Now is the Time to Stimulate Growth in the Israeli Hedge Fund Industry

Three vectors are quietly converging, uncovering an opportunity to reshape the finance landscape in the Middle East and the future of Israel. The Iran war has exposed cracks in the UAE’s image as a stable regional finance hub; the Israeli hedge fund industry is an untapped innovation gold mine that is only 30% globally invested; and Israel is expecting up to one million people to immigrate in the coming years, a significant number of which will come from leading financial institutions. The convergence of these factors presents Israel with a window to establish itself as a world-class center for asset management and investment innovation, and to elevate the Israeli finance industry to become the engine of Israel’s next economic boom.

Seizing the Opportunity

If the Israeli government focuses its efforts now on bolstering the Israeli hedge fund ecosystem, it can help stimulate growth that will attract foreign investors and institutions and create the opportunities for talented investment professionals looking to relocate from abroad. A large hedge fund industry can also influence Israel’s lagging banking system for the better.

For starters, the government should pass tax reforms recently proposed by the Israeli Tax Authority. These reforms would change the tax treatment of profits generated by Israeli limited partnerships engaged in fund management from income to capital gains, thereby significantly reducing the tax burden to a percentage comparable to developed markets.

Next, the government should form a long-term outlook on Israel as a global hub of investment innovation. The Tel Aviv Stock Exchange has taken a first important step by shifting its trading days to Monday through Friday (from Sunday through Thursday). The government should follow suit by providing a regulatory environment that is attractive to the global finance industry, both investors and investment professionals, and competitive for Israeli-managed hedge funds.

Fortifying the Regulatory Infrastructure

Currently, the regulation over Israeli-managed hedge funds is fractured across various statutes. Some key holes include the fact that regulations target how Israeli-managed funds are marketed and not how they operate. The accredited investor standards for marketing to investors are significantly higher than most countries, and there are no mandatory disclosure, prospectus or operational standards. These flaws impact Israel’s competitive edge.

A non-cohesive regulatory scheme is a deterrent for international investors and hedge fund managers looking to establish a presence in Israel. The lack of foreign investors in Israeli managed hedge funds – only 12% of current investors are foreign – is demonstrative.

Learning from the Success of the ADGM

Israel should follow the lead of the Abu Dhabi General Markets (the “ADGM”), which, since its inception in 2013, has established itself as a premier hub for asset management. Assets under management in the ADGM grew 42% in the first half of 2025 compared to the first half of 2024. At the heart of its success is a regulatory framework that adopts the direct application of English common law, which affords transparency, stability and legal certainty for asset managers looking to establish a presence in the Middle East.

Why not also Israel? It is not so far-fetched to consider that Israel, a progeny of the English common law system, can adopt a similar system to support the growth of its nascent financial services sector. True, Israel cannot compete with the ADGM’s 0% corporate tax rate. However, Israel has one thing that no other country has: it is the only Jewish homeland.

A Call to Action

Which brings us back to the opportunity at hand. As Israel continues to prove its fortification and resilience during times of war, and as finance professionals consider immigrating, the Israeli government should work towards strengthening and expanding the finance ecosystem. By passing necessary tax reforms and discreet legislative fixes in the near term, the government can level the playing field for Israeli managed funds and contribute to their growth. More importantly, the government should be forming a vision for Israel as a leading innovation ecosystem for the finance industry at large by providing the proper regulatory environment.

And if the government does not answer the call to action, Israelis, as they often do, will answer the call. The potential is real. Global Jewry has the skills and the capital to develop a robust asset management sector in Israel. There are initiatives currently underway that are building on talent from Israel and abroad towards unlocking Israeli’s financial innovation potential and transforming the Israeli hedge fund industry to a driver of economic growth.

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