The Asset Management Market in Israel

1,581 views

Published on

0 Comments
0 Likes
Statistics
Notes
  • Be the first to comment

  • Be the first to like this

No Downloads
Views
Total views
1,581
On SlideShare
0
From Embeds
0
Number of Embeds
1
Actions
Shares
0
Downloads
16
Comments
0
Likes
0
Embeds 0
No embeds

No notes for slide

The Asset Management Market in Israel

  1. 1. The Asset Management Market in Israel Glenn Yago Milken Institute October 2009
  2. 2. Stock Market Performance The TASE Continues to Outperform the S&P 500 TA 100 vs. S&P 500 350 300 250 Standardized Index 200 150 100 50 0 1998 1999 2000 2001 2002 2003 2004 2005 2006 TA 100 S&P 500
  3. 3. Macroeconomic Projections  The Ministry of Finance has published revised projections for the years 2006 – 2010, which include:  Annual GDP growth of 4.3% in 2006 and 3.8% in 2007 and on (The Bank of Israel projects 4.6% and 4.0% growth in 2006 and 2007 respectively).  Annual increase in the average salary per employee by 3.0% - 4.5%.  Increase in the participation rate in employment (15% cumulative increase between 2005 and 2010) and decrease in unemployment rate (to 6.0% by 2010).  These projections, combined with the scheduled reduction in taxes, should increase the financial assets held by the public
  4. 4. Investment Vehicles Publicly-held Financial Assets  As of August 2006, financial assets held by the public in Israel totaled NIS 1,741 billion. The financial assets held by the public have demonstrated the following trends:  The asset base is increasing (with positive correlation to GDP growth)  The asset share managed by institutions is increasing  The asset type is diversifying Source: Bank of Israel http://www.bankisrael.gov.il/press/eng/060926/060926e.htm
  5. 5. Investment Vehicles Publicly-held Financial Assets The growing financial asset base is the foundation of the industry 18% 16% 14% 12% AUM (NIS billion) 10% 8% 6% 4% 2% 0% -2% 2002 2003 2004 2005 Publicly-Held Financial 1.80% 12.40% 10.80% 15.70% Asset Grow th (%) GDP Grow th (%) -1.20% 1.70% 4.40% 4.60% Source: Bank of Israel and Ministry of Finance
  6. 6. Investment Vehicles Publicly-held Financial Assets Assets Held by Investment Vehicle 160 1,800 Individual Products (NIS billion) 140 1,600 Total Combined (NIS billion) 1,400 120 1,200 100 1,000 80 800 60 600 40 400 20 200 0 0 2001 2002 2003 2004 2005 08/06 Mutual Funds 63.0 45.8 83.2 101.1 124.6 109.3 Provident Funds 107.1 103.4 116.4 127.1 145.5 148.5 Advanced Training Funds 48.0 47.0 54.7 61.9 72.0 75.0 Other Funds 16.7 16.4 18.4 19.8 19.9 19.6 Total Portfolio 1,195.3 1,216.9 1,367.8 1,516.1 1,669.4 1,741.8 Source: Ministry of Finance and Bank of Israel
  7. 7. Asset Management Revenue Growth  Projected industry-wide growth in management fees is based on three factors:  Product-specific management fee increase  Change in product mix toward higher fee products  AUM growth, which is dependent on three factors:  Generations  Redemptions  Internal yield on existing asset base
  8. 8. Products and Trends – Asset Base Mutual Funds Mutual funds experienced strong AUM growth until 2005 but have seen net redemptions during the past year Mutual Funds - AUM 140 120 AUM (NIS billions) 100 80 60 40 20 0 2001 2002 2003 2004 2005 8/2006 Source: Ministry of Finance
  9. 9. Products and Trends – Asset Base Mutual Funds The penetration of mutual funds in Israel is lower than in the US and Europe Mutual Funds' Share of Total Publicly-held Financial Assets 15% 13% 12% 10% 10% 9% 7.60% 6% 5% 3.80% 3% 0% Europe 1995 Europe 2000 U.S. 1995 U.S. 2000 Israel 2002 Israel 2005 Source: Strategic Insight and Bank of Israel
  10. 10. Products and Trends – Asset Base Mutual Funds  The recent tax reforms are causing a shift toward more international funds:  In 2005, NIS 4.4 billion of total generations of NIS 16.3 billion went to international funds  Between 2001 and 2004, total generations in international funds was less than NIS 2.8 billion
  11. 11. Products and Trends – Asset Base Provident Funds  Provident funds are mid- to long-term investments; “old” funds are for 15 years, “new” funds mature upon investor reaching retirement age  At redemption the investment is generally received as a lump sum payout  Provident funds provide significant tax benefits but, like U.S. tax-deferred vehicles, they are illiquid.  Under new legislation, investors will be able to select/change their provident fund managers.
  12. 12. Products and Trends – Asset Base Provident Funds Provident Funds have been stable assets with consistent AUM growth in recent years. Provident Funds - AUM 160 140 120 AUM (NIS billions) 100 80 60 40 20 0 2000 2001 2002 2003 2004 2005 Source: Ministry of Finance
  13. 13. Products and Trends – Asset Base Provident Funds Provident Funds’ AUM has been driven primarily by Internal Yield Provident Funds - AUM Growth Analysis 20 AUM Growth (NIS billions) 15 10 5 0 (5) 2000 2001 2002 2003 2004 2005 Internal Yield 3,015 6,998 (837) 15,254 9,583 14,318 Net Generations (781) (3,886) (2,915) (2,269) 1,168 819 Source: Ministry of Finance
  14. 14. Products and Trends – Asset Base Advanced Training Funds  Advanced Training funds were originally intended to encourage saving for educational purposes but have since become a general medium-term investment vehicle with a six-year maturity.  As part of employee compensation packages, employers generally pay 7.5% of the employee’s salary into the funds and the employee contributes 2.5%.  Within certain limits, the employer contribution to the plan is not taxable.
  15. 15. Products and Trends – Asset Base Advanced Training Funds Advanced Training Funds have also been a stable sector, with consistent growth in recent years. Advanced Traing Funds - AUM 80 70 60 AUM (NIS billions) 50 40 30 20 10 0 2000 2001 2002 2003 2004 2005 Source: Ministry of Finance
  16. 16. Products and Trends – Asset Base Advanced Training Funds Advanced Training Funds’ AUM has been driven by both Internal Yield and Generations. Advanced Training Funds - AUM Growth Analysis 10 AUM Growth (NIS billions) 8 6 4 2 0 (2) 2000 2001 2002 2003 2004 2005 Internal Yield 911 3,286 (268) 6,788 4,419 6,996 Net Generations 3,337 2,593 (709) 943 2,728 1,323 Source: Ministry of Finance
  17. 17. Products and Trends – Asset Base Central Compensation Funds  Unlike other investment vehicles, central compensation funds are a vehicle created for employers and not for employees  Central compensation funds provide tax benefits to employers  2005 saw relatively high levels of redemptions in central compensation funds.
  18. 18. Products and Trends – Asset Base Central Compensation Funds Central Compensation Funds have also been a stable sector, with consistent growth in recent years. Central Compensation Traing Funds - AUM 25 20 AUM (NIS billions) 15 10 5 0 2000 2001 2002 2003 2004 2005 Source: Ministry of Finance
  19. 19. Products and Trends – Asset Base Central Compensation Funds Central Compensation Funds’ AUM has been driven primarily by Internal Yield Central Compensation Funds - AUM Growth Analysis 10 AUM Growth (NIS billions) 8 6 4 2 0 (2) 2000 2001 2002 2003 2004 2005 Internal Yield 911 3,286 (268) 6,788 4,419 6,996 Net Generations 3,337 2,593 (709) 943 2,728 1,323 Source: Ministry of Finance

×