* New savings plans lead to spike in assets under management
* Israeli investment in private equity growing fast
* Europe, United States favourite destinations for
By Ari Rabinovitch
JERUSALEM, Feb 14 Israeli institutional
investors are placing billions of dollars in foreign private
equity funds after government reforms to encourage household
savings brought an influx of cash.
Insurance and retirement fund managers have seen their
assets swell 50 percent in five years, reaching $441 billion in
2016, according to the Bank of Israel, after a series of changes
that started in 2008 aimed largely at bolstering pensions.
With record low interest rates making bond investments less
attractive and falling trading volumes on the Tel Aviv Stock
Exchange, partly because successful Israeli companies are
listing elsewhere, managers are looking for other investments.
"More money than ever is coming into the industry. Fund
managers are sitting on mountains of cash that suddenly aren't
producing yields, so there is a need to diversify," said Rami
Dror, chief executive at Halman-Aldubi, an Israeli investment
The Tel Aviv Stock Exchange cannot absorb such large volumes
of investment. Trading volumes in 2016 averaged 1.27 billion
shekels ($340 million) a day, down from 1.45 billion in 2015 and
2 billion in 2010.
The number of companies listed on the bourse has dropped by
200 over the past decade to 451 while there are few public share
offerings, and many choose to list elsewhere.
The move to foreign private equity is already underway and
is in line with global trends as investors look for better
returns in the low interest rate environment.
Praedicta, a data analysis firm, estimates Israeli
institutional investors had $11 billion in private equity funds
in 2016, a 162 percent increase from five years earlier.
Two-thirds is invested in foreign funds with the rest invested
Halman-Aldubi Global, the group's fund distribution unit,
estimates that allocations for alternative investments such as
private equity, hedge funds and real estate, will more than
double in the next three years to reach $30 billion and could
double again to $60 billion within five years.
Israel, like many other countries, introduced pension
reforms to cope with an ageing population. In 2008 it raised the
percentage of all salaries that must be set aside for retirement
and severance, to 18.5 percent from 2.5 percent.
It expanded the use of employee mid-term savings funds and
began depositing 50 shekels ($13) each month for every Israeli
child into his or hers own provident fund or bank.
This led to a capital windfall for institutional investors
that has attracted the attention of foreign funds.
"Israel, while it starts from a fairly modest base, may
expand at a much faster rate over the next few years, and that
makes it more interesting to people like us," said Michael
Granoff, CEO of New York-based private equity firm Pomona
Pomona manages about $9 billion and, for its ninth fund, is
for the first time engaging Israeli institutional investors.
In five years the number of active private equity investors
in Israel has jumped from nine to 28, according to research firm
Preqin. Europe and North America are the preferred destinations
for private equity investment abroad, it said.
"We changed our approach in the last few years and we try to
invest most of our money outside of Israel," said Asaf Shoham,
head of investments at Migdal, one of Israel's largest
He sees Migdal at least doubling the percentage of its
portfolio dedicated to private equity, which means investing
each year between $500 million to $1 billion.
($1 = 3.7529 shekels)
(Editing by Jeffrey Heller and Anna Willard)