Psagot, Israel's biggest investment house, on Tuesday presented its new code of institutional investor activism.
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"Going forward we will create a list to track all companies, senior executives and board members who did things that could harm our clients and should be purged from Israel's capital market," Psagot Investment House CEO Hagai Badash said at a press conference. "If controlling shareholders, company directors and trustees promote debt restructuring agreements that violate our principles, we will blacklist them."
Since Badash became CEO in May 2012, he has worked tirelessly to return Psagot to the investor activism of former CEO Roy Vermus. Psagot will allocate a significant chunk of its resources toward creating its blacklist, Badash said. He added that they will expect companies to develop recovery plans before reaching insolvency proceedings, and they wouldn’t shy away from taking control and swapping out the management of companies that fail to protect investors’ interests.
To provide an example, Badash described the Ampal-American Israel Corporation and its former shareholder Yossi Maiman, a company that undertook a debt restructuring opposed by Psagot. That move, he said, led to the blacklisting of the company’s board members. He also hinted that his company had voted against the appointment of Ampal CFO Irit Eluz to the board of Kamor.
"Since it's impossible to get four percent yields investing in just government bonds, Psagot has decided that it will re-educate the capital market, so that we can invest some of the NIS 152 billion we manage in publicly traded corporate bonds," Badash said. He added that Psagot investment managers would be instructed to avoid unsecured investments in blacklisted companies.
"Psagot will reduce its investments in companies with dysfunctional corporate governance," he said, adding that Psagot welcomes other institutional investors and regulators to join its blacklisting effort.
When asked why he didn't instruct Psagot investment managers to avoid investing in blacklisted companies altogether, Badash explained it in terms of Psagot's bottom line.
"In practice, companies and controlling shareholders who have implemented unfair bond haircuts know that if they try to raise capital they will be required to provide higher yields," said Badash. "If we find an investment that provides good yields with very good collateral, there is no reason that our clients shouldn't benefit from it."