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Israel-Focused Private Equity Fundraising in Line with Economy – December 2014

by Luke Goldsmith

  • 08 Dec 2014
  • PE

The Israeli government recently announced that their economy shrank by 0.4% in Q3 of 2014. This is mainly due to the recent conflict in Gaza, when certain areas of the economy either came to a halt or saw a significant drop in productivity. This news has been reflected in Preqin’s Funds in Market online service, with only five solely Israel-focused private equity funds to close this year, raising an aggregate of $600mn, the lowest amount of capital aimed solely at investments in Israel since 2011, as shown by the graph below. Another reason could be the lack of confidence from investors in the Middle East and North Africa (MENA) region as a whole, which is causing GPs to rethink their investment plans. This is exemplified by Carlyle Group’s decision in October to cancel their proposal for a second MENA-focused fund.

Israel, especially Tel Aviv, is known as a technology hub with many global organisations, including Google and Microsoft, setting up offices there. It is therefore unsurprising to see that since 2011, 76% of all funds that have been raised focusing solely on Israel, have been venture capital or growth funds. This is the same for funds currently fundraising, with 71% of vehicles either venture capital or growth. The largest fund currently seeking capital for investments into Israel is NOY Infrastructure and Energy Investment Fund II, which focuses on large scale traditional infrastructure and energy projects and has a target of ILS 1.2bn. 

Funds focusing solely on Israel make up a significant proportion of all fundraising focused on the Middle East. In 2013 alone, 54% of the capital gathered for Middle East & Israel-focused funds was raised by solely Israel-focused vehicles. Israel’s disproportionate share of MENA capital could be due to having one of the only stable democracies in the region, making Israel an attractive location to access the Middle East.

Despite the conflict this summer, Israel remains an important destination for GP capital, with 27 funds in market seeking an aggregate $2.8bn. At this point last year Israel-focused funds were targeting approximately half the amount of capital from half the number of funds than they are now.

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