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Friday, September 25, 2015

#Israel wants to be the next financial center. #Fintech is the way

Looking to harness both its technological and financial assets. 

Finance guru’s mission: Bringing Jews and their money to Israel

American-Israeli financier Tal Keinan has a dream: to transform Israel into a global financial center and lead the revolution using his Clarity Capital investment house. His near-term goal is to have $20 billion under management within five years.

To get the process started, 45-year-old Keinan moved to Clarity’s New York offices. Keinan wasn’t giving up on Israel; rather, he views his business like an Israeli startup. It does its research and development to take advantage of Israeli engineering talent, and does its marketing in the United States, where the customers are.

“Investment management is our R&D and client management is our marketing, which needs to be close to the market here in New York,” he explains from his office overlooking Central Park. “Like high-tech companies, we have a front in New York … that’s where the clients are.”

New York is the company’s U.S. headquarters, but Clarity is also opening offices in Florida and California. Keinan believes that Israel should become a major world financial center that provides services around the globe.

“If Israel starts to think of the financial services industry and investments in terms of exports and that we have to be the best in the industry, it will bring the best minds to Israel — and not just new immigrants,” Keinan says.

“There are a lot of Israelis who work in the U.S. and Europe in money management and they do excellent work. Many of them are looking for a way to return home. Our company has Israeli staff like that.”

The new Tel Aviv Stock Exchange building            
The new Tel Aviv Stock Exchange building. Yael Engelhart
Keinan’s Tel Aviv team includes Soviet-educated mathematicians and seasoned alumni of Goldman Sachs, Deutsche Bank and London- and New York-based hedge funds, all of whom have returned to Israel to work with Keinan.

Gabriel Low, a Stanford MBA who ran large debt portfolios for two decades as a managing director at Citibank in London, runs Clarity’s Special Situations Group. Chief Investment Officer Eran Peleg earned an advanced degree at Oxford and managed large portfolios at the asset management firm Gartmore.

Peleg and Low both returned to Israel for family reasons, but instead of retiring, or just managing their personal portfolios, they joined Clarity. “These kind of people don’t want to work at an Israeli bank. The want to play in the big leagues,” Keinan says.

From nothing to Check Point and Waze

So does he really think Israel can become a global financial center?

“We are competing in the world market in the area of finance. Historically, the Jewish brain was good at finance. That’s why I believe that Israel has the potential to go work in the field. In 1990 Israel didn’t have any impressive high-tech companies — we didn’t have a Check Point or a Waze,” Keinan says.

“But look what a wonderful tech industry we have today in the country. There are a lot of talented Israelis who could be working in finance. Israeli abilities are fantastic and we’ve learned this in technology. A lot of Jews connected to the financial services industry worldwide would want to come to Israel and join an international financial centered in Israel.”

Keinan also has confidence concerning the goal to raise $20 billion.

“It’s an ambitious goal, but it's doable,” he says. “Our growth won’t be linear. Growth can come from acquisitions of other investment companies. A sum like that will put us on the map in New York.”

Eugene Kandel, head of the National Economic Council in the Prime Minister's Office.             
Eugene Kandel, head of the National Economic Council in the Prime Minister's Office. Emil Salman
Keinan was born and raised in the United States. His father, who was married four times, was a member of the team that developed the first atomic bomb during World War II.

Keinan’s mother was his father’s third wife, and after they separated after nine years of marriage they sent young Tal and his brother to boarding schools in New England. Tal attended the prestigious Phillips Exeter Academy in New Hampshire where, perhaps oddly, he discovered his Jewish identity.

At 15 he made his first visit to Israel and fell in love with the place. Five years later he immigrated and was drafted as a lone soldier — one without any immediate family in the country. But unusually for a new immigrant, he became a fighter pilot, serving 19 years flying F-16s and retiring as a lieutenant colonel.

Keinan went to the United States to earn an MBA at Harvard and then returned to Israel to work at private equity fund Giza Capital. Formed in 2006, Clarity manages $2.5 billion in assets for endowments, charitable funds and wealthy individuals mainly based in the United States.

On Clarity’s board is a man some have described as Keinan’s patron, the American hedge fund manager and billionaire philanthropist Michael Steinhardt. Michael’s son David, a hedge fund manager in his own right, is Keinan’s founding partner.

Prof. Eugene Kandel, Prime Minister Benjamin Netanyahu’s chief economic adviser and head of the National Economic Council, says Keinan isn’t alone in the goal of transforming Israel into a global financial center. So far the efforts have fallen flat.

“The Ariav committee, established in 2007 by the Bank of Israel and the Finance Ministry, addressed it. The commission enacted reforms, but the global financial crisis cut its work short. It did plant seeds for legislation, however,” Kandel says.

Another London or Singapore

“The idea was to make it easier for financial institutions to come to Israel. There are a lot of Jews and Israelis who live abroad, and we thought it would be a good idea to turn Israel into something like the financial centers of London, Singapore and Hong Kong.”

When he was the treasury’s director general, Haim Shani brought Citigroup’s and Barclay’s fintech operations to Israel. After all, why shouldn’t there be global financial services companies here?

“Clarity is an example of how you can manage in Israel money coming from overseas. It can create high-quality jobs for people thinking of leaving Israel. I don’t think half the country will start managing money for overseas investors, but this is definitely an industry that could grow by hundreds of percentage points,” Kandel says.

“Financial services includes many areas like back office administration for big financial firms. Work like that can be done by the ultra-Orthodox and Arab communities .... You don’t need an MBA to do work like that. Work like that can be done in the big cities and also in cities like Nazareth,” he says, referring to a largely Arab town.

Dan Senor, who co-authored the book “Start-Up Nation” and now serves as a partner at the hedge fund Elliott Management, agrees that the drivers of Israel’s high-tech success could apply just as well to finance. He notes that Israel is a nation of highly skilled risk-takers, with drive and a powerful work ethic that he traces to the ethos and leadership traits they develop in the army.

Keinan, for his part, spends his time not only thinking about finance but about the fate of American and world Jewry.

“This is a defining moment: 72% of non-Orthodox Jews marry outside the people. The children of these marriages don’t always stay Jewish. Within two generations we’ll be only 9% of what we are today. So what is happening now is extinction,” he warns.

“My three older brothers all married non-Jewish women, wonderful people. I love them but they’re not Jewish. I don’t know if this tragic or not.” Israel has problems, too, but they’re of a different order, Keinan says.

“Genetically we’re no different from the Jews of the U.S., but the results — educational achievements, per capita GDP, language ability and understanding of the world — we don’t come close to them. GDP per capita in Israel is $37,000 to $39,000 annually. That’s similar to the European average,” he says.

“But Jews never take pride in being part of the average. We don’t pay attention to the fact that per capita GDP for American Jews is $110,000 to $120,000. Yes, an American Jew doesn’t serve in the army, he lives in an open environment and doesn’t have a war right next door.”

So when is he coming back to Israel?

“I don’t know. There are a lot of moving parts surrounding that question. It’s not in the next year or two, I would guess, but I have an obligation to my children and their education. I haven’t left Israel; Israel is my home.”

-- The MasterFeeds

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