Israeli hedge funds advised to revamp marketing when targeting foreign investors
Israeli hedge funds need to have a meaningful presence – either through a physical office or making use of a third party marketer in countries where they are soliciting investors, and brace themselves for a different approach to due diligence from foreign allocators.
Attracting meaningful assets from foreign institutional investors has proven difficult for Israeli hedge funds despite many posting sizeable returns. Many complain that being based in Tel Aviv has proven to be a hindrance.
“Capital raising at Israeli hedge funds is difficult and one cannot do marketing in the US or London from Israel. Managers need to have either an office or to make use of third party marketers if they are to stand any chance of attracting capital,” said Doron Breen, co-founder of Sphera Funds, the largest hedge fund in Israel with approximately $800 million in Assets under Management (AuM), speaking at the Israel Hedge Funds Association (IHFA) conference in Tel Aviv.
Israel-based hedge funds were also advised to revamp their marketing materials prior to soliciting money from North American, European and Asian investors. “I have made hundreds of presentations to Israeli investors but we totally changed our marketing materials when pitching to US investors,” commented Breen.
The biggest difference between Israeli and non-Israeli investors was the latter’s attention and focus on operational due diligence, said Breen. The significance of operational due diligence has grown exponentially since the financial crisis. Seventy per-cent of operational due diligence (ODD) teams at institutional investors have explicit veto authority over hedge fund allocations, and this was exercised in almost 10% of manager reviews in 2012, according to a Deutsche Bank Markets Prime Finance survey conducted in the summer of 2013.
“In terms of operations, it is essential to have the people and processes in place when dealing with investors. There is an enormous focus on investment processes whereby allocators will ask how an idea becomes an investment, and they want to know returns will continue. Israeli investors are obviously relative newcomers to hedge fund investing and many are still trying to fully understand our industry, but there is a tremendous learning curve and many have open minds about it,” said Breen.