2015 SURVEY OF ISRAEL HEDGE FUNDS

Transcription

1 2015 SURVEY OF ISRAEL HEDGE FUNDS JUNE 2015

2 INTRODUCTION We are pleased to release the third annual comprehensive survey of the Israeli hedge fund industry. The survey highlights many encouraging trends regarding the continued growth and gradual maturation of the industry. The hedge fund industry in Israel continues to gain traction, and the latest survey confirms the growth of the industry in number of funds as well as assets under management. Over the past year we have seen significant interest in the local hedge fund industry by the Israeli private investor community, and we believe that this is an important turning point for the industry as Israeli hedge funds become a popular investment choice for high net worth investors. This momentum will help fuel the entrance of more institutional and international investors who seek funds that have already established a stable asset base. This year s survey was a particular success as most managers have become accustomed to participating in the annual survey as well as in the newly released Tzur Gilboa monthly index. The Tzur Gilboa Israeli Hedge Fund Index ( TGI ), which tracks the performance of Israeli hedge funds, was initiated in the summer of The index is released monthly at and, along with the annual survey, has helped to increase awareness of and interest in the Israeli hedge fund industry. Results from the Tzur Gilboa index will be reviewed in the performance section. We welcome any feedback. All inquiries regarding this survey or requests for additional information can be addressed to info@tzurmanagement.com. METHODOLOGY The findings below represent the condition of the Israeli hedge fund industry as of December 31, This survey was conducted by means of a questionnaire sent by Tzur to Israeli hedge fund managers. For the purpose of this survey, the term hedge fund manager includes investment managers actively managing capital for accredited investors and institutions who employ strategies typically employed by hedge funds globally, and as such do not qualify as mutual fund managers or investment advisors under Israeli law. This survey does not include proprietary trading operations or funds that are currently being set up, of which there are many. Due to the sensitive nature of the material requested, all information presented in this report is done so under the express knowledge that participants remain confidential. All responses received by Tzur were taken as fact and Tzur did not conduct further verification of the information provided. This survey is meant to provide guidance and insight into the Israeli hedge fund industry. The opinions and conclusions expressed are those of the author. This survey is for the use of Tzur and its clients and may not be published externally without written permission obtained from Tzur. 2

3 INDUSTRY OVERVIEW The Israeli hedge fund industry continues to grow both in number of firms and assets under management (AUM). Alongside this growth, there are also signs of a maturing industry as some of the earliest funds are entering their second decade of operations. Number of fund managers in Israel Tzur approached over 100 active funds to participate in the survey. Of these, 77 fund managers managing 90 funds fully participated in the survey, representing a significant increase compared to the level of participation in our last survey. These numbers include 22 new launches in 2014 which is slightly lower than the 30 funds launched in The majority of these new launches include managers leaving large Israeli financial institutions, as well as emerging quantitative managers. This year s launches also includes 6 new fund launches by firms that already manage existing funds. While the past year has seen many new managers entering the industry, there were also 10 managers reporting that they closed operations in 2014 due to inability to raise assets or poor performance. Assets Under Management (AUM) Even more significant than the growth in the number of funds, is the growth of the industry s AUM. As of December 31, 2014, assets under management totaled $3.3 billion for the funds participating in the survey. This represents a growth of 24% over the $2.66 billion in assets reported last year. $4,000 Hedge Fund AUM ($M) $3,500 $3,000 $2,500 $2,000 $1, Q As in the global hedge fund industry, these assets continue to be consolidated in the hands of the largest managers. Only 11 firms manage above $50 million, and together they account for almost 75% of the industry assets. As in the previous survey, the median of AUM remains $10 million across the industry. The vast majority of funds remain small, which is to be expected considering that about half of the funds operating today were launched within the past two years. 3

4 Fund Structures and Separately Managed Accounts Of the 77 firms participating, 55 are currently managing one or more hedge funds while the remaining 22 managers operate through separately managed accounts (SMAs) only although many are planning to launch a fund in the coming months. The 55 managers who manage a hedge fund include 8 firms that manage more than one fund, and 13 firms that manage SMAs in addition to their funds. In total, approximately $2.5 billion (75%) are managed in funds while the remainder is managed in SMAs. Assets under management by investor type Israeli hedge funds are continuously looking to expand their investor base to include foreign investors as well as institutional investors from Israel and abroad. However, private investors remain the majority of capital managed by Israeli hedge funds with 55%. Institutional investment has remained stable at 45% of AUM. In addition, Israel remains the overwhelming source of capital for the local hedge fund industry with 66% of assets coming from Israeli investors, as has been the case in the previous surveys. AUM by Investor Type Although Israeli hedge funds have still not managed to attain more significant investment from international or institutional investors, the industry has been able to grow significantly based on the rapidly increasing interest by private Israeli investors in the local fund industry. Personnel An additional sign of growth in the industry is the increasing number of people employed by hedge funds in The managers participating in the survey employ 314 professionals, or an average of 3 to 4 people per fund. 4

5 PERFORMANCE THE TZUR GILBOA INDEX In 2014 Tzur Management and the Gilboa Fund of Funds announced the launch of the Tzur Gilboa Index. TGI is the only standard for performance measurement across the Israeli hedge fund industry. TGI monitors the performance of Israeli hedge funds as reported by their managers. Tzur Gilboa utilizes a proprietary methodology based on defined and predetermined rules and objective criteria to select and rebalance components within the index to maximize representation of the Israeli hedge fund universe. All indices are equal-weighted for all participating funds that compose a specific index. Based on the TGI index, Israeli hedge funds have returned 7.0% through April 30 th this year, compared to 1.9% for the S&P and 10.95% for the TA100. The HFRX index has returned 2.3% for the same period. For the years 2013 and 2014, Israeli funds returned 19.1% and 6.5% respectively. Since inception, which includes data beginning in 2007, the index has returned 141%, significantly higher than the S&P and the TA100 which returned 76% and 55% respectively. Importantly, these results were achieved with less than half of the volatility of the markets. Monthly Performance (Net of Fees) Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 4.4% 1.2% 1.5% 7.0% % 2.9% 1.4% 0.1% 0.9% 0.7% -1.0% 1.8% 0.0% -0.2% 0.2% -0.4% 6.5% % 1.3% 1.2% 0.7% 3.0% -0.4% 2.7% 0.2% 2.2% 1.6% 1.7% 1.4% 19.1% % 0.9% 2.6% 1.4% -2.7% 0.7% 0.9% 1.4% 1.9% 1.9% 2.2% 0.4% 14.9% % 0.4% 0.0% 0.8% -1.2% -0.5% -0.5% -3.3% -2.3% 4.2% -0.2% 0.4% -1.7% % 2.3% 2.7% -0.5% -2.1% -1.0% 2.5% 0.5% 4.8% 3.4% -0.8% 4.1% 18.5% % -1.2% 6.0% 5.6% 5.2% 3.3% 4.2% 1.8% 2.0% 1.7% 2.3% 3.0% 45.2% % -0.7% -3.6% 1.9% 1.9% -2.9% 0.3% 0.9% -3.1% -7.9% -2.4% -0.2% -16.2% % 1.4% 0.7% 3.7% 1.2% 0.8% -0.7% -1.3% 1.7% 3.2% -3.4% 0.0% 9.0% Sub-Indexes Tzur Gilboa tracks two additional sub-indexes with data going back to January The TGI Israel Equity Index tracks funds that focus on Long/Short Israeli stocks, and the TGI Quant Index includes only funds that trade according to a quantitative or algorithmic investment strategy. TGI Israel Equity Index Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 4.6% 2.4% 2.1% 8.6% % 3.4% 1.7% -0.4% 0.7% -0.2% -1.4% 1.7% 0.6% 0.3% 0.6% -0.9% 6.6% TGI Quant Index Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 3.3% -0.6% 0.5% 3.3% % 1.3% 1.5% 0.7% 0.7% 1.6% -0.4% 0.9% -1.4% -1.6% 0.2% -1.3% 1.5% Further index information including monthly updates are available at 5

6 INVESTMENT STRATEGIES The results from this year s survey continue to show that the Israeli hedge fund industry is diversified across strategies and asset classes, and is not specifically focused on any single geography or strategy. Fund strategies For the purposes of this survey, managers were able to select one of four strategy categories that best defines their fund. These are (1) Fundamental Long/Short, (2) Quantitative or systematic trading strategies, (3) Event Driven, Distressed, Special Situations, Activist (4) Macro, Multi-Strategy, Other. The graph below shows the breakdown of assets according to these five categories. The results were as follows: Category Funds As % AUM As % Fundamental L/S 28 31% $1,482 M 45% Quantitative 32 36% $948 M 29% Events/Special Sit 8 9% $483 M 15% Macro, Other 22 24% $378 M 11% TOTAL % $3,291 M 100% As was the case in the previous survey, quantitative funds are the most common strategy, but fundamental long/short controls the largest share of the assets. Of the 22 launches in 2014, half of them were quant funds which continue to be a growth area for the industry. However, several quant funds closed in 2014 as well, and a large number of the funds operating are struggling to raise capital. In fact, over two thirds of capital managed in quantitative strategies are managed through SMAs as opposed to funds. It may take several years of outperformance for the quantitative fund managers to reach the scale of traditional investment strategies. Asset class allocation Asset class allocation among managers is identical to the previous survey. Equities remain the predominant asset class for Israeli funds, with an allocation of 58% of total AUM. After equities, Israeli funds are most active in the derivatives and currencies markets, followed by fixed income. AUM by Asset Class Derivatives & FX 26% Fixed Income 16% Equities 58% 6

7 This picture changes, however, once the funds are separated by strategy category. Fundamental L/S funds the largest strategy category by AUM - account for 75% of the equity assets in the industry. These funds report that over 90% of their portfolios are made up of equities, with an allocation of under 10% to other asset classes. Taken alone, the other three strategy categories have a more even distribution among asset classes with 40% in equities, 30% in fixed income and 30% in currencies and derivatives. Geographic allocation An Israel focused strategy remains the domain of only part of the local industry with only 30% of funds holding Israeli assets in their portfolios. Additionally, approximately 55% of the industry s AUM is invested outside of Israel. The proportion of funds with no direct exposure to the markets in Israel continues to grow from year to year signifying more geographic diversification as the industry matures. ABOUT TZUR MANAGEMENT Tzur Management is the leading fund administrator and platform for Israeli hedge funds, and an affiliate of the global administrator Orangefield Columbus. Tzur provides tailored operational infrastructure to Israeli funds offering a full suite of fund administration services including fund accounting, operations, and shareholder services to hedge funds, funds of funds, private equity funds and other alternative investment vehicles. For more information on Tzur and its services, please contact info@tzurmanagement.com. ABOUT GILBOA FUND OF FUNDS Gilboa is the first fund of funds dedicated to Israeli hedge funds. Gilboa is focused on delivering superior returns to its investors through diversified, efficient, and transparent access to the top Israeli hedge funds. For more information on Gilboa Fund of Funds, please contact eb@gilboafunds.com. Tzur Management Beit Amot Mishpat, 8 Shaul Hamelech Blvd., 10 th Floor, Tel Aviv, 64733, Israel Tel: ; Fax: ; info@tzurmanagement.com THE ISRAEL HEDGE FUND SURVEY BY 7