The first half of 2022 has been increasingly challenging for investors, with global markets struggling to find their equilibrium in the wake of the pandemic. The ramifications of Covid-19, and specifically its effect on global supply chains, had set us on the path to inflation, which was later exacerbated by Russia’s invasion of Ukraine and the subsequent squeeze on gas and oil.
This coincided, and in some ways facilitated, a rotation towards value-focused stocks, as growth companies, particularly in the technology sector, reeled from the increase in borrowing prices as central banks raised interest rates.
In Israel, having enjoyed a prosperous 2021, in which fund AUM grew by around 17% (totalling nearly ILS 2.3 trillion), these pressures have been keenly felt. Within the tech sector, thousands of workers have reportedly been laid off and investors in the country have become more cautious. With that said, Israeli tech firms have continued to raise capital, with almost $10bn of new investment registered in H1.
While clearly not without casualties, the region has thus far shown remarkable resilience in the face of a global sell-off, and with the market having come to grips with its current trajectory, investors may be cautiously optimistic about what remains for 2022.
With this in mind, Apex Israel held its first Fund Client event in Tel Aviv last month, as part of a week-long engagement with regulators, stakeholders, partners, law firms, banks, consultants and fund clients. This provided a unique and localised review of the Israeli Fund ecosystem, and highlighted several key considerations for the second half of the year:
Real Estate
A perennial favourite with investors, we expect the sector to continue to flourish despite increasing volatility. Investors are currently more minded to be cautious, which should see local Israeli markets, alongside the US and to a lesser degree Europe, remain as cornerstone allocations.
Technology
Israel remains a hub of innovation, and the technology sector appears ripe for further investment. Sub-sectors such as media, space and healthcare are blossoming, with further funds being launched on a regular basis.
Hedge funds
We anticipate something of a shakeout for the sector in the coming months, owing to the impact of inflation, increased volatility and turbulence in the cryptocurrency space. We are not yet at a point of ‘only the strong will survive’, but the lower cost, more well-capitalised funds are best positioned for the months ahead.
Cryptocurrency
The local regulatory framework remains prohibitive to digital currency. However, several of our attendees expressed interest in this space, particularly the UAE’s approach to financial innovation.
Regulation
Political uncertainty in Israel has placed most initiatives on the backburner. However, one area where there has been movement is in the hedge funds space, which would see these vehicles treated on a par with mutual funds, thereby allowing greater access for investors seeking exposure to riskier investment strategies.
ESG
ESG integration has been moving apace in Israel and adoption will likely be speeding up over the coming months with COP 27 taking place in Egypt and 28 in the UAE, it is certainly becoming a greater consideration for the Israeli fund industry.
Inflation
Together with rate rises and recession, inflation remains at the forefront of investors’ minds going into H2. A continued suppression of the global supply chain will likely extend the inflationary environment, which is a huge cause for concern, particularly in Europe, as we approach the winter months.
US mid-terms
As ever, what happens in the United States will have a meaningful impact on the international stage. November’s mid-term elections will provide direction for global investment strategies in terms of risk tolerance and asset allocation.
Capital raising
Distribution is the key battlefield within the fund space, with talent in this area now highly coveted. Funds are heavily engaged in raising capital, in what has become a more challenge, risk-off environment.
In the final analysis, Israeli funds and related market participants are keenly aware of the deteriorating macroeconomic situation and are beginning to explore internal efficiencies to reduce costs, while being more aggressive in terms of capital raising.
For all your fund, financial and corporate solutions needs, please contact Apex Israel today.
