Israeli insurance giant builds PE program

General partners in search of a fresh source of capital should look to the Promised Land.

Clal Insurance Pensions and Finance Group, the largest insurance company in Israel, plans to commit roughly $1 billion to private equity firms over the next three years in an attempt to gain more exposure to U.S.-based LBO shops and others internationally.

“We’re jumping on the learning curve quickly. With increased access to information and the desire to expand and learn the best we can, we’re building an interesting portfolio pretty quickly,” says Yael Elad, head of alternative investments for Canaf, a wholly owned subsidiary of Clal Insurance that manages $15 billion of the company’s assets. Clal Insurance manages pension funds, retirement accounts, life insurance policies and its own equity.

In 2006, the company hired Bala Cynwyd, Pa.-based adviser Hamilton Lane to help identify and vet U.S. buyout shops that specialize in the middle and small markets and gain access to more international funds. Elad intentionally shies away from mega-funds, which she considers too risky. Last March, Clal Insurance began making commitments based on Hamilton Lane’s recommendations, which included New York, NY-based American Securities Capital Partners and the Asia-focused fund of CVC Capital Partners, a British buyout firm.

Currently, the limited partner has committed about $500 million to alternative assets, half of which is allocated to buyouts, 15% to venture capital and 10% to distressed debt and corporate turnaround funds. The remaining 25% is invested in infrastructure and other assets. Geographically, half of the company’s portfolio is invested in Israeli firms. Of the remaining half, 75 percent is committed to U.S. sponsors and 25 percent to European LBO firms. In addition to backing Israel-based buyout shops like Markstone Capital Group, Clal Insurance has also made commitments to such U.S. firms as AIG Highstar Capital and Silver Lake, and international players like Apax Partners.

Private equity is a relatively new asset class for Clal Insurance. Prior to 2000, Israeli regulations prohibited insurance companies from investing in international assets or the Israeli stock market.

Once the law changed, Elad studied the investment programs of other insurance companies and pension plans to devise a plan for Canaf’s assets. She says that she was impressed with the high returns of endowments at major U.S. universities. “That’s usually the stuff that we drool over,” Elad says. “But it’s really so out there compared to what we would ever be able to do.” —Joshua Payne