Phoenix Launches Hedge Fund Management Firm to Compete in Growing Israeli Market

Phoenix, Israel's largest financial asset company, has begun recruiting senior industry professionals to establish its own hedge fund management firm. This new venture aims to compete with leading hedge funds such as Sphera, Noked, ION, and Alpha. According to Gelbo, a firm that monitors hedge funds in Israel, the hedge fund industry's assets have rapidly grown in recent years, nearing 25 billion dollars.

Unlike mutual funds, pension funds, or investment portfolios, institutional investors managing long- and medium-term savings have not traditionally engaged in hedge funds. However, the sector's growth has recently attracted their attention. On Thursday, it was reported that Harel, Israel's second-largest institutional investor, is in advanced talks to acquire Tulip Hedge Fund, which manages approximately 400 million shekels.

Hedge fund clients are typically high-net-worth individuals with at least 8 million shekels in liquid assets. These investors seek to diversify their holdings and reduce exposure to stock market volatility. Hedge funds also offer protection during market downturns by hedging potential profits and risks through strategies like short selling.

The hedge fund category includes a wide range of funds, some of which resemble traditional investment funds with limited hedging strategies but benefit from the regulatory freedoms of the hedge fund label. Managers in the hedge fund sector worry that increased competition could drive fees down. Traditional hedge fund fees are around 2% management and 20% performance fees, but institutional entrants may lower these to attract new clients.

A senior industry figure explained that institutional investors have discovered the appeal of hedge funds due to their ability to share in returns, noting that in 2023 some managers earned millions of shekels, a scenario unlikely in traditional markets. He contrasted hedge fund fees with mutual fund fees, highlighting the potential for significantly higher earnings through performance fees.

Most hedge fund managers prefer to focus on investment management rather than marketing or operations. When investment houses or insurance companies partner with them, they provide distribution networks, branding, and fundraising capabilities, allowing managers to concentrate on their expertise.

Additionally, IBI has expanded its hedge fund activities by acquiring 50.05% of Plutus Valio's management company for about 15 million shekels. Plutus Valio specializes in advanced trading and hedging strategies in the Israeli stock market, managing 160 million shekels with an active investment model based on derivatives expertise and dynamic portfolio hedging. The fund is led by Leon Suiri, Ron Alkon, Elad Yaron, and Aharon Cohen.

Simultaneously, Sphera hedge fund managers acquired Sela Investment House, which manages mutual funds for the public, and Gabi Dishy, controlling shareholder of Alpha hedge fund, became a financial investor in Kavan Investment House.