Skip to main content
MENU
Subscribe
  • Subscribe
  • Account
  • LOGIN
  • Topics
    • Alternatives
    • Consultants
    • Coronavirus
    • Courts
    • Defined Contribution
    • ESG
    • ETFs
    • Hedge Funds
    • Industry Voices
    • Investing
    • Money Management
    • Opinion
    • Partner Content
    • Pension Funds
    • Private Equity
    • Real Estate
    • Russia-Ukraine War
    • SECURE Act 2.0
    • Special Reports
    • White Papers
  • Rankings & Awards
    • 1,000 Largest Retirement Plans
    • Top-Performing Managers
    • Largest Money Managers
    • DC Money Managers
    • DC Record Keepers
    • Largest Hedge Fund Managers
    • World's Largest Retirement Funds
    • Best Places to Work in Money Management
    • Excellence & Innovation Awards
    • WPS Innovation Awards
    • Eddy Awards
  • ETFs
    • Latest ETF News
    • Fund Screener
    • Education Center
    • Equities
    • Fixed Income
    • Commodities
    • Actively Managed
    • Alternatives
    • ESG Rated
  • ESG
    • Latest ESG News
    • The Institutional Investor’s Guide to ESG Investing
    • ESG Sustainability - Gaining Momentum
    • Climate Change: The Inescapable Opportunity
    • Impact Investing
    • 2022 ESG Investing Conference
    • ESG Rated ETFs
  • Defined Contribution
    • Latest DC News
    • DC Money Manager Rankings
    • DC Record Keeper Rankings
    • Innovations in DC
    • Trends in DC: Focus on Retirement Income
    • 2022 Defined Contribution East Conference
    • 2022 DC Investment Lineup Conference
  • Searches & Hires
    • Latest Searches & Hires News
    • Searches & Hires Database
    • RFPs
  • Performance Data
    • P&I Research Center
    • Earnings Tracker
    • Endowment Returns Tracker
    • Corporate Pension Contribution Tracker
    • Pension Fund Returns Tracker
    • Pension Risk Transfer Database
    • Future of Investments Research Series
    • Charts & Infographics
    • Polls
  • Careers
  • Events
    • View All Conferences
    • View All Webinars
    • 2022 Retirement Income Conference
    • 2022 Managing Pension Risk & Liabilities
    • 2022 WorldPensionSummit
Breadcrumb
  1. Home
  2. Print
June 10, 2002 01:00 AM

`Don't hold your breath': No international rush expected from Israel

Reticent officials not ready to move much from country despite new regulations

Beatrix Payne
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    TEL AVIV - Israel's provident and pension plans are not expected to rush into international investing, despite the Finance Ministry's decision to scrap restrictions on foreign investments.

    Starting in October, Israel's provident plans and those pension plans set up since 1995 - with assets of 122 billion Israeli shekels ($25 billion) - will be free of the quantitative investment restrictions that to date have limited their ability to invest in domestic and international equities.

    The new regulations will scrap the 20% ceiling on foreign investments and a requirement that at least 50% of plan assets be invested in local government bonds.

    The change will not include the so-called "old" pension plans, established before 1995, that are largely invested in non-tradable government bonds and, with assets under management of 106 billion shekels, represent the largest portion of the Israeli pension market. When the reforms first were discussed, trustees and members of the "old" plans were concerned they would have less access to the non-tradable government bonds if investment limits on them are removed.

    While the changes are a step toward greater liberalization, some trustees and members like the security a of having as much as possible invested in the government-guaranteed bonds.

    Local consultants and money managers say foreign investment will not begin in earnest until the 35% capital gains tax on non-domestic equities and bonds held by pension plans is reduced or scrapped altogether.

    The government-sponsored Rabinowitz Committee, established to review taxation on pension plans, is expected to recommend within the next two months cutting or even killing the capital gains tax for pension plans, said Roni Biram, chairman of Excellence Investing, a bank and investing company in Tel Aviv. Insured funds and provident plans offered by insurers pay no tax on their offshore investments.

    Limits possible

    "Don't hold your breath," said Yaron Bloch, director of sales trading at UBS Warburg Israel, Tel Aviv. Recent weakness in the shekel and ongoing hostilities in the region might encourage the government to limit investment outflows as much as possible, he added.

    But it is also these factors that might encourage Israeli institutional investors to put more money abroad despite the capital gains tax, said Gil Bufman, chief economist at Bank Leumi, Tel Aviv. In a report published in mid-May, he estimated institutional investors could put up to 20% of plan assets abroad in the next five to seven years.

    Most of these assets will be invested in U.S. and European equities, said Richard Robinson, director of Rothschild Asset Management, London, and head of the group's Israel operations. This is partly because Israeli institutions are more familiar with these markets, but also because the Ministry of Finance, headed by Sylvan Shalom, has limited offshore investing to those countries with sovereign ratings of more than A.

    "That is a bit absurd, considering Israel's sovereign rating is less than single A", said Mr. Bloch.

    Pension and provident plans are discussing increasing their exposure to international equities and bonds, but there have not yet been moves to begin allocating assets, he added.

    According to Excellence's Mr. Biram, Israeli pension plans invest less than 2% in international assets despite a decision late last year by the Ministry of Finance to raise the ceiling on international investment to 20% of plan assets from 5% previously. It is possible that within the next 10 years pension plans could invest up to half of their assets in international equities and fixed income, if current taxes on offshore investing are reduced, he said.

    And once one pension plan starts to explore offshore investing, other plans will follow quickly, as local pension plans tend to act in a pack in relation to investment strategy, said Rothschild's Mr. Robinson.

    Most pension plan assets now are held in domestic government and corporate bonds.

    The so-called "old" pension plans are required to allocate 70% of total assets to special purpose non-tradable government bonds designed specifically for pension plans and offering a guaranteed rate of interest at 5.5 percentage points above inflation.

    At least 20% of the assets of these plans also have to be invested in tradable government or corporate bonds. The balance of plan assets is split between mortgage deposits and equities, said UBS Warburg's Mr. Bloch.

    These plans tend to be quite conservative and their existing investment rules will not be changed as a result of the reforms expected in October, he added.

    Equity investments

    "New" defined contribution pension plans, set up after 1995 when the "old" plans were closed to new members, invest up to 20% of plan assets in domestic equity but still are relatively small with total assets of 15 billion shekels.

    Provident funds for retirement had total assets of 107 billion shekels at the end of last year. These funds tend to have a greater allocation to equities, on average 15.7% of plan assets, but they invest less than 2% of total assets abroad, even though many of them are offered by insurance companies and are exempt from the 35% capital gains tax, said UBS' Mr. Bloch. Fixed income accounts for around 50% of plan the balance is generally invested in cash, real estate and private equity.

    Excellence's Mr. Biram said pension plans increasingly were frustrated with poor returns from the domestic market. The growth in pension assets has outpaced the development of the local capital market and many pension plans are unable to sufficiently diversify their investment portfolios through local investments.

    Recommended for You
    Read the print edition of P&I
    Read the print edition of P&I
    How low is low? Projections say it's not low enough
    How low is low? Projections say it's not low enough
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    FINRA honors Wharton's Olivia Mitchell with Ketchum Prize
    SPDR® ETF’s New Approach to Bond Liquidity
    Sponsored Content: SPDR® ETF’s New Approach to Bond Liquidity

    Reader Poll

    June 6, 2022
    SEE MORE POLLS >
    Sponsored
    White Papers
    Nearing the finish line: Ideas on end-state investing for corporate DB plans
    The Meaning of "Portfolio Intelligence"
    Credit Indices: Closing the Fixed Income Evolutionary Gap
    Forever in Style: Benchmarking with the Morningstar® Broad Style Indexes℠
    Crossroads: Politics, Inflation, & Bonds
    Is there a mid-cap gap in your DC plan?
    View More
    Sponsored Content
    Partner Content
    The Industrialization of ESG Investment
    For institutional investors, ETFs can make meeting liquidity needs easier
    Gold: the most effective commodity investment
    2021 Investment Outlook | Investing Beyond the Pandemic: A Reset for Portfolios
    Ten ways retirement plan professionals add value to plan sponsors
    Gold: an efficient hedge
    View More
    E-MAIL NEWSLETTERS

    Sign up and get the best of News delivered straight to your email inbox, free of charge. Choose your news – we will deliver.

    Subscribe Today
    June 20, 2022 page one

    Get access to the news, research and analysis of events affecting the retirement and institutional money management businesses from a worldwide network of reporters and editors.

    Subscribe
    Connect With Us
    • RSS
    • Twitter
    • Facebook
    • LinkedIn

    Our Mission

    To consistently deliver news, research and analysis to the executives who manage the flow of funds in the institutional investment market.

    About Us

    Main Office
    685 Third Avenue
    Tenth Floor
    New York, NY 10017-4036

    Chicago Office
    130 E. Randolph St.
    Suite 3200
    Chicago, IL 60601

    Contact Us

    Careers at Crain

    About Pensions & Investments

     

    Advertising
    • Media Kit
    • P&I Content Solutions
    • P&I Careers | Post a Job
    • Reprints & Permissions
    Resources
    • Subscribe
    • Newsletters
    • FAQ
    • P&I Research Center
    • Site map
    • Staff Directory
    Legal
    • Privacy Policy
    • Terms and Conditions
    • Privacy Request
    Pensions & Investments
    Copyright © 1996-2022. Crain Communications, Inc. All Rights Reserved.
    • Topics
      • Alternatives
      • Consultants
      • Coronavirus
      • Courts
      • Defined Contribution
      • ESG
      • ETFs
      • Hedge Funds
      • Industry Voices
      • Investing
      • Money Management
      • Opinion
      • Partner Content
      • Pension Funds
      • Private Equity
      • Real Estate
      • Russia-Ukraine War
      • SECURE Act 2.0
      • Special Reports
      • White Papers
    • Rankings & Awards
      • 1,000 Largest Retirement Plans
      • Top-Performing Managers
      • Largest Money Managers
      • DC Money Managers
      • DC Record Keepers
      • Largest Hedge Fund Managers
      • World's Largest Retirement Funds
      • Best Places to Work in Money Management
      • Excellence & Innovation Awards
      • WPS Innovation Awards
      • Eddy Awards
    • ETFs
      • Latest ETF News
      • Fund Screener
      • Education Center
      • Equities
      • Fixed Income
      • Commodities
      • Actively Managed
      • Alternatives
      • ESG Rated
    • ESG
      • Latest ESG News
      • The Institutional Investor’s Guide to ESG Investing
      • ESG Sustainability - Gaining Momentum
      • Climate Change: The Inescapable Opportunity
      • Impact Investing
      • 2022 ESG Investing Conference
      • ESG Rated ETFs
    • Defined Contribution
      • Latest DC News
      • DC Money Manager Rankings
      • DC Record Keeper Rankings
      • Innovations in DC
      • Trends in DC: Focus on Retirement Income
      • 2022 Defined Contribution East Conference
      • 2022 DC Investment Lineup Conference
    • Searches & Hires
      • Latest Searches & Hires News
      • Searches & Hires Database
      • RFPs
    • Performance Data
      • P&I Research Center
      • Earnings Tracker
      • Endowment Returns Tracker
      • Corporate Pension Contribution Tracker
      • Pension Fund Returns Tracker
      • Pension Risk Transfer Database
      • Future of Investments Research Series
      • Charts & Infographics
      • Polls
    • Careers
    • Events
      • View All Conferences
      • View All Webinars
      • 2022 Retirement Income Conference
      • 2022 Managing Pension Risk & Liabilities
      • 2022 WorldPensionSummit