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They have the jitters.

Yes, it was another great year, as evidenced in the 6-9 percent real yields that the investment funds are reporting for 2004. Tel Aviv stocks gained 22 percent, bonds did beautifully, the shekel strengthened, Israel's financial stability was preserved and even the great wave of stock and bond offerings couldn't ruin the party.

Yet investment managers aren't grinning from ear to ear. These people, who manage our pension money, seem a tad stressed.

The capital market has always been an intensely competitive place. Unlike other businesses, results are glaringly clear. At the end of each day, each month, each quarter or each year, yields are tabulated and compared.

This year, the financial arena will evidently become more cut-throat than ever before. First of all, inflation has been eradicated and interest rates are at an all-time low. You can no longer make money from safe-as-houses assets such as deposits, short-term Bank of Israel certificates or short-term shekel bonds.

Secondly, the banks' iron grip on the market is weakening. After years in which the banks' marketing power and their grip on clients dominated any other factor, something is changing. Customers are getting smarter and more demanding. They want yields.

Thirdly, money being managed in the free market, without government subsidies, has been mushrooming in the last couple of years. In the insurance industry, no less than NIS 60 billion has been placed in profit-sharing schemes.

Pressure mounting among the insurers

The pressure on investment managers at insurance companies to produce high yields is growing by the day, not only because customers are becoming more aware, but mainly because insurance companies are entitled to 15 percent of the profits they generate for investors. The bigger the reserves to play with, the weightier that 15 percent grows.

Fourth, with the introduction of tax parity from January 1, overseas markets have opened up for Israeli investors. All capital gains will be liable to 15 percent tax, the same rate levied from gains made in Israel. One consequence will be that Israeli investors will be comparing results not only with peer investment vehicles in Israel, but against investment options available abroad.

Rising customer expectations, escalating competition, exposure to foreign markets and low domestic interest rates are making Israel's investment managers very nervous indeed. And hungry. Very hungry - for yields.

People starving for yields may adopt highly dynamic investment practices, leaping in and out of the market, trying to identify spikes and troughs, racing from one vehicle to another, from one exchange to the next, from one asset to another.

There's a catch, and investment managers know it: predicting short term trends is almost impossible. At the end of the day, the best investment managers are the ones who choose the best investments and stay with them.

So how can they satisfy the yen for yields? By increasing risk, that's how. By adding more stocks to the portfolio.

Most major institutional portfolios in Israel hold 20 percent of their assets in stocks. Barring major financial shocks, it's just a matter of time before they gradually increase that weight to 30 percent, all the while keeping an eye on what their peers are doing.

In a world of low interest rates, that may be the only way to produce acceptable yields, as long as the market is rising or remains stable.

So if you had it in mind to increase your investment in stocks, be aware that your pension fund manager is probably already doing it for you. And if you're wary of stocks, you'd better find another investment vehicle quickly; because pension savings a la 2005 and 2006 models won't be what they used to be.