Israel’s “mutual hedge funds,” a retail version of hedge funds once reserved for qualified investors, have become one of the capital market’s hottest products. Since the launch of the regime in April 2023, assets have grown to about 6 billion shekels, roughly double in a year, though still less than 1% of the mutual fund industry. Lior Kagan, CEO of Meitav Tachlit Mutual Funds, said he could not recall such rapid growth in the funds industry and said the sector could eventually manage tens of billions of shekels.
A Globes review of 46 funds found that the average stock fund in the category returned 128% over three years, before fees, versus 135% for the Tel Aviv 125 index. The top performer was Harel Multi-Strategy, up 266% in three years and 80% in the past year. Meitav Long Short Stocks placed second with 190% over three years and 90% over one year, followed by Yelin Lapidot Multi-Strategy with 169% and 65%. At the bottom was IBI Macro Strategies, up just 19% in three years and down 5% in the past year.
The products were created under a temporary order advanced by the Israel Securities Authority, with entry for the public possible from a few hundred shekels. Unlike classic hedge funds, which are aimed at wealthy qualified investors and institutions, these funds are transparent and supervised, but they charge traditional hedge fund fees of 1.5% to 2% of assets plus 20% of profits. Their main advantage is tax deferral, since capital gains tax is paid only on redemption. Kagan said, “It is a huge advantage לאורך כל תקופת ההחזקה,” and added, “We believe in this world very much and invest a lot of time and effort in it.”
The industry has also relied on star managers from the traditional hedge fund world, including Micha Melka at Harel and Danny Ben-Ya’ir as an external adviser to Meitav. Yet even strong managers may not guarantee success, and one veteran hedge fund manager told Globes he did not see meaningful hedging in some portfolios, describing them as “beta eaters” that rise more than the market and fall more than the market. Melka said his fund reduced exposure from above 100% last year to 80% to 90% now, and would cut further if needed. The real test, however, has not arrived, because the industry has only operated during a rising market.
The biggest risk is legal: the temporary order can be extended only once, so if Knesset legislation is not completed, the funds could be forced to unwind in April 2027 and return money to investors. The Knesset Finance Committee, chaired by MK Hanoch Milwidsky, is expected to vote on the remaining clauses in the next two weeks, with second and third readings hoped for before the summer recess in July. The main opponent is the Bank of Israel, whose financial research chief, Dr. Yossi Saadon, warned in January that the sector could threaten financial stability if it channels enough leverage into less-controlled loans. Officials in Jerusalem also fear the funds could eventually enable highly leveraged structures reminiscent of the 2008 crisis.
