money into unregulated entities. “For
the time being, it is better the industry is
left unregulated because of its size. Costly
regulation would stop businesses growing,
but once the industry does achieve scale, I
imagine regulators may push through rules,”
commented Raab.
Taxation is also a stumbling block in the
local market. Tax is based on the location
of the manager, and not the fund as is the
norm. There are also no safe harbour rules,
and this has deterred locals from putting
their money into hedge funds. “The tax
issue remains unresolved, but we have been
having a number of promising conversations
with the tax authorities about the matter.
We are hoping these dialogues will yield
changes in the rules, helping to cement the
industry’s growth,” said Raab.