Institutional Investing in Israel Bonds: 'A Win-Win' Proposition

Beyond the investment aspect of purchasing Israel bonds, there is also the Israel factor.

Even visionary Israel Bonds founder David Ben-Gurion could not have imagined multi-million dollar institutional investments in Israel bonds (photo credit: ISRAEL BONDS)
Even visionary Israel Bonds founder David Ben-Gurion could not have imagined multi-million dollar institutional investments in Israel bonds
(photo credit: ISRAEL BONDS)
On August 14, Arkansas Governor Asa Hutchinson signed bills allowing the state to invest in Israel bonds and prohibiting state and local governments from contracting with or investing in companies boycotting Israel.
In signing the bills, Governor Hutchinson said, “Those are two very strong messages that one, we ought to be open to invest in Israel as need be, and we should not have any restrictions on those investments.”
The legislation was the latest in a series of bills passed by U.S. states and local municipalities allowing investment in Israel bonds. Many, like Arkansas, have also passed anti-BDS legislation. To date, more than 90 state and municipal public employee pension funds and treasury funds have invested a cumulative total of over $3 billion in Israel bonds.
Larry Berman, Israel Bonds national managing director of corporate and institutional sales, said over the last 15 years, 10 states have changed their investment policy to permit their investment in Israel bonds.  “As a result of this legislation,” he noted, “Israel has received over $1 billion in new Israel bond investments.” 
There has also been a residual effect.  Purchases by states and other institutions not only  instill pride within the Jewish community, but also provide a feeling of assurance  that when they – individuals, synagogues, JCCs and more – buy  Israel bonds, they are acquiring the same investment as investors with the strictest fiduciary standards.
A New Approach
In September of 1950, when Prime Minister David Ben-Gurion convened a meeting of American Jewish leaders to discuss “a new approach to the scope of cooperation between the Jews of the United States and the people of Israel,” multi-million dollar institutional Israel bond investments would have been considered a fantasy.
The “new approach” Ben-Gurion advocated was not to donate, but rather to invest in Israel through the purchase of Israel bonds. Yet, going beyond the Jewish community to secure Israel bond investments seemed implausible. For institutional investors, the idea of acquiring the sovereign debt of a new nation facing economic, environmental and geopolitical adversity was a non-starter.
Yet today, not only has Israel overcome every imaginable challenge, it also has built one of the world’s strongest, most resilient economies. This was highlighted during the global recession, when Israel was among the first developed nations to emerge from the financial crisis.
Most recently, on August 4, Standard & Poor’s* issued an opinion upgrading its Israel outlook from ‘stable’ to ‘positive.’ The report stated, “Israel's fiscal performance has exceeded our expectations, reflecting the strength of the underlying economy,” adding, “The positive outlook on Israel reflects our opinion that, despite existing spending pressures, there is a potential for stronger than anticipated fiscal performance over the next two years.”

Investors Take Notice
Investors of every kind are taking notice.  Even the world’s most famous investor, Warren Buffett, upon making a personal $5 million Israel bond purchase, declared, “You can tell prospective investors that I would have taken a perpetual bond if you had offered one.  I believe Israel is going to be around forever.”
U.S. state treasurers, who are entrusted with the highest levels of fiduciary responsibility, have also praised the value of investing in Israel bonds.  New York State Comptroller Tom DiNapoli, who has purchased, on behalf of New York State, $260 million in Israel bonds since the beginning of 2007, explained, “We invest on behalf of more than one million working and retired New York public employees, and securing a strong return for our portfolio always comes first. With Israel bonds, we’ve found a real win-win. They provide New York State’s pension fund with a steady return on investment and they benefit an important ally to our nation.”
Ohio Treasurer Josh Mandel takes a similar view.  Mandel, who has added over $219 million in Israel bonds to Ohio’s portfolio since taking office in 2011, said, after making an historic $61 million Israel bond investment in April, “This purchase was consistent with our strategy of making investments that prioritize . . .  Ohioans’ hard-earned dollars.  Over many treasurer administrations, both Democratic and Republican, state treasurers have invested in Israel bonds, and we are proud to carry on this tradition because it is in the best interests of the taxpayers of Ohio.”
The Israel Factor
Beyond the investment aspect of purchasing Israel bonds, there is also the Israel factor.  Illinois Treasurer Michael Frerichs, who has acquired $25 million in Israel bonds for the state of Illinois - “and we’re not done yet” - cites “the special relationship with the Jewish democracy in the Middle East.”  Frerichs, who has been to Israel twice, most recently in 2016, said he “saw projects such as water and public transportation,” that made him feel good about the fact that “investing in Israel is a great investment.”
New York Comptroller DiNapoli has visited Israel five times and is “always impressed by Israel’s simultaneous ability to cherish its history and traditions, while nurturing its role as a center for innovation. The vitality and resilience of the Israeli people is remarkable, even to a New Yorker.”
Those who have not yet been to the Jewish state feel a sense of anticipation.  Indiana Treasurer Kelly Mitchell, who said she is “grateful for the opportunity to invest in Israel bonds,” is going in January 2018 with the State Financial Officers Foundation, and “very much looks forward to the experience.”

“A Powerful Vote of Confidence”
Israel Maimon, president & CEO of Development Corporation for Israel/Israel Bonds, summed it up:  “Who would have imagined, in the days when Israel had a socialist economy and its primary export was the Jaffa orange, that it would one day become a globally-recognized economic powerhouse?
“The many states that have each invested millions of dollars in Israel bonds are offering a strong vote of confidence in Israel, its economy and its future.  They, together with the worldwide Diaspora community, are part of an economic partnership that has generated over $40 billion, helping to build the strong, dynamic Jewish state in which we all take such great pride.”
*Israel bonds are not rated
The writer is national director of marketing & communications for Development Corporation for Israel/Israel Bonds (“DCI”), a broker-dealer that sells Israel bonds. The content in this article was prepared by DCI and the Jerusalem Post as part of an advertising campaign for DCI.