Israeli Institutional Investors Expand Into Hedge Funds Amid Market Shifts

In recent months, Israeli institutional investors have accelerated their entry into the hedge fund market by acquiring stakes in small to mid-sized funds. IBI acquired the Plutus fund for 15 million shekels at a 30 million shekel valuation, Meitav bought Trio fund for 30 million shekels, Harel is purchasing Tulip fund for 30 million shekels, and Phoenix is also exploring entry into this sector. The Israeli hedge fund market manages around 100 billion shekels, divided among hundreds of funds ranging from small funds managing tens of millions to a few large funds managing billions.

Institutional investors see an opportunity to buy into smaller hedge funds for relatively modest sums compared to their overall asset base, which totals hundreds of billions of shekels. Hedge funds in trust structures, which manage about 5 billion shekels and are regulated under the Israeli Securities Authority, have already linked hedge funds to retail investors. IBI CEO Dave Lobetzky explained that the goal is not quick exits but rather integrating hedge fund managers into larger investment platforms to leverage distribution networks and client bases.

Lobetzky noted that many hedge fund managers lack marketing and operational infrastructure, which institutional investors can provide, allowing managers to focus on investing. Matten Pasternak, CEO of VAR Investments, highlighted that institutions are willing to pay high multiples, focusing on funds managing up to half a billion shekels, with expectations to acquire larger funds in the future. This trend mirrors global moves by asset managers like Goldman Sachs.

However, not all institutional players share this enthusiasm. Yair Lapidot, controlling shareholder of Yelin Lapidot, argues that hedge funds and other illiquid assets are poorly suited for retail savings products due to liquidity mismatches, especially during market crises when investors seek redemptions. He also points to valuation issues, noting that illiquid assets may lag in price adjustments, which can distort performance comparisons during volatile periods.

The debate raises questions about whether expanding into hedge funds represents a strategic diversification for institutional portfolios or if institutions risk overpaying for assets with lower expected returns than their prices suggest. The sector’s complexity, liquidity constraints, and fee structures remain key considerations as institutions deepen their involvement.