Private Investment Funds and Fundraising in Israel: Part II – Related Commentary
Mutual Funds and Funds Investing Primarily in Liquid Assets
The marketing of mutual funds and private investment funds designed to invest primarily in publicly traded securities, bonds, and currencies is subject to the Joint Investment Trust Law, 5754-1994 (the “Joint Investment Law”), unless regulated by another specific statutory regime in Israel. The ISA adopted the view that the Securities Law cannot be considered a ‘specific statutory regime’ that would exempt relevant funds from the applicability of the Joint Investment Law.
The rationale is that the Securities Law primarily imposes obligations related to disclosure and corporate governance whereas the applicability of the Joint Investment Law encompasses additional responsibilities concerning matters such as the structure of a fund, the manner in which it is managed and the assets in which it invests.
Therefore, funds that are subject to the provisions of the Joint Investment Law must comply with the requirements and restrictions of both statutes.
With that said, funds that would otherwise be subject to the Joint Investment Law can be exempt from the Joint Investment Law if interests in such a fund (a) were offered without making a ‘public offering’ within the meaning of the Securities Law; and (b) were offered to not more than 35 Non-Qualified Investors in any 12-month period; and (c) the aggregate number of Non-Qualified Investors in the fund at all points in time does not exceed 50 in total.
Third-Party Distributors, Marketers, and Brokers
Fund marketing in Israel conducted by the general partner (or a party that would, following successful fund raising, become a general partner) of the fund, or its affiliates, is generally not viewed as a type of activity that is meant to be regulated separately.
However, the marketing of securities for and on behalf of a third-party client is a regulated activity under the Regulation of Investment Advice, Investment Marketing and Investment Portfolio Management Law, 5755-1995, that, absent an appropriate exemption under the relevant laws, would require licensing.
No Reverse Solicitation Exemption Available
Reverse solicitation or similar arrangements whereby potential investors independently approach the offeror of fund interests do not provide an exemption from publishing a prospectus under Israeli law. The opposite is true – action meant to induce potential investors (other than under the aforementioned exemptions) to purchase securities is considered a ‘public offering’. ‘Exclusive initiative’ representations (or their equivalents) by potential investors would not cure this situation. With that said, given the relatively liberal and investment-friendly regulatory environment in Israel as set forth herein, there are a variety of other options open to a fund looking to offer securities, making reverse solicitation unnecessary.
