Thursday, December 27, 2012
Israel: the new destination for hedge fund managers
Israel is becoming a magnet for hedge fund managers as lower operating costs, the world’s highest number of Ph.D.s and hi-tech startups per capita overshadow concern that Israel may be attacked by missiles from Tehran. As a matter of fact, the number of funds has grown to 60 overseeing about $2 billion from 13 in 2006, according to a survey of the local industry published in July by Tzur Management. And Israel may be on track to replicate the growth that propelled Singapore’s industry from fewer than 20 managers in 2001 to 320 overseeing $48 billion in 2009, says Yitz Raab, founder and managing partner of the Tel Aviv-based fund administration company.
Brevan Howard Asset Management, Europe’s second-biggest hedge fund, opened an office in Tel Aviv at the end of 2005. Sphera Funds Management, the country’s largest hedge fund, raised money in 2007 to start a global health-care fund which now has about $235 million under management. WorldQuant LLC, based in Old Greenwich, Connecticut, has a research and development team in Israel.
Israel, which was nicknamed “Start-Up Nation” in the 2009 book by Dan Senor and Saul Singer, has 54 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation is also home to more startup firms per capita than the U.S., and the same people who drove that development in Israel’s technology industry are in place to develop quantitative models for hedge funds, Keinan said. “In order to raise capital in unique locations, you have to offer something that is a lot stronger than what the average hedge fund offers,” Don Steinbrugge, the managing partner of Agecroft Partners LLC, a Richmond, Virginia-based firm that advises hedge funds and investors said.
While global hedge funds are cutting trading costs amid a decline in volumes and deteriorating performance for the $2.1 trillion industry, available talent and lower operating costs are attracting investors to Israel. Israel has the highest percentage in the world of engineers in the workforce and the highest ratios of university degrees and academic publications per capita, according to the Technion- Israel Institute of Technology. About 135 people per 10,000 have a Ph.D., according to the Finance Ministry, 1.3 times the average of the Organization for Economic Co-operation and Development.
Israel’s cheaper prices also are a lure. The total office occupancy cost in Tel Aviv is $56.25 a square meter, less than the 82.30 pounds ($134) a square meter in London’s City area, according to a July report from CBRE Global Research and Consulting. In New York’s midtown, office space costs $114 a square foot. The average annual starting salary for a Tel Aviv-area MBA graduate is the equivalent of $78,300, according to a survey by Israel’s Interdisciplinary Center Herzylia. The comparable starting salary in the U.S. is $169,000 and 106,000 pounds in London, according to a 2011 salary survey conducted by eFinancialCareers.
By assets under management, Israel’s hedge fund industry is still small, but Israeli hedge funds are outperforming peers this year with nine returning an average of 12.2 percent while the HFRX Global Hedge Fund Index added 3.3 percent. Eurekahedge Pte., a Singapore-based compiler of hedge-fund data, said in an e-mailed statement that five Israeli funds it tracks returned an average of 13 percent since 2005. The global financial collapse in 2008 benefited the industry, leading some executives to give up living in New York and London for Israel. One-third of Israeli-based hedge fund managers have previously worked for international institutions, including UBS Global Asset Management Holding Ltd. (UBS) and Goldman Sachs Group Inc. (GS), according to Tzur’s survey.
“Israel doesn’t have any natural resources -- it’s all about brain power,” said Keinan. “There is nothing to keep the hedge fund industry from expanding. It is happening.”