Israeli Knesset to Vote on Law Allowing Continued Investment in Hedge Funds via Mutual Funds

The Israeli Knesset is set to vote on Tuesday on a law that will permit ongoing investments in hedge funds through mutual funds. This sector, which launched in April 2023 and currently manages about 6 billion shekels, has been operating under a second and final temporary extension. Without this legislation, the launch of new hedge funds and possibly the continuation of existing ones would be at risk. The legal uncertainty surrounding hedge funds in mutual funds was first revealed by Globes in October 2023 and is now expected to be resolved.

Following the law's approval, the Israel Securities Authority plans to issue a permanent directive to replace the current temporary one and propose subcategories for hedge funds. The amendment will also allow mutual fund managers to offer additional types of private investment funds. Currently, 46 hedge funds operate on the Tel Aviv Stock Exchange, based on a traditional hedge fund model aimed at qualified investors with liquid assets exceeding 10 million shekels and institutional bodies seeking to hedge market risks. Since their inception, these funds have doubled their assets within a year and gained popularity among investors.

However, the law faces opposition from some Bank of Israel officials who worry that the rapid growth of this young sector could lead to liquidity crises if investors attempt mass withdrawals. The Finance Committee approved the bill for second and third readings earlier this month, but it was not brought to a full Knesset vote before the dissolution of the parliament. Now, with elections underway, the bill requires approval from the Knesset's Arrangements Committee, chaired by coalition leader MK Ofir Katz and opposition coordinator MK Merav Ben Ari, who have reached an agreement to advance the vote.

Separately, a significant economic reform bill to establish metropolitan authorities in the Tel Aviv, Jerusalem, and Haifa regions is not on the Knesset's agenda. This reform aims to decentralize transportation authority from the Ministry of Transportation to local metropolitan bodies, a move long recommended but historically resisted by the ministry. Deputy Budget Director Ali Bing and Transportation Ministry Director-General Moshe Ben Zaken recently urged coalition chairman Ofir Katz to pass the law, highlighting its potential to reduce road congestion costs estimated at 40 billion shekels annually and improve public transit efficiency. Despite unprecedented consensus and support from the current government, the bill has stalled due to coalition tensions and opposition from ultra-Orthodox parties, even though it was agreed that metropolitan authorities would not alter the public transportation status quo on Shabbat.