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Market
trends and
insight
Over the past few years, there has been accelerated activity in the Israeli investment
funds arena. A mix of low interest rates, a bigger pool of institutional funds ready to
be deployed, and a surge in Israeli entrepreneurship and creativity, have combined to
produce such a vibrant market.
While the evolution of the Israeli investment funds sector has been challenging after a
few difficult years for fundraising, we are now witnessing far-reaching changes in the
funds' management teams, investment strategies and structures.
Having learned tough lessons fromprevious decisions,investors have come back to the
negotiation table with renewed vigor and a more discerning eye, more selective about
management teams and investment opportunities and more demanding with respect
to governance and transparency issues. Against this backdrop of heightened investor
standards, fund management teams have aimed higher by building stronger and more
diverse teams that seek innovative ways to add value to their portfolio companies,
drawing on the sophistication and operational experience of their counterparts. Well-
assembled teams that demonstrate a real prospect to create value, manage to gain
the trust of private, institutional, and also non-Israeli investors. Indeed, over the past
two years there has been a marked increase in the number of Israeli first time funds as
well as funds that are “over-subscribed”.
The impact of low interest rates and current market conditions also drives fund
managers to formulate innovative investment scopes and strategies in various sectors,
both inside and outside Israel. Institutional investors, traditionally more conservative,
are eager to explore these opportunities, in their search for excess returns. This
produces a dramatic growth in innovative investment strategies and structures and
in increasingly various jurisdictions (such as US, Europe and Asia). Indeed, as Israeli
fund managers begin to move beyond their own borders and to pursue market
opportunities abroad, Israel is expanding beyond its position as a world-class hotbed
of technological entrepreneurship and innovation.
Increased investments in venture capital funds
Israel has also seen other major effects and trends including increased investments
in venture capital (“VC”) funds. Israeli VC funds collectively raised almost $1 billion in
2014 – more than had been raised in any year since the 2008 economic downturn, and
approximately 1.5 times more than the amount raised in 2013. More than $600 million
has already been raised in the first half of 2015.