In mid-February the Jewish Federations of North America will be hosting decision-makers from an array of Jewish Federation, community, and private foundations at the 2017 Investment Institute in Florida. According to the JFNA Investment Institute website, over $80 billion in Jewish communal philanthropic assets will be represented by professionals interested in learning about best practices related to fund stewardship and portfolio management. This year, the list of speakers includes a who’s who of the financial services world including Robert Kapito, President and Director of BlackRock, David Rubenstein, Co-Founder and Co-CEO of The Carlyle Group, and Mario Gabelli, Chairman and CEO of GAMCO Investors amongst others.
While the Investment Institute has been a biannually recurring event since 2001, only in the last two to three years has there been a critical mass of investment firms focusing exclusively on Israel-related securities, both public and private. Understandably, those with limited risk appetite have, historically speaking, had some concern when it comes to Israel or Israel-related securities as a destination for their capital. After all, despite Israel’s success and its formal transition into a fully developed economy in 2010 via its acceptance into the OECD consortium, it is still viewed by some as an emerging market, it is still a long plane ride away, and the region in which it resides has and continues to be rife with geopolitical risks. As the more traditional foundation managers and/or their investment committees have kept Israel investments at an arm’s length for the most part, the rest of the world has taken note of what Israel offers in the way of high-growth publicly traded enterprises, a booming real estate sector, and one of the most dynamic pre-IPO technology markets anywhere.
Over the last ten years or so, Israel’s economy has consistently been amongst one of the top performers globally characterized by a respectable 62.1% GDP-to-debt ratio, a national savings rate of 21.3%, nearly four times that of the U.S., a government hellbent on continuing to break up the country’s notorious monopolies, and a GDP growth rate consistently better and more resilient than that of the United States. During the economic downturn of 2009 when the U.S. economy contracted by -2.7% and the global economy contracted in aggregate by -1.68%, Israel maintained its growth pattern with a +1.3% expansion.
Israel’s growth and stability can be attributed to the country’s diverse economic sectors, which offer an array of opportunities for both retail and institutional investors at an advantageous price point.
Known to most folks is that Israel has one of the most robust technology ecosystems in the world with the highest number of start-ups per capita, which in turn attracts more venture capital on an absolute basis than any other country with the exception of the United States. However, and as the good venture capitalists know, it is not the price at which you sell, but rather the price at which you buy. Given the unique economics of Israel’s tech M&A market, which is characterized by smaller price point, earlier stage acquisitions, lower valuations relative to other countries is a tremendous advantage for investors. According to TechCrunch, in 2015, the average valuation of a seed start-up raising capital in Silicon Valley was $5.1MM. In Israel, that same company was raising capital at a $2.7MM valuation. Performance-wise, last year venture capitalists invested approximately $101 billion in U.S. start-ups with returns totaling $48 billion. Comparatively in Israel, $4.8 billion was invested in the country’s start-ups and $8.8 billion was returned to investors. In other words, last year in the U.S. venture investors lost money while in Israel investors did on average 2X their investment.
For those seeking out less risky more modest growth opportunities, next to China and the U.S., Israel has the most publicly traded companies on American exchanges. From cyber security companies like Check Point (NASDAQ: CHKP) and CyberArk (NASDAQ: CYBR) to website creator Wix (NASDAQ: WIX) and pharmaceutical giant Teva (NYSE: TEVA), Israel-based publicly traded assets offer an array of opportunities.
Yet despite all of the potential upside associated with Israel-related securities, only a small fraction of Jewish foundations, endowments, and pensions have any intentional exposure to Israel beyond bonds, which is a fantastic low risk product but which does not directly access the value Israeli businesses bring to the global economy. According to the 2015 financial statements of five large U.S. Jewish institutions, a combined $1.5 billion in investment assets were being actively managed with only one having any known material allocation to Israeli securities.
There is no blame or shame in this as up until a few years ago, access to Israel-related securities was limited to buying individual Israeli stocks on one exchange or another, or buying into an ETF that had some exposure to Israeli businesses. For those that were interested in Israel’s private technology market, the few venture funds that offered ‘Israel only’ were very expensive, had long holding periods, and had no recourse here in the U.S. However, times have changed. Companies like Denver-based Israel Investment Advisors and NYC-based BlueStar Indexes and the U.S.-listed ISRA and ITEQ ETFs that track its indexes, offer managed access to Israel’s capital markets at price points that make this affordable for every Jewish foundation. Venture firms like JANVEST Capital, YL Ventures, and Lazarus Israel Opportunities Fund invest exclusively in Israel-based emerging innovation and offer products suited to a wide array of Limited Partners. And for those seeking out more traditional private equity-type investments, there are groups like Israel Secondary Fund and Fortissimo Capital with strong track records and highly skilled teams.
It is our belief at JANVEST Capital, which is a belief shared amongst the Israel investment community as a whole, that portfolio diversification within Israel should not be limited to a handful of folks and funds with the risk appetite and the assets under management to be able to access the best securities. Many of the aforementioned groups will be at this year’s JFNA Investment Institute. It is our objective to shine a light on Israel-related opportunities and to showcase the value in aligning foundation ideologies with a corresponding investment strategy.