Israeli Insurance Funds Lose Nearly 70% in Assets Managed by Wall Street Giants Amid Poor Returns
Two years ago, Israeli insurance companies partnered with global asset management giants BlackRock, Fidelity, and State Street to offer savers access to international investment management, aiming to boost management fees. However, a combination of a weakening dollar, disappointing returns, and a strengthening Israeli capital market reversed this trend. Currently, Phoenix, Harel Insurance, and Clal Insurance manage less than 1.2 billion shekels in savings policies handled by these foreign managers, down from a peak of nearly 4 billion shekels. Most of this decline occurred in the past year, with savers withdrawing about 1.4 billion shekels, primarily from general investment tracks that underperformed compared to local alternatives.
Savings policies managed by insurance companies currently hold about 130 billion shekels, compared to 70 billion in provident funds, with insurance policies typically charging higher fees due to commissions paid to insurance agents. For example, Phoenix's BlackRock-managed policies charged annual fees between 1.35% and 1.55%, higher than the 0.8%-1% typical for regular savings policies. Phoenix was the first to launch such partnerships in January 2022, offering three global investment tracks fully invested outside Israel. Initially, this was well-timed as the US market surged by 43% in 2023, while the Israeli market rose only 4%, driven by AI breakthroughs and expectations of interest rate cuts.
However, in the last 12 months, the general tracks of these policies showed weak returns: Harel's Fidelity-managed general track lost 4.7% before fees (nearly 6% net loss), Phoenix's BlackRock track gained only 0.7%, and Clal's State Street track returned 0.6%. By contrast, Israeli general provident funds averaged about 14% returns. The 8.4% depreciation of the dollar against the shekel further reduced returns for Israeli investors. Since launch, Phoenix's BlackRock policy gained 33%, while Harel's Fidelity policy lost 10.9% and Clal's State Street policy lost 4%, compared to a 14% shekel return for the S&P 500.
The strong performance of the Israeli market over the past two years, with the TA-125 index rising 104% versus 38% for the S&P 500 in dollar terms, diminished investor appetite for foreign-focused tracks. This, combined with the weaker dollar and poor foreign returns, accelerated redemptions. Harel and Clal, which launched their products in September 2024, managed to raise only tens of millions of shekels, failing to build significant asset bases. Clal Insurance emphasized that its State Street partnership does not generate excess profits and noted that evaluating returns solely in shekel terms is misleading due to currency fluctuations. They also stressed the importance of long-term investment horizons and portfolio diversification across global managers.
