Israel’s largest hedge fund manager recently set up a new hedge fund that specializes in Israeli debt instruments. According to various estimates, the fund has raised some NIS 200 million so far.
Sphera, Israel’s largest hedge fund manager, has set up a new hedge fund, “Fixed Income Strategies,” which specializes in Israeli debt instruments. The Fund combines strategies from interest and inflation realms as well as credit margins.
The main challenge investors are facing in the bond market today is the fear of a rise in yields, which will cause bond prices to fall. The fund aims to hedge exposure to yields, interest rate and their direction of them and therefore has limited duration exposure. The purpose of the fund is to generate positive yields even in a market situation of rising interest rates.
The fund operates in the world of bonds and derivatives in Israel, based on research and in-depth analysis of local market conditions. This, in addition to analysis of corporate credit, combining a variety of debt instruments in the portfolio and dynamic hedging techniques.
This is the first hedge fund of this kind in Israel. It operates using fixed income arbitrage methods – which are common among hedge funds around the world. Such funds use relative value and pricing gaps between similar debt instruments in order to generate returns regardless of the absolute state of the market.
The investment methodologies of such hedge funds are based on the use of anomalies in the pricing of a variety of debt instruments. At the macro level, trade is used in inflation and interest rates’ forecasts. At the micro level, mainly trading on the rates’ curves and of credit spreads (positive or negative) of companies.
The decision-making investment process uses advanced strategies on debt instruments and is considered complex. Thus, the need to formulate assumptions and assessments regarding the inflation environment, the structure of the yield curve and relative pricing of tradable credit spreads of companies. These require macro and micro-economic analysis, along with the skills of using a variety of debt instruments.
The new fund was founded by Shimon Hassin, Jonathan Dollberg and Sphera Group. Hassin, formerly director of Bank Hapoalim Nostro’s bond portfolio, serves as the fund’s Portfolio Manager. According to various estimates, the fund has raised some NIS 200 million so far.
According to the TASE website, in 2017, the Ministry of Finance raised bonds in Israel totaling NIS 46 billion (gross) while Israeli companies issued NIS 66 billion worth of bonds. The prolonged state of the low interest rate causes many investors to look for an alternative investment channel, a process that leads to an increase in bond prices to a level that reflects low absolute yields and a high appetite for tradable risk assets.
The daily trading volumes (average 2017) in the Israeli bond market are estimated at NIS 3.7 billion. Tradability, the variety of linkage bases and the various debt instruments provide the Fund with a variety of platforms for its ongoing activities.
Investment in hedge funds is suitable for qualified investors.
Sphera Group, which was founded in 2004, currently manages five hedge funds: Global Healthcare, which invests in equities of pharmaceutical companies around the world; The Sphera Fund specializing in long-short strategy for equities of Israeli and Israeli-related companies; Sphera Small Cap, which specializes in investments in small and medium-sized Israeli companies, and the Global Macro Fund, which is based on trading in various investment fields such as commodities and currencies, and was launched in 2017. Sphera’s CEO is Ori Goldfarb.