Gov't technology funds tender delayed

Tel Aviv Stock Exchange Photo: Eli Yizhar
Tel Aviv Stock Exchange Photo: Eli Yizhar

The funds were designed to provide institutional financing support for local high tech with government protection against losses.

The Ministry of Finance and Israel Securities Authority are postponing the date of the tender for selecting high-tech funds by six weeks. The postponement is apparently for procedural and logistics reasons. The funds were designed by the Ministry of Finance in order to provide support from financial institutions for Israeli high tech. The previous tender date of September 7 is now being delayed until October 19.

Last July, the Ministry of Finance Accountant General department, together with the Securities Authority, which supervises the mutual funds, published a "tender for selecting managers for funds to invest in high-tech companies. The funds will be listed on the Tel Aviv Stock Exchange (TASE), and will receive both state protection against losses suffered by the investors in the funds and guarantees for raising credit." The Accountant General department stated on that occasion, "In the framework of the tender, up to four mutual fund managers will be selected who meet the tender conditions for receiving the protection. The selected funds will be listed on the TASE, with a minimum of NIS 400 million per fund."

Market sources said they believed that 5-6 groups have expressed serious interest in establishing such marketable investment funds. A capital market source says, however, "These funds can exist for a maximum of 15 years, and the preparation period for the tenders is simply too short. It's therefore a good thing that they postponed the submitting of bids in the tender. There are still many questions that the Ministry of Finance and the Securities Authority must answer in order to decide whether and how to compete. Furthermore, the method of investment is rather innovative for investment management, which has hitherto not given investors in Israel much satisfaction (this refers to Israeli venture capital funds, R.S.)."

The market source adds, "A number of concerns have asked for a postponement in order to consider whether to submit their candidacy… The tender's success is important for the Ministry of Finance and the Securities Authority, so they want to allow all the concerns to make suitable preparations."

There is also concern

Together with the hopes engendered by the new instrument, especially among startups, some in the capital market are expressing anxiety. "One possible problem with these funds is that a large proportion of their assets will be invested in marketable Israeli technology shares, which over the years have generated lower returns than the other share indices."

In any case, the Ministry of Finance has propounded the importance of its plan, saying, "The Israeli government regards the founding of high-tech funds as important for the sake of increasing and diversifying the sources of capital for R&D companies, and for the sake of giving the public a new investment instrument, including people with savings in financial institutions (such as pension, provident, and mutual funds). It was therefore decided to provide state support for a number of high-tech funds by providing protection for the money of investors in the funds, and by allowing the fund managers to raise credit backed by state guarantees for the funds."

The model for the funds, which is actually similar to the ones used for the leverage funds, is designed to bring more money to the local high-tech industry. The new funds will invest at least 30% of the assets they possess when they are founded in R&D companies, which are usually below the radar of the major financial institutions, or are inaccessible to the general public in the context of management of diversified investments. The state will supply a safety cushion in the form of limited compensation for losses. What is involved is therefore a kind of marketable venture capital fund that is also open to investment from the general public, thereby making the venture capital industry accessible to those for whom it was previously beyond reach.

Securities to be included as target investments for these funds are those included in the TA Bigitech Index, securities classified by the TASE as being in the technology and biomed sectors or on indices with companies having similar features, and foreign funds and options that invest in such securities. The fund's management fees will be high, as is the prevailing practice by venture capital funds and other private investment funds, in contrast to the prevailing practice among the marketable mutual funds. The higher fees are likely to appeal to potential fund managers, who will now have more time to consider what to do about the new tender.

Main points of the high-tech funds tender:

- Four high-tech investment funds will be founded.

- The funds will invest 30-50% of their assets in R&D companies, and will be listed on the TASE.

- The funds will be entitled to a safety cushion from the state against losses up to NIS 50 million or 20% of their investments in R&D companies, whichever is lower.

- The funds will be entitled to state guarantees for credit.

Published by Globes [online], Israel Business News - www.globes-online.com - on August 29, 2017

© Copyright of Globes Publisher Itonut (1983) Ltd. 2017

Tel Aviv Stock Exchange Photo: Eli Yizhar
Tel Aviv Stock Exchange Photo: Eli Yizhar
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