Bargaining over pension assets must be tough not vindictive

Israeli savers deserves a system that puts their interests first in negotiations with tycoons, without being vindictive toward entrepreneurs who create the wealth in the first place.

November 24, 2011 23:28
3 minute read.
The Jerusalem Post

yitzhak tshuva 311. (photo credit: Delek group via Bloomberg)


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The world economic crisis has brought cash-flow problems to businesses around the world, and Israel’s tycoons have not been exempt.

Lev Leviev was one of the first to seek a renegotiation with bondholders in 2009; since then the same scenario has repeated itself with other tycoons. The latest is Delek Group chairman Yitzhak Tshuva, who finds his company unable to pay bondholders.

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Tshuva is offering a repayment package that may amount to up to a 50 percent write-down, or “haircut.”

So far this is a garden-variety story of a struggling company striving to reach an agreement with creditors. Typically companies in this situation are worth most as going concerns with current management, so both sides are anxious to avoid liquidation – an outcome that theoretically either side could precipitate. So both sides are bargaining in the shadow of this threat while trying to get the best deal they think they can.

The wrinkle in the tycoon story is that a huge chunk of their bonds are held by Israeli institutional investors, meaning your savings and mine. Thus the battle is no longer the battle of the titans; it is more likely to be interpreted by the public as little saver David against tycoon Goliath. This situation certainly increases the importance that the bondholders get the best deal they can, but at the same time it may decrease the likelihood.

Millions of private Israeli savers negotiating against a single businessman would not have the solidarity or the expertise to reach an effective deal. The institutional investors, as a small group of financial experts, probably do.

But the private investors have something else: the will and personal stake to stand up for their interests, while some observers worry that the investment funds representing them do not.


Will they give up sleepless nights and endless pressured negotiating sessions for OPM – other people’s money? Under the current compensation model, they receive their fixed management fees rain or shine, so there is not much of a financial incentive to really to go bat for the citizen’s retirement savings.

MK Meir Sheetrit thinks the Knesset should intervene, and perhaps he is right. But the solution he is proposing is a punitive, not a constructive one. He suggests closing off the capital markets to businessmen who have reneged on their obligations to the public.

Such punitive restrictions used to be common in bankruptcy law; some countries still won’t let a person run a company if a previous company he headed went bankrupt. But current thinking is that sometimes the most talented people with the best ideas go bankrupt, as any business endeavor is fraught with risk.

Merav Arlozorov of Haaretz suggests changing the compensation model for fund managers.

She provides a few promising examples. For instance, what would happen if management fees were a fraction of long-term profits? A few hits from inept negotiations with tycoons could leave a manager with nothing to show for years at his or her desk.

I don’t have any specific complaints about the way the institutional investors have represented their clients, and I certainly hope they will be bold and tough negotiators to reach the best possible deal. But I do feel the current system doesn’t provide the right incentives, and Israeli savers deserves a system that puts their interests first in negotiations with tycoons, without being vindictive toward entrepreneurs who create the wealth in the first place. Asher Meir is research director at the Business Ethics Center of Jerusalem, an independent institute in the Jerusalem College of Technology (Machon Lev).

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