Top investment managers see opportunities in Israel

Top investors credit: MN Communications
Top investors credit: MN Communications

"Globes" spoke to the head of the Israeli offices of four of the world's biggest investment organizations to discuss investment trends.

Four senior managers with the world's biggest investment companies have seen the markets rise and fall as they channel billions of dollars of investors' funds. "Globes" spoke to BlackRock Israel country manager Anath Levin, Schroders country head Israel Roi Avishay, Blackstone senior managing director and head of the firm in Israel Yifat Oron, and head of Israel investment banking at Jefferies Natti Ginor. At a meeting held by IBI's Four Seasons Financial Planning, the four discussed the issues preoccupying every investor in Israel. When will the economy recover from the war? Where is the world economy heading? Which trends will dictate the tone in the near future? And where are the big opportunities?

There was one thing that the four senior investment executives agreed upon - optimism on the Israeli market, despite the war. The discussions took place before Moody's announced Israel's credit rating cut although "Globes" checked with them that their comments are still relevant.

Ginor said, "During the first week of February, Jefferies team held a round of talks wth Israeli tech companies that are beginning to plan IPOs in the US. We sat with the companies to prepare and plan for the flotations and think about raising capital. It could be that these IPOs will go ahead in the final quarter of this year or the first quarter of 2025.

"It has been much more difficult to bring global investors to Israel in the last six months of 2023 than this period. The uncertainty (before the war) was harder for investors to digest than investing during the war. In recent weeks we have seen, for example, global and local investors that bought Israeli shares after identifying an opportunity, so that we see things very much improving during the past few months, both globally and on the Israeli market."

Avishay said that not only does the British asset management company plan to stay here for many years, it even plans to expand its activities in Israel. "We would like to do some new things in the world of qualified investors (with significant liquid capital). The wealth sector has tremendous potential here. In the long term, it is very important for us to be here and understand how we can establish ourselves as a local player. The thing is that most channels in Israel are not big enough, but there are still quite a few opportunities in the areas of infrastructure and technology."

"New funds have entered Israel"

Ginor received an indication of the positive attitude towards Israel in recent weeks when Jefferies led the distribution of 20% of the shares of the Tel Aviv Stock Exchange, mainly to foreign investors, the most prominent of whom was US hedge fund billionaire Bill Ackman and his partner Neri Oxman, a design researcher, who together bought a 4.9% stake.

"Even though it wasn't a big distribution, it was very interesting because of the timing," he says. "The Ackman couple wanted to support the Israeli market and show that they are fighting anti-Semitism in this way as well. But, what is more interesting, is that 14 global funds bought shares of the Tel Aviv Stock Exchange, during a war, with most of them buying shares in Israel for the first time. For most it was a purely financial decision.

"Ultimately, when people look at the Israeli market, they still see a state ruled by law, good regulation, everyone speaks English, and there is a global outlook. Therefore, many global investors have woken up to the fact that this is a market that can be entered. Managers say that the insurance companies, the banks, Bezeq, NewMed, Shufersal, Strauss, Elbit and more are interesting companies here. They are considered alpha companies. In the last two years, many entities and investors have opened offices in Israel and this is significant."

"The geopolitical tension will be translated to price pressures"

So far it looks like 2024 will be similar on the markets to last year. Optimism on Wall Street is still peaking and the leading indexes are breaking all-time records and all over the world they are watching the US Federal Reserve and waiting for an interest rate cut and trying to understand if inflation is over? Anath Levin believes that we are now entering a "new economic world order." "The era in which you can grow without a price is over. Now we have to decide: high growth at the cost of inflation or controlling inflation but at the cost of lower growth. From the conference in Davos came a new concept 'flawless inflation' - is it achievable? It's hard to know. What we know is that interest rate hikes will probably be halted during the year, and the question is when will they start to move downwards."

Schroders Avishay points out three trends that he believes will dictate the tone in the coming year. The first is the process of de-globalization, "Polarization and geopolitical unrest are disrupting supply chains and accelerating the transfer of production and supply bases to near the target markets. This will translate into price pressures," he explains. The second trend is the demographic one, "The younger population is dominant in the employment market, but with a lower participation rate. This effect creates wage pressures. To balance them, companies will be required to invest a lot of resources and money in optimization, mainly through AI technologies." The negative trend is the aspiration to reach zero carbon emissions by 2050, "This will create price pressure on metals used by the industry."

On this last point Levin added, "In Israel when talking about the shift to alternative energy it sounds like 'tree huggers' but this isn't the situation. There are trillions of dollars of investments designed for this effort. And if there is investments, there are also investment opportunities."

"AI will change the world but it is not clear how"

Oron pointed towards another trend, which in her estimation will characterize 2024 - the return of private equity investment funds. "We will see the return of the world of private equity, which was relatively speaking sitting on the fence due to the gap between public company valuations that fell and the private market that was unable, or did not want, to set new valuations."

She sees the prospect of a halt in interest rate hikes in the US bringing renewed excitement to capital markets, especially in the US: "There is a significant return of money to invest in technology. But it is confusing because most of the rise in the Nasdaq was due to technology companies riding a very significant wave - AI".

However, both Oron and Levin agree that this is a revolution that will not remain only the domain of tech companies. "AI is a huge revolution of wide circles of influence that are not only technology and chips but also data centers that are being established today," says Oron. "Blackstone acquired a company that specializes in the industry for $10 billion. We must remember that data centers require a huge investment in energy consumption too and we believe in alternative energy that will create an investment opportunity of trillions of dollars as an infrastructure for growth in the data centers industry."

Levin explains that AI is spreading to all areas of life. "The question is to where it breaks beyond investment analysis to a more efficient world that overcomes the demographic problems. There will be many fluctuations and changes, but no one knows what they will look like in the end."

Where should money be put in the new reality?

So where should you put money in a world that is adjusting to a new reality? Levin suggests not only spreading across sectors, but also across continents. "When you look at geopolitics, you see that India is a country that has quietly undergone a huge credit revolution for its entire population at the lowest levels and given them access to credit lines. Japan, which has been hit endlessly in recent years, has left the world of zero interest and suddenly you can recognize quite a few companies with interesting multiples (an index that reflects the attractiveness of the company's shares) when all the big players see the opportunities there. South America is also interesting because it contains the copper and the lithium mined for electric cars."

What about alternative investments, which are designed to provide an alternative to the stock market and reduce volatility in investment portfolios? Blackstone, for example, manages about $350 billion in real estate, and Oron is convinced that the market is becoming attractive again, with one reservation. "Interest rates are not falling fast enough, so the market is less ideal than it could be. We estimate that real estate prices are beginning to bottom out, not necessarily because interest rates will drop, but due to the halt in construction caused by the high interest rate period, which will create a significant shortage of properties. That's why we think, if only in terms of demand, that a rise will arrive. In any case, we will deepen our hold on real estate assets."

Another area she recommended is the secondary market (buying shares from an existing shareholder in a company and not from the company itself). "Investors have been sitting on positions for many years and are faced with a dilemma. Whether to go out and raise money or be optimistic and wait for exits to the public market and then sell in the market, or to large secondary players. We are a dominant player in this field and feel that funds are starting to look for secondary channels as well."

The bond market is attractive, with a reservation

Along with the sharp increases in the main stock markets, the bonds channel made a comeback in 2023 with returns not seen for 15-20 years. Four Seasons CEO Robert Carmeli said, "The bonds element, both in the US and Israel, is interesting. An investment portfolio in bonds with a three year duration, consisting of bonds of quality firms with financial strength, is capable of yielding a return near the 5% mark. This is a significant gap in relation to interest on deposits. In any case, it is necessary to focus on bonds with investment ratings and avoid looking for adventures in bonds that carry 'junk' returns."

Published by Globes, Israel business news - - on February 14, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Top investors credit: MN Communications
Top investors credit: MN Communications
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