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SUMMARY OF THE ISRAEL HEDGE FUND SURVEY

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Yitz

INTRODUCTION
This is a summary of the first-ever survey of the Israeli hedge fund industry. The survey seeks to introduce the industry to the global market as well as highlight its emergence and growth in recent years. Yitz

Israel, already acknowledged as a global center for innovation in high-tech, is now making major strides in the financial services industry. Over the past decade, deregulation and new legislation in securities and tax law, together with structural changes in the institutional market, have made it possible for a robust finance industry to emerge. Israeli financial institutions have evolved into sophisticated global investors, deploying tens of billions of dollars in investments outside of Israel. Israel’s impressive academic and scientific infrastructure, continuing immigration of professionals from western countries and a developed economy with a strong entrepreneurial culture are all fueling the rapid growth of the finance industry. It was these same elements which helped create the high-tech industry in the early nineties.

Although in its earliest stages, it is Tzur’s belief that the Israeli hedge fund industry will grow to become a recognized center of hedge fund activity during the coming decade. As is evident from the survey findings, there is still much to accomplish before this goal can be achieved. It is Tzur’s hope that this survey will serve as just one milestone in the long road ahead, influencing favorable government policy toward the hedge fund industry and generating interest within the international investment community.

For the complete survey or any inquiries, please contact [email protected]

ABOUT TZUR MANAGEMENT
Tzur Management (“Tzur”) serves as a platform for the Israeli fund industry, offering Israeli managers a wide array of services ranging from back-office and fund administration to hosting and capital introduction. Tzur is an affiliate of Columbus Avenue LLC, a $6 billion fund administrator based in New York. For more information on Tzur and its services, please contact [email protected]

INDUSTRY OVERVIEW
Over the past five years, the Israeli hedge fund industry has grown considerably. Only a decade ago, Israel had little in the way of a hedge fund industry. Regulation had stifled the emergence of an investment industry and limited investment professionals’ activities in global markets.

However, structural changes in the institutional markets in the early 2000s that allowed broader allocation of investments, coupled with deregulation and new legislation in securities and tax law enabled the early growth of a modern finance industry. As a result, we are now witnessing an industry on the verge of a sustained period of rapid development.

Number of fund managers in Israel
Out of 34 fund managers participating in the survey only 13 were operational prior to 2006. There has been a 162% increase in the number of funds in Israel since 2006.

Tzur believes that this growth rate is indicative of the Israeli hedge fund market as a whole and estimates that the number of funds in Israel has grown to above 60 in recent years. Considering that this figure does not include numerous proprietary traders scattered throughout the country as well as many aspiring managers planning launches of new funds, the message is of a budding investment industry with as many as 100 active fund managers.

Assets under management
The growth of the Israeli hedge fund industry is also apparent in the industry’s assets under management (AUM).

The creation of new funds has brought fresh assets into the industry, while older, more established funds are increasingly attracting investment from institutions and private individuals. These factors have contributed to the growth in assets under management of the 34 participating fund managers in our survey to $1.57 billion as of March 31, 2012.

Tzur conservatively estimate that total assets under management of roughly 60 Israeli hedge funds have grown in recent years to just under $2 billion.

Asset concentration
Concentration of assets under management in the Israeli hedge fund industry is similar to the global investment industry in that the largest funds manage the majority of the assets. As of March 31, 2012, 75% of assets under management were held by 20% of the industry’s fund managers.

The growth of the industry can be characterized by the following attributes:

  • Small launches: Despite the large number of fund launches since 2008, no fund launched with more than $15 million and growth of these small funds has been modest.
  • Newer funds take longer to grow asset base: Less than 20% of the total assets under management are managed by funds created from 2008 to the present.
  • Asset ramp, persistent and methodical: Ramping up the assets of a fund has taken considerably longer in Israel. The number of funds managing in excess of $50 million has only grown from five to eight since 2009.

Asset growth
Clearly, limited access to capital has hindered the industry’s growth. Tzur believes that this stems from limited knowledge of the Israeli hedge fund market among investors. While this has been a cause for concern among Israeli managers, we expect awareness of local managers to grow over the coming years leading to significant AUM growth.

The Israeli hedge fund industry is already growing as demonstrated by the growth in AUM. Among funds reporting historical data, AUM grew 30% in 2011, and an additional 10% through March 2012.

Foreign investors
A key obstacle for many investment managers is getting the attention of investors. This is particularly true with regard to marketing to foreign investors. International investors are generally unaware of the nascent Israeli hedge fund industry and many of those who are aware of its existence still consider it too small to devote resources.

Additionally, despite a tax regime favorable to foreign investors (investors don’t pay local taxes on investment with Israeli fund managers), concerns surrounding Israeli tax laws have been a hurdle for many first-time foreign investors.
As part of the survey, managers were asked for their opinion regarding foreign investment in Israeli hedge funds. Over 80% of participants agreed that foreign investors are not aware of the Israeli hedge fund industry, resulting in a lack of investment.

Assets under management by investor origin
Turning to the data itself, it is clear that the local industry is still currently supported by local investors. More than two-thirds of total assets under management come from Israeli investors, with less than a third raised from international sources.

However, graph 1 below reveals a surprising distinction between the larger and smaller funds. While the larger funds have received most of their funding from local Israeli sources, the smaller funds have been more successful in recruiting investors from overseas. Analysis of the data confirms that this is not a case of a few investments from overseas skewing the results of smaller funds, but rather a trend among smaller and in most cases newer funds succeeding in securing foreign investors.

chart
INVESTMENT STRATEGIES
As the hedge fund industry grows in size, it becomes increasingly diverse and sophisticated. Although it is still in its early stages, the Israeli hedge fund industry includes funds investing in a diverse set of strategies, asset classes and geographies.

chart
Equity Long/Short funds currently hold the largest share of the industry with 43% of assets under management, and quantitative strategies are next in line with 23%.

Tzur’s research into recent fund launches, however, demonstrates that the trend is towards a wider distribution among the various strategies. New funds have launched across all five strategies with the biggest increase among quantitative strategies.

The number of quant strategies operating has more than doubled since 2008, and many of the proprietary trading operations and planned new fund launches are quantitative in nature as well.
Tzur believes that quantitative strategies play to Israel’s strengths, leveraging the mathematical and statistical brainpower that has been the catalyst behind the massive growth of several of Israel’s industries, notably telecommunications, software and medical devices.

Geographic allocation
Although the perception among many may be that Israeli funds are focused primarily on local markets, in fact, Israeli funds are quite diversified geographically. Half of the funds participating in the survey have no direct exposure whatsoever to the markets in Israel.

Overall, about half of assets under management are invested outside of Israel, and this ratio applies fairly evenly across all strategy types. Diversification outside of Israel is increasing rapidly, as only 2 of the 13 funds created since 2009 allocate capital to the local market.

PERSONNEL

Portfolio managers

Of the 40 participating portfolio managers:

  • Born overseas: a third of Israeli portfolio managers were born abroad, and immigrated to Israel from the United States, Europe or South Africa.
  • Leading academic institutions: nearly half of all portfolio managers studied abroad at top universities in the United States or Europe, with a quarter of portfolio managers having attended Ivy League schools.
  • Multiple degrees: furthermore, two-thirds of all portfolio managers have attained a second degree or doctorate in their respective fields.

Personnel
The 30 funds who participated in this section employ over 160 individuals ranging from front office positions (portfolio managers, traders, risk managers, research analysts) to back office and administrative functions.
Tzur estimate that the hedge fund industry as a whole employs close to 300 people.

APPENDIX: NOTES ON PERFORMANCE
This survey was conducted with the intention of providing an overview of the Israeli fund market without a specific focus on performance. However, twenty Israeli hedge funds agreed to share their performance data which we present here as compared to the HFRX Global Hedge Fund Index.
chart

Investing

Is It The Right Time To Invest In Gold?

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Is It The Right Time To Invest In Gold? 1

By Zoe Lyons, Hatton Garden Metals

The current climate is one of uncertainty, so it can be difficult to know what to do with your money, particularly investments. When faced with the decision on what to do with your savings, there are a number of options, but one investment which many have opted for over the years is gold buying.

Purchasing gold can be a great investment. Although the price of which can fluctuate just like anything else, the value of gold has generally tended to increase at a good rate and many prefer it over other saving options. With bank interest rates currently at a low and discussions of negative interest rates, many are opting to purchase gold as a way to earn money on their savings.

So is gold buying right for you? We take a look at some commonly asked questions when it comes to purchasing gold.

Why Should I Buy Gold?

Buying gold is often seen as a good investment due to value increases, so you may be able to make a profit from selling it on if the price of gold increases after you have purchased. The price can fluctuate, so profit is not guaranteed and is based on a number of factors. Looking back over previous years since the 1970s, the value of gold has prospered compared to other investment types, albeit with some dips in value at certain points over the past 50 years.

Buying gold also allows you full control as you are the owner. So you can choose if and when you want to sell.

Buying Gold Vs ETFs

When looking at investment opportunities, you may consider ETFs. An ETF is an Exchange Rated Fund, which when purchased is similar to buying stocks and shares. They can be a good investment, but is it more beneficial than purchasing gold?

When purchasing physical gold you will need to consider where to store it. This can incur charges, whereas with an ETF there is no need for storage, but an ETF can come with admin charges and investment management costs. When you choose to sell an ETF, you may also be required to pay a commission, which are often small amounts, but can add up if you are an active trader. There is also less control with an ETF as the price of which can change and is based on the company’s actions.

Gold Bars Vs Gold Coins

If you do choose to purchase gold, you will be faced with the option of whether to buy gold coins or gold bars. Although similar, they have varying benefits.

  • Gold Coins

The purchase of gold coins are often favoured by those who appreciate the historic value of the coin. Many people collect coins, so an investor may be inclined to pay more if they are a keen collector of such. Many may also pay more for gold coins based on their rarity. These factors can affect the price you pay or sell at, meaning the value of gold coins is not solely deemed by the live price of gold, so you may receive a higher price, dependent on the investor. This allows the price of gold coins to be more fluid than gold bars.

  • Gold Bars
Zoe Lyons

Zoe Lyons

Gold bars are not seen as a collectors item and don’t tend to have historical attachments. Because of this, the price is not influenced by these factors and is based on the weight, purity and the live price of gold at the time of selling or purchasing. This allows for a more accurate estimate of the price of your gold bars.

Where Should I Store Gold?

One of the most frequently asked questions when it comes to gold buying is storage. If you do choose to purchase gold, you will need to consider storage. Just like anything else of a high value, it needs to be stored securely. Simply keeping gold stored at home could be risky. When kept in your property, if not stored in the correct conditions, it is more susceptible to damp and corroding. There is also the possibility that your home insurance does not cover your gold, so if you are burgled, you could lose your investment. Because of this, it is wise to protect your gold with proper secure storage. Look for companies that offer storage abilities that are covered by insurance and be sure to do your research on pricing and look for cost effective storage as the fees incurred can soon add up. You may also want to look for a company that allows you quick and easy access to your gold to ensure you can buy and sell with ease.

Should I Invest In Silver Too?

Although gold is often a more popular investment option, many choose to purchase silver alongside it. The price of silver tends to be much more volatile than the price of gold, for this reason, many see gold as a safer choice. The price of silver will still have an intrinsic value but may be more worthwhile for those looking into long term investment options due to its VAT charges.

Negative Interest Rates

Although it is not a current practice, there has been recent talk of banks in the UK potentially introducing negative interest rates. If a savings account has a negative interest rate, this could mean you are charged for keeping money in the bank. If introduced, this could mean savers lose out. Instead of receiving interest on your savings, you may be charged a rate for keeping your money in the bank.

Could purchasing gold be a better option for your savings? Possibly, but this will depend on how much you have saved and the rates of the negative interest (if they are introduced). They may be minimal, but if you have a large amount in a savings account, this could add up to an expensive charge. If you choose to use your savings to buy gold, you may make a profit upon selling, but you will need to consider costs of storage as well as the chances of the price decreasing in the future.

So, is it the right time to invest in gold? It’s a very popular question. Hopefully the above will give you a bit more insight into gold investing and how it may work for you, but with any investment, there is never a guarantee that it will generate profit, so take careful considerations when diversifying your portfolio.

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Private public investment is more inter-dependant than ever

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Private public investment is more inter-dependant than ever 2

By Konstantin Sidorov, CEO and Founder of London Technology Club

Today, one thing unites the majority of governments around the world: their fiscal position is destitute. COVID 19 has seen an extraordinary, forced expansion in public sector expenditure, which has come just as the world was getting back on its feet following the Global Financial Crisis. The financial strains are already showing and will become more apparent as we move through the pandemic into social and economic recovery.

If you want to understand the impact that the re-focusing of public sector spending is having, then there is no better example than the space economy. In the US and Europe, we are becoming increasingly reliant on the space rockets and space launch companies pioneered by private investors and entrepreneurs.

NASA, that powerhouse and flag bearer for American national pride, is having to partner with the private sector in order to fulfil their missions. Private investors, the likes of Elon Musk, and Jeff Bezos alongside smart use of new technologies have brought the economics of space down and the excitement around what’s possible up. With it comes a whole satellite manufacturing, launch and servicing industry growing to $271bn in revenues in 2019. Of the total revenues in the space economy ($366bn in 2019), government space budgets made up $95bn of that.

Commercial entities, being patiently built and backed by private capital willing to dig deep and progress their own missions has helped fuel the space economy. Many are realising now just how crucial space is for the future of a country’s protection, position in the world and prosperity. In China, India and Russia we still see significant public sector expenditure in space projects as an agent for military and economic expansion. The role of private investors in plugging major gaps in public sector funds and national pride in Western economies is therefore increasingly important.

Private and public investment must be seen as a partnership. We should not forget that Elon Musk’s SpaceX survived from the brink of collapse only because of a ten-figure NASA contract awarded at the last minute. Musk, since then, has looked for public infrastructure contracts to fuel his companies, the likes of The Boring Company winning the contract to build a downtown-to-airport loop, a  government program for high-speed transport in Chicago. Musk proves his products and services work and then secures lucrative government contracts in order to quickly scale which in turn leads to transforming whole industries.

It’s not just space infrastructure where we see this redefinition of the role of public and private finance. The Chinese have invested at least US$160 billion in infrastructure projects as part of the Belt and Road Initiative, creating roads, ports, energy infrastructure and providing aid to foreign governments to create the most ambitious infrastructure project the world has yet seen.

Konstantin Sidorov

Konstantin Sidorov

For Western countries, access to that scale of public finance is not fiscally-possible, a new solution is needed and just as the space race has been redefined by private capital, so will the development of new industries, infrastructure and the reinvigorating of economies facing structural change that has been accelerated by COVID.

Private capital has the huge advantage of being driven by conviction and competence. It can cost-effectively be deployed, fast and targeted with a laser-like focus by entrepreneurs who know exactly what they want to achieve. Private capital, currently, is also in abundance.

In a world which is providing slim returns across multiple traditional asset classes, private capital is being stockpiled and is waiting for the opportunity to be invested for growth. We need private investors to have the confidence to deploy their capital to fuel the system once again.

This new world, post COVID, won’t see public capital replaced. Its role is likely to focus more heavily on health, welfare and critical infrastructure. However private investors will step in where gaps appear. Ten years ago, the scale and ambition of private space companies would have been greeted with snorts of derision and looks of disbelief. Today governments embrace the private capital, and regard the companies that have deployed it as systemically important national assets.

As we look to the future, huge macro trends emerge that demand significant investment: the aging population, the threat of pandemic, the drive to create a sustainable economy and lifestyle, the need to decarbonise, the digital revolution. The list goes on.

Public finance cannot hope to provide the finance and pioneer the bold thinking and accept the risks required to find new solutions that drive us forward in a world of change. That role goes to the private investor and private capital.

For the investors themselves the opportunities are immense, and for society as a whole they are just as big. As we look forward public and private sector needs to embrace private capital. Rather than fearing private investors as locusts who strip organisations and opportunities of profit then fly away, a narrative that gained traction after the last great economic crash. This time we need to see private capital as agents for positive transformation. Private-public partnerships fuelling each other.

Private money is already building rockets that send people and payloads into space, but that isn’t the final frontier for entrepreneurial investors or the societies and economies that benefit from their boldness.

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What should I invest and How do I invest

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What should I invest and How do I invest 3

By Imogen Clarke, The Fry Group

With all the uncertainty that has arisen from 2020, with lockdown threatening businesses and the warning of a second wave, the topic of investments has taken on new meaning. Nowadays, more people are concerned with what makes for a good investment, or, if you’re a novice, how to best invest.

For instance, you might be unsure about the reliability of the company you’re looking to invest in, as well as the long-term prospects of your investment.

If you are unsure of your investments, then it is best to seek advice from financial experts like The Fry Group, who deal with tax, wealth and estate planning. They will see that you have a strong financial plan in place to help meet your objectives. They will develop a strategy that is built around your needs and asses any risks that could hinder your plans.

There are some things you’ll need to consider for your strategy; for instance, are you looking to make investments that are more of a risk and will take longer to come to fruition? Or, alternatively, are you wanting a faster approach that will result in a steady income? Whether or not you decide to play it safe all depends on your current financial situation and whether you have the means to take more of a risk. Do you have any other debts that take precedence over your future plans? Is your investment strategy realistic?

With the aid of a specialist – or investment manager – you can design an investment concept that works for you and your goals, and start to build a regular income from your investments. There are four main areas when it comes to assets (groups of investments) that you can consider:

  • Equities
  • Bonds
  • Alternatives
  • Cash

Your investment manager will test the risks associated with your investment, and if it proves to be a positive investment choice, then you will be able to invest more over time.

So, how do you decide where to invest?

According to The Fry Group, ESG investing (Environmental, Social and Governance) is a good option for investors looking to support businesses that meet their similar ethics.

The main areas of ESG investing include:

  • Environmental challenges (climate change, pollution, etc)
  • Social issues (human rights, labour standards, child labour, etc)
  • Governance considerations relating to company management

According to The Fry Group, “Many investors choose to consider ESG investing in order to ensure any investment decisions reflect personal beliefs and values. As a result, they choose to support companies who are making informed, responsible decisions which take into account their wider societal and global impact. In this way investors can achieve peace of mind that their investments are creating a positive effect.”

ESG investing is also more relevant now than ever, as more businesses are looking to present themselves as an environmentally conscious corporation that recognises the values of their consumers.

As The Fry Group puts it, “In the past, ESG investing has been seen as a niche investment approach, for a relatively small number of people with specific requirements. This has changed significantly in recent years, with a growing awareness of environmental issues such as climate change and an increasing understanding of social issues and human rights. As a result, many people are increasingly interested in reflecting their opinions and lifestyle choices through the way they invest.”

So, if you want your investments to pave the way for your personal values and reflect your own morals, then this is the route to go down. But how does it all work?

There are four areas of ESG investing:

  • Responsible ownership and engagement: when companies are encouraged to make necessary improvements.
  • Avoidance or negative screening: whereby businesses are ‘graded’ based on how ethical their business practices are and are avoided altogether if their methods are not approved.
  • Positive screening strategies:when companies meet the ESG goals and are approved for investments.
  • Impact investment strategies: the purpose of this is to use investment capital for positive social results such as renewable energy.

You will need to take into account your own personal objectives as well as the objectives that meet the ESG investment criteria. And, in terms of financial performance, ESG investing can be hugely beneficial. Those who opt for ESG investing perform a more in-depth analysis into long-term and future trends that affect industries, meaning that they are better prepared for changes in consumer values when they arise. And, with all the unpredictability that this year has offered us so far, isn’t it better to do the research and have all angles covered?

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