Israeli Finance Committee Approves Law to Revive Hedge Funds in Trusts After Fundraising Freeze
Since their introduction in 2023, hedge funds in trust structures in Israel have raised 6 billion shekels, but the launch of new funds was halted last year. The Finance Committee, chaired by MK Hanoch Milvitsky, has now approved legislation to encourage capital market activity, including a permanent regulatory framework for these hedge funds. This law authorizes the Israel Securities Authority to set rules governing these funds, which until now operated under a temporary arrangement.
The temporary status ended in September 2025 when the Authority stopped permitting new hedge funds in trust until permanent legislation was passed, effectively freezing new fund formations for nearly a year. The committee’s approval moves the bill closer to final passage, enabling new funds to be established and expanding fundraising in this investment sector.
Hedge funds in trust are a relatively new investment product in Israel, designed to blend hedge fund strategies with mutual fund accessibility. The Israel Securities Authority developed this intermediate product to make hedge fund investment practices available to the general public, not just qualified investors. These funds operate with near-complete investment freedom but must report performance monthly, unlike mutual funds which report daily. Redemption is also monthly rather than daily.
The law imposes exposure limits, capping investments in a single borrower, illiquid shares, or real estate rights at 12% of the fund’s assets, with these rules taking effect six months after publication. Permitted assets include illiquid shares, financial assets, loans (excluding those considered business income), certain real estate rights, infrastructure projects, and digital assets excluding central bank digital currencies.
Inbal Polk, head of investments at the Israel Securities Authority, explained that the funds were promoted due to growing demand for alternative, non-liquid investments, which previously exposed investors to unregulated risks. Nimrod Sapir, CEO of the Israel Investment Houses Association, noted the legislation will democratize access to investment products previously available only to wealthy clients.
Hedge funds are not substitutes for long-term savings but serve as risk management tools, especially for investors wary of sharp market declines. Their performance varies with market conditions, aiming to match slight market moves and outperform during significant downturns. However, recent sharp declines in June 2026 in the Tel Aviv stock indices revealed that some hedge funds in trust did not effectively hedge risks, with major funds posting losses around 10% during the worst market month since October 2023.
