Every industry needs its formative event. Something dramatic, that will be etched in the memory for good or ill, something from which standards will be set and future possibilities defined. The case of Elliot Broidy at Markstone is the formative event for the private equity industry in Israel.
Markstone got underway towards the end of 2004. Elliot Broidy, Ron Lubash and Amir Kess became celebrities overnight. With aggressive PR, they brought with them everywhere they went the aura of an unfamiliar world, something closer to Wall Street that to the Tel Aviv Stock Exchange. After all, $800 million is a fabulous sum for the Israeli market. Even in the boom years of 1999-2000, local venture capital funds came nowhere near such an amount.
But that was over and done with long ago. Now there comes the moment of truth. Over the next few months, the true abilities of Lubash and Kess will be put to the test. Don't expect to see much of them in the near future. They will have to keep their noses to the grindstone in exhausting due diligence examinations that only American institutions know how to run. Presumably in Israel too there will be investment institutions that will demand explanations, and, in the best Israeli tradition, they will all have complaints: about management fees, about returns, and about what happened in 2002-2003.
With a problematic reputation, a controversial portfolio, and in a difficult economic period, Lubash and Kess will face the real ordeal: persuading the world's toughest investors that their fund has a raison d'être. Do yesterday's clever investors know how to deal with the dark side of their industry? The burden of proof is on Lubash, Kess, and Gillerman.
The implications are greater than those for Markstone itself. Up to now, the Israeli funds have managed to conduct themselves more or less without upsets vis-à-vis the large overseas institutions. Here and there, there have been stories about disputes or disappointing returns, but ultimately, the Israeli funds passed the test. Failure by Lubash and Kess will cause shocks in the Israeli private equity industry that will reverberate for a long time to come.
Published by Globes [online], Israel business news - www.globes-online.com - on December 6, 2009
© Copyright of Globes Publisher Itonut (1983) Ltd. 2009