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Eight months have passed since the KCPS investment house launched a leverage fund and raised NIS 1.3 billion. Yet in all that time, the fund has not made a single investment.

According to the fund's incorporation documents, it is obligated to invest 20% of its money within a year. Otherwise, the fund managers' fees will be reduced from 1% to 0.8%. These managers include Yossi Dauber and Zvi Furman - both former senior executives at Bank Hapoalim - and Gabriel Low.

KCPS is managing NIS 1.3 billion. This means the managers must invest NIS 260 million to avoid having their fees trimmed. The 0.2% reduction would lower their fees from NIS 13 million to NIS 10.4 million. And though the managers who have not made any investments so far would receive NIS 10.4 million for their nonperformance, a NIS 2.6 million wage cut still hurts.

The fund almost made some progress toward its goal, when a deal was signed to provide NIS 120 million in financing to Hanan Mor. Recently, however, the deal fell through, and Mor is now looking for funding from the capital market.

The fund is also in the process of approving a loan to Mishkenot Clal, an assisted living facilities company, jointly with the Bereshit fund. However, no papers have been signed yet.

The leverage funds were established in 2009 at the government's initiative, as a way of easing the effects of the global financial crisis. They therefore received a sizable amount of state funding. In addition to KCPS, two other funds were set up: Bereshit and Origo.

Bereshit, the largest of the three funds, raised NIS 2 billion and has invested NIS 600 million. Origo has invested about NIS 150 million and is finalizing an additional investment that would bring it close to meeting its obligations.

But the leverage funds have so far invested mainly in real estate companies, or in stable companies that do not need any help. A prime example of this is Bereshit's investment in Gilatz, an income-producing real estate company controlled by Roni Biram and Gil Deutsch, which is far from financial hardship.

There has been sharp criticism of the leverage funds in the capital market. Market players argue that the state should not be subsidizing investments in companies that are not in financial straits, nor should it be subsidizing high management fees for investments that are fundamentally similar to those made by private equity funds.

Now, however, another flaw in the concept of the leverage funds has been revealed: KCPS will receive high management fees despite having done nothing with the money it raised - which included money from the state's coffers.

The leverage funds, which were the brainchild of the Finance Ministry's accountant general, have raised about NIS 4.5 billion - NIS 1.1 billion from the state and the rest from institutional investors. In their first year, the funds were supposed to invest at least 20% of their money, and the figure was slated to increase to 45% by the end of the second year.

"The fund is continuing to examine and make investments for the benefit of the investors," a spokesperson for KCPS responded.