Opinion
Where do Israel’s pension savings and HNWI capital go?
According to Itay Elnatan, Managing Partner & CEO at Leader Private Capital, in the coming years institutional investors with privileged access and deep expertise can position themselves at the forefront of global investing. On the other hand, qualified private investors must exercise even greater caution.
The year 2024 tested the resilience of the Israeli economy and the strength of its institutional investors. Against a backdrop of ongoing war, regulatory uncertainty, and a volatile macroeconomic environment, institutional investors achieved impressive growth of about 15% in assets under management (AUM), surpassing 2.75 trillion NIS, a milestone that positions Israel respectably on a global scale.
The non-traded investment portfolios of institutions, spanning private equity, real estate, infrastructure, and private debt, reached approximately 304 billion NIS in 2024 and are expected to reach a new record by 2025 year-end. For the first time in a decade, future commitments (Dry Powder) declined, partly due to delayed realizations and slow capital distributions from funds. As a result, new commitments decreased. Nevertheless, the value of holdings in private equity funds continued to climb, keeping exposure stable at around 11%. Maintaining this level requires an increase of roughly 41% in new commitments relative to current holdings, reflecting 120 billion NIS of new commitments in the near future.
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Israeli Institutional Investors' Dry Powder as % of NAV Holdings in Private Capital (Exposure Rate / NIS Billions)
(Leader)
Closing the Gap: Global vs. Israeli Exposure
nternational comparisons highlight the difference: in North America and Europe, exposure to alternative assets stands at 26-30%, compared to just ~11% in Israel. Even domestically, the picture is uneven: the ten most significant pension and provident funds in Israel report an average 18% allocation to alternatives, while other institutions lag significantly – largely due to structural differences, member profiles, and their ability to commit long-term.
Still, under a base-case scenario, Israeli institutional investors' private capital investments are expected to double by the end of the decade, reaching 1 trillion NIS (around 25% of total portfolios). Achieving this will require systematic commitment growth, broader diversification, sharper investment selection, and more advanced portfolio management capabilities.
Beyond Israel’s Borders: Following the Capital Trail
Another key factor is geography. Most of the funds Israeli institutions invest in are domiciled abroad, with ~43% of underlying assets in North America. In contrast, only ~26% of underlying assets operate in Israel - a gap reflecting local market capacity limits and the need for Israeli institutional and HNW capital to expand internationally.
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Israeli LP Private Capital Exposure by Geographic Region of Underlying Assets (% of Alternative Portfolio).
(Leader)
Private Equity Remains the Anchor
The structure of private capital portfolios continues to evolve. Private equity remains the anchor, comprising ~43% of the segment. Fund-of-funds and managed accounts are declining in favor of more direct exposure, such as buyout funds and co-investments.
In real estate, both allocations and returns have contracted: direct real estate holdings have steadily declined, while fund-based exposure is rising - reflecting a need for active management and operational efficiency. Infrastructure allocations are growing, though still low compared to global benchmarks. Private credit has garnered increased attention, but actual allocations remain modest, focused on strategies such as direct lending and special situations.
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Composition of Israeli Institutional LP Alternative Portfolio by Asset Class.
(Leader)
Public Market Correlation Highlights the Role of Alternatives
For much of the past few decades, bonds provided both yield and diversification. Recently, however, the rising correlation between equities and bonds has eroded their hedging role. Private capital investments are no longer just “alternative” - they have become an essential tool for risk balancing: between volatility and liquidity, breadth and depth, scale and quality.
Quality of Selection: The Decisive Factor
An analysis of Israeli institutional investors' portfolios shows most funds cluster around the median, with half in the upper quartiles and half in the lower - mirroring global patterns. Yet in real estate, performance has lagged relative to international peers. This underscores a key point: simply allocating to alternatives does not guarantee superior returns. The real differentiator lies in the quality of selection.
Preqin data illustrates the gap: between 2008 and 2024, top-quartile private equity funds generated a multiple on invested capital (MOIC) of 12x, compared to just 5x for median funds - roughly in line with the S&P 500 over the same period. The message is clear: in an era of intensifying competition and shrinking spreads, superior outcomes will be defined by the quality of choices - not by the allocation size.
Looking Ahead
In the coming years, success will depend less on how much is allocated and more on which funds, managers, and deals are selected. Institutional investors with privileged access and deep expertise can position themselves at the forefront of global investing. On the other hand, qualified private investors must exercise even greater caution: lacking access to top-tier opportunities or spreading capital too thin could leave them with only average results in the best case and could lead to substantial losses.
Itay Elnatan is Managing Partner & CEO at Leader Private Capital.
