The Rise, Fall and Rise Again of the Private Evergreen Funds in Israel

A brief history – attracting private wealth

The Israeli investment buy-side market can be divided between:

• Israeli institutional investors (IIIs), comprised of provident, pension and educational funds, insurers, endowments, and sectorial provident funds; and
• family offices (single and multi) and high net worth individuals (HNWIs).

The market was first introduced to open-end private investment funds investing in non-traded assets (“private evergreen funds”, or PEFs) when IBI Investment House decided to enter this ecosystem in 2014 and established the first PEF in the Israeli market (“IBI CCF Fund”) investing in consumer loans via a US lending platform. At its peak, the fund reached USD800 million in assets under management (AUM).

Thereafter, more joined the Israeli market, each with a unique underlying asset. These included the following:

• additional PEFs by IBI such as ComReit Fund and Secured Bridge Loan Fund;
• Phoenix Insurance and Harel Insurance started to set up their own PEFs;
• independent PEFs (unaffiliated to IIIs) have joined in, such as Golden Bridge fund (Israel’s flagship PEF investing in hard money lending in the US with over ILS1.5 billion of assets under management); and
• Hud Fund.

The PEFs were initially designed to attract private wealth and were very successful in doing so. In light of this success, local players started to “import” non-Israeli PEFs by setting up open-end feeder funds to allow access to leading global PEFs for Israeli HNWIs. This, in turn, attracted major global players to enter the Israeli market with their own PEFs, either to receive direct investment or through joint ventures with a local player setting up a feeder for that purpose.

IIIs hesitated, at first, over investing in PEFs. At first, only smaller IIIs were involved but, as of 2023, the market has begun to see the others investing in PEFs as well.

To date, local managed PEFs (including local feeders to global PEFs) have more than USD10 billion in assets under management, mainly from HNWIs, who invest in PEFs via their individual retirement accounts (IRAs), which are privately managed provident funds.

This trend is not exclusive to the local industry – major global players have been setting up PEFs over the last decade (some of them coming to Israel to raise funds), such as BlackStone, KKR, Apollo and Stepstone. Hamilton Lane recently joined this ecosystem as well, promoting its PEF both globally and specifically in Israel. According to PitchBook, the total amount managed globally by PEFs in 2024 was USD405 billion, and the forecast is that by 2029 it will reach USD1.1 trillion!

PEF Structuring – not “another” investment fund structuring

When structuring a close-end fund, such as a private equity, venture capital or real estate fund, the basic idea is that the structure mimics that of an investment in non-traded shares in two key ways:

• valuation – the investor cannot evaluate its investment on a routine period (eg, monthly, quarterly); and
• redemption – the investor cannot redeem (liquidate) its investment.

When structuring an open-end hedge fund, these two requirements are easy to handle (as in a mutual fund) – all assets are traded with liquidity and valuation.

However, building a PEF involves top financial engineering skills in order to take a private non-traded asset and turn it into a financial asset that works for the desired structure. One must have interdisciplinary skills and a deep understanding of the behaviour of the asset, both in the normal course of business when liquidity is not a problem, as well as on a “rainy day” when hardship comes, in defaults, and when valuation is uncertain.

It is not enough merely to incorporate gate provisions, which establish the fund manager’s right to limit or halt redemptions, or suspension mechanisms, which suspend the calculation of a fund’s net asset value (NAV) and therefore suspend redemptions as well. These mechanisms must be tailored to the specific kind of asset involved. For example, consider how these liquidity and valuation considerations differ between (i) a PEF that invests in peer-to-peer (P2P) consumer loans that are repaid on a monthly basis in equal payment over three years according to a Spitzer (full amortisation) and (ii) a bridge loan PEF that invests in bridge loans that pays only interest and the principal is repaid after two years.

Liquidity

While the P2P loans are for three years, the P2P PEF can easily redeem investors at 10% of the AUM per quarter and therefore shall incorporate a quarterly 10% gate mechanism. In contrast, while the bridge loans are for a shorter period of two years, the PEF can assure liquidity only for the interest payments portion, as the portfolio will not necessarily be built in a way that ensures the underlying loans are repaid during the year “linearly” (ie, the same amounts of bridge loans are repaid each month). The outcome is that the bridge loan PEF shall incorporate a quarterly 5% gate mechanism although the underlying loans are for a shorter period than the P2P’s one.

Valuation

A P2P PEF must have a strict valuation policy for events of default, as there is no collateral. However, a bridge loan PEF that invests in hard money lending (with a real estate asset that is in being pledged as a collateral under certain loan-to-value ratio and other covenants), may have a more flexible valuation methodology that can consider, in the event of a default, the value of the pledged asset.

The rise of PEFs in Israel at zero interest rates

“a rising tide lifts all the boats” (John F. Kennedy)

The decrease in interest rates following the sub-prime crisis of 2007–08 was the perfect ground for the growth of PEFs within the Israeli HNWI sector – the risk margin (between what one will get from a bank deposit as opposed to another investment) was high and tempting, and when the Israeli market realised that the low interest rates were here to stay (both domestically and globally), PEFs started to rise as described above.

Billions of Israeli shekels flew into the PEF industry, from HNWIs that are “Israeli qualified investors” (IQIs) – ie, those investors that have at least ILS9.4 million in liquid assets – as well as from others that are not. Each PEF may raise money from up to 35 non-IQIs per year and up to an absolute number of 50 non-IQIs, in addition to an unlimited number of IQIs.

Marketing of PEFs to investors became a very profitable business for local brokers, intermediaries, insurance agencies and (multi) family offices. In some cases, these intermediaries even earned more in commission than the PEF manager – and this is not a good sign. Some intermediaries, such as certain insurance agencies, even started to think that the fact that they could raise so much money through PEFs made them qualified to establish their own PEFs and become asset managers.

Some intermediaries even “invented” ways to bypass the non-IQI offerees limitation by offering investment in PEFs indirectly via certificates, notes and so-called active managed certificates. PEFs were also marketed quite aggressively by the intermediaries.

The rise of these intermediaries, and their arrogance, led to some very problematic entities in the PEFs ecosystem. But when the sky is blue, interest rates are low, money flows only in one direction (into investments) and intermediaries are being paid substantial commissions, caution moves aside. Until…

2023: the crisis following the rise of interest rates

“only when the tide goes out do you discover who’s been swimming naked” (Warren Buffett)

During 2022 interest rates started to rise and at the beginning of 2023 many investors were looking for liquidity for various reasons (eg, to repay loans that had become very expensive) and requesting redemptions from PEFs.

Some PEFs lifted gates on redemptions (this is what gates are for), some realised that their business models were only sustainable at low interest rates and did a runoff: suspending all pending redemptions, stopping re-investing, liquidating all assets over a duration that did not require a “fire-sale”. This was all legitimate business practice and entirely legal, and investors in PEFs should be aware of and expect such outcome at such circumstances.

For example, Blackstone’s BREIT received many redemption requests in late 2022 and early 2023 and imposed an investor level gate allowing redemption at 2% of NAV per month and 5% of NAV per quarter.

In the Israeli market, PEFs that were established by affiliates of intermediaries such as insurance agencies as well as “dodgy” PEFs that were aggressively marketed by intermediaries, sometimes in return for absurd placement fees (eg, 5% upfront), received redemption requests. Then investors discovered a very sad picture: when money flows only in one direction, valuations are not being triggered; but when there is a turnover and a need to liquidate the assets – defaults, cut-offs and losses start to evolve rapidly.

Some of those PEFs collapsed leaving thousands of investors with deep losses (some of them even lost their pension savings as they were persuaded to invest in those PEFs via their IRA accounts), lawsuits were launched, and negative affairs such as Slice, Wealthstone, Montro and more have received plenty of media coverage over the last two years, calling on regulators to intervene – which they did.

PEF regulation in Israel: the background

Israel’s laws and regulations do not govern the ways in which PEFs operate, whether they are Israeli PEFs incorporated as Israeli limited partnerships (ILPs) or are Israeli-controlled PEFs incorporated outside of Israel.

In other jurisdictions (eg, Delaware, Cayman, Ireland, Luxemburg), the local partnership law is lengthy and comprehensive and designated to cover the operation of investment funds as a limited partnership. The local regulator is therefore able to take it from there with a strong law as base for the regulations.

In Israel, limited partnerships are governed by the Israeli Partnerships Ordinance – a law from the era of the British Mandate before the establishment of the State of Israel, with less than ten provisions governing ILPs. Even Euroclear, which issues International Securities Identification Numbers (ISINs) for PEFs for their clearing, refuses to issue ISINs to ILPs because of the risks and uncertainty this ancient law exposes it to, being a direct limited partner in an ILP.

As a result, the Israeli regulator – the Israeli Securities Authority (ISA) – regulates this industry by regulating the sale and distribution of PEFs (domestic and foreign), in the following two ways.

• Securities and Mutual Funds Law – each PEF is allowed to have no more than 50 non-IQIs at any given time.
• Advisory Law – PEFs are considered under the Israeli Advisory Law to be a “financial product” and as such, to market it one must have a marketing licence issued by the ISA, unless the investor is “super qualified” with ILS12 million and deep knowledge and understanding of the capital market.

2025: tectonic changes in PEF regulation in Israel

The fall of some PEFs and the publication of the negative affairs in the local media drew a lot of criticism of the regulators – both the ISA and the Capital Markets and Long Term Savings Authority (which governs the IRA, the “LTS Regulator”), and they responded!

In November 2024, the ISA issued a paper addressing the various ways of marketing PEFs and other investments in Israel (the “ISA 24 Paper”), stipulating its view about what is allowed and what is not. The ISA 24 Paper was only the opening shot in the ISA’s response; it went on to open a wide number of audits in two ways.

• PEF audits, which examined how a PEF was being distributed to investors, the number of non-IQI offerees, and whether the working methodologies with the various intermediaries were designed to assure no breech of law.
• Intermediary audits, which examined how the intermediaries distributed PEFs to their clients maintaining the non-IQI limitations and what conflict of interest management structures were in place around affiliation with certain PEFs and the disclosure of the placement fees they received. 

The ISA 24 Paper shook the Israeli investment market, causing many market participants, at least at first, to halt the sale of PEFs that appeared not to be in accordance with the paper. Thereafter, on September 2025, the ISA issued an Investment Codex (the “ISA Codex”), which is intended to cause a fundamental shift in the way investments are distributed in the Israeli market – all kind of investments but the emphasis is on PEFs. To date, the Israeli market remains in a state of confusion over precisely what the ISA Codex is intended to achieve and in what manner it amends the existing regulations – everyone that sells investments in the Israeli jurisdiction must update their consultation opinions and working procedures following the ISA 24 Paper and the ISA Codex.

The LTS Regulator has also contributed, and it published on June 2025 a suggested amendment to the IRA regulations according to which it will no longer be allowed to invest in a PEF via an IRA account. This is tantamount to shutting down all alternative investments from an IRA, forcing Israeli HNIs investing via their IRA accounts to do so only in liquid assets. This is the opposite of what is being seen in the rest of the world: just recently the US legislature suggested expanding the investments allowed under IRA accounts, to allow investments in private equity, closed end investment funds and more.

So, what we now see in the Israel PEF ecosystem is that bad acts create bad regulation.

The future is now

Although we have a lot of criticisms regarding the regulations presented in 2025 with respect to the way PEFs are being distributed in Israel, we do have an optimistic forecast – one that results from the maturity of the market following the negative PEFs affairs:

• we see now that the second wave of PEFs coming to the Israeli market from abroad are significantly better than the first wave – whether better managers and/or a better asset class; and
• local entrepreneurs are setting up more sophisticated PEFs, investing in sophisticated asset classes such as real estate debt funds that involve big data and AI underwriting technology, small-business loans funds, litigation funding and more.

I wish to end this article with my own forecast – in the United States and the OECD as a whole, alternative investments can be freely offered to investors having USD/EUR1 million of investment assets (any and all investments except for their home). In Israel the equivalent number is, as mentioned above, ILS9.4 million (approximately USD2.8 million) considering only liquid assets.

I believe that 2026 will see a change in the Israeli legislation lowering the required amounts and kind of assets in order to be considered an IQI in Israel, making it more similar to the USA and other OECD countries. Such a change will open the Israeli PEF market to more players and the quality of PEFs distributed in the Israeli market will be greater (since the public that is open to receive investment offerings will be tripled, at least) to the ultimate benefit of the Israeli public.

As greed is one of the most powerful motivations for bad acts, there is no assurance that such bad affairs won’t be repeated. However, the opening up of the market by lowering the IQI threshold could significantly lower the chances of a repeat of such problems, as the aggressive marketing will be restrained. Small markets inevitably result in aggressive marketing, which led to many of the problems discussed above.