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The managers at the U.S. investment bank were appalled.

It began when the chairman of the Israeli pension fund announced he didn't want any meetings at the U.S. investment bank to be set before 10 A.M. He likes to sleep late, mainly when he comes to Manhattan, where he doesn't come to suffer but to have a good time.

It went on when the first item on his agenda proved to be the venue for lunch. Did they have any original ideas, he wondered. He likes culinary novelties and stimuli.

And then came the coup de grace. He showed up for the meeting, arrogant and distracted. After two hours of presentations, he nodded off. The Americans industriously screening PowerPoint slides suddenly noticed he wasn't there any more, at least not in mind.

The young investment manager accompanying said somnolent chairman was beside himself with shame. The whole reason for the New York junket had been to study the American capital market prior to the next step in Israel's tax reform, equalizing tax on capital gains from Israeli and foreign investments. Yet in the space of a nap before lunch, it became clear that was just the excuse for a foreign trip.

Natch, the young man, was not exactly shocked out of his socks. He'd been at the pension fund for a year already, and was learning the ropes. He already knew that everything is political, not effectual. The chairman had been named by virtue of his connections; he was a party man who'd balanced business and politics for years. The fund's entire process of policy design and money management was pure farce.

Welcome and leave your credulity outside

Welcome to the real world of Managing Other People's Money, a year after the Great Reform of the Capital Market began, a year after the Pension Funds Reform, and four months before the tax reform progresses to capital gains. Welcome, to this apparently terrifyingly amateur little world.

The Americans may have been appalled by the sloppiness, but make no mistake, they know how to handle customers like that. In fact, the business of many a Wall Street investment bank is to grant services to managers of money management companies, or to the money management companies themselves. It is clear that nobody really cares about the one actually footing the bill.

The combination of the pension reform and the reform of banks, which will be forced to relinquish their provident and mutual funds, along with the equalization of tax on capital gains, ushers Israel's capital market and perhaps the entire economy into a new era. A more competitive one, a more globalized one, perhaps a more cruel one as well.

But Israel's capital market animals know perfectly well that most of the people Managing Other People's Money - or "institutional investors" - are sadly unprepared for the revolution. Some are still controled by characters like our friend above. That is a real story, and if the investment bank hadn't insisted on complete anonymity, we'd have been happy to divulge the names, too.

Goodbye, deadweight

The great mission of the regulators designing our new capital market is to create a market that will vomit out people like that: To create a structure in which the only life-and-death fight between the big boys is over who achieves the best performance for their customers.

Presently, the name of the game is "captive money," trapped in the provident and mutual funds by the power of the big banks. It is money held captive in the executive insurance policies because of flabby regulation preventing it from being shifted about easily and quickly. It is captive money held in pension schemes because of cozy agreements between employers and the funds and between the unions and the funds.

Regulators must find ways to free the movement of money among different investment vehicles - insurance policies, investment funds, pension funds. They must also simplify the tax mechanisms so sub-optimal managers cannot shield themselves in favorable tax arrangements.

A competitive capital market is one where all the players managing other people's money are measured day in and day out by performance. By profits they generate for customers. By the risk to which they expose their clients.

A market like that is a market where the customers have all the information they need about their portfolios, a market in which bad investments cannot be swept under the rug, where managers must divulge their strategy and explain where their management fees go and why they chose the assets they chose.

If the public's trillion shekels' worth of disposable financial assets would be managed by people hungry for yields, who have to report to their customers, it wouldn't just be a revolution on the capital market. It would be a revolution for the entire economy. A change in the norms of money management would ripple to other management norms, because at the end of the day, in case you didn't know, the banks and the big companies mostly belong to the public.