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Bank of Israel supports

pension funds capital market investments

By Zeev Klein

Globes Online, May 19 2003

The Bank of Israel is backing the Ministry of Finance’s position in favor of channeling the pension funds’ investments to the capital market and the private sector.

The Bank of Israel Monetary Department today said that channeling institutional investors to the Tel Aviv Stock Exchange (TASE) could both contribute to the TASE and diversify the investors’ asset portfolio.

The Bank of Israel added that investing in bank deposits constitutes another, virtually risk-free instrument for institutional investors. According to the Bank of Israel, this will boost the banks’ own sources for credit to the public.

The Bank of Israel believes that channeling institutional investors to the capital market will make it possible to lower the budget deficit in the long term. Furthermore, reducing the deficit and issuing fewer government bonds will facilitate the development of a private bond market, enable the institutional investors to diversify their asset portfolios, and relieve Israel’s credit crunch.

Bank of Israel statistics show that 62% of assets held by institutional investors (both the old and newer pension funds, participating life insurance policies with a guaranteed return, provident funds, advanced training funds, and mutual funds) are invested in government bonds. Only a minority of these assets is put in investments and private sector credit.

The Bank of Israel figures also show that the proportion of institutional investors’ assets invested in government bonds grew from 60% in 1995 to 70% in 2002. 33-46% of these bonds were designated, non-negotiable bonds at fixed interest.