Taking Stock / Zelnir the Cat

Shock and horror on the capital market! Last week, the underwriting company Poalim IBI, managed by Ronen Zelnir, managed to float the construction company IH Damari.

The stock market does not like builders, especially not builders of Damari's ilk - family companies that usually cannot make the cultural and organizational leap required to become a publicly traded company.

Indeed, the Damari prospectus has some bizarre elements - giant salary raises just before the offering, huge debts to the banks to be repaid from the money raised, company cars registered in the owners' names, and other little goodies that the business pages love to expose.

And indeed, tongues were clucking in disapproval. How revolting, the players sniffed, look what the cat dragged in, that Zelnir is doing it again, pushing his shoddy stuff onto the TASE. Tsk tsk, how could a contractor like that be allowed to list on the exchange?

Gentlemen, gentlemen. Aren't you ashamed? It has been ten years since the crash that followed the tidal wave of offerings in 1993, and you have evidently learned nothing. You do not understand the division of labor on the capital market and you do not understand the role of the Zelnirs and the Damaris.

The Zelnirs

The Zelnirs' task is to market securities to the public. Their skill lies in pretty packaging, in creating bundles that are sometimes decorated with bonds or convertibles, and other times garnished with options or studded with unregistered bonds. It depends on what is in fashion at the moment.

For their marketing services, the Zelnirs receive a handsome commission - from 3 to 10 percent of the offering - depending on the quality and scope of the merchandise and the situation on the market.

Everybody knows exactly what the Zelnirs do, who pays them and where their interests lie: in selling securities to the public.

The Damaris

The Damaris' role is to manage companies and raise capital at the lowest possible cost. When profits are high and they need money and market conditions are ripe, they write a prospectus, rent a Zelnir and sell securities to the public.

Before hitting the market, the Damaris have to wrap up all the insider stuff, from transactions to salaries to cars and dividends, because it has to appear in the prospectus.

Their interests are also perfectly transparent: capital at the best possible price, while doing their utmost to keep the perks they had as private company owners.

Who is missing from this scenario? The central player, of course, the one who tends to get forgotten when the analysts and commentators take up their righteous pens against the Zelnirs and Damaris - the buyer.

The buyer

Provident funds, mutual funds, insurance companies, nonprofit organizations, universities, portfolio managers, pension funds - in short, absolutely everybody managing other people's money. These are the address for almost all the stock that the Damaris issue and that the Zelnirs market.

Of all of the above, the only hypocrites are the ones managing other people's money. They buy the stuff, they read (or don't read) the prospectuses, they are the ones supporting the Zelnirs and Damaris. They are the only ones with the clout and ability to dictate the terms of the game. If they do not buy, the Zelnirs will tell the Damaris that they have to lower the price or sweeten the terms.

The people managing other people's money should have only one interest in mind: that of their customers. In other words, the long-term yields of the portfolios they manage and the norms of the capital market in which they invest. Yet that focus seems to be all too rare.

Sometimes they forget the good of their clients and fixate on the short term, neglecting to look down the line at all. Sometimes they are controlled by bodies associated with the Zelnirs or Damaris.

Sometimes they are controlled by bodies that actually are Damaris, or bodies that lend money to Damaris. Sometimes they are controlled by bodies that control Zelnirs, and sometimes these people managing other people's money just want to suck up to the Damaris or Zelnirs, because that tends to be a more lucrative occupation than gaining the gratitude of their customers.

Put otherwise, in Israel's business world you will find precious few managers at institutional investors who made their fortunes and climbed up the ladder by thinking first and foremost of their clients. But you can find countless hordes who grew rich and advanced by thinking of other things entirely when placing buy orders.

Now another wave of offerings is breaking over the Tel Aviv Stock Exchange. So do us a favor. Don't cavil at the Zelnirs' cynicism and disparage the figures the Damaris are presenting. None of that matters. The only question is what the hypocrites, the ones purporting to care about us, are up to.