The Secret of Success Is Out - Be Conservative

Rami Shalom has had a great year. The CEO of Apex Mutavim's provident fund is on top of the charts for the best annual and triennial provident fund yields. He will also be receiving more than a little media attention in the next few days. More importantly, however, Shalom has turned the provident fund company in which he holds 50 percent of the shares into a strong magnet for new money.

Shalom, who used to be one of the most popular lecturers in microeconomics at Tel Aviv University, began 2003 with 700 members and NIS 43 million in Apex's assets file. By the beginning of 2004 there were 4,150 members and NIS 164 million. Now the fund has over 11,000 members and over NIS 600 million. Apex's provident fund's growth rates over the past three years is truly impressive, but they reflect more than just Shalom's success. The market's has changed, too.

2004 marked a dramatic change in the public's behavior concerning the management of its pension savings. Shalom recognized this and it contributed to his ability to market the funds. At Apex, as at many companies in the provident fund industry, most of the new employees work in marketing. Private provident fund brokers are currently working in fertile soil, and are raising huge sums of capital.

"Every company or organization that has employees is saying to itself, `We know that all the money does not have to be managed by the banks,'" says Shalom.

It's the Bachar Commission, right?

Not exactly, we would actually prefer that the recommendations of the Bachar Commission [on reforming the capital market] were not passed. We are comfortable with the competitive situation today, because we are beating the banks. After the recommendations are passed competition will be stiffer.

So what is it that induces people to transfer their money to you?

The high yields and the understanding that the banks don't know everything.

How do you attract members?

A company issues a tender and two or three provident fund management companies are chosen. Then the workers decide. Whoever wants can switch, whoever is not interested doesn't do a thing. At that stage we are responsible for everything - marketing ourselves, speaking with the workers and explaining why it is worth transferring their money to us.

Is this a common thing in a lot of companies?

There is no organization these days that is not checking the pension funds at the banks. It's a trend. The Finance Ministry's web site comparing the funds' performance has also contributed to the revolution. Many companies have chosen to work with us. Teva [Pharmaceuticals] chose us and Analyst Exchange and Trading Services.

How do you market yourselves?

We make a big one-day seminar for the workers. We sit with them one-on-one, show them [our] yields versus those of the banks, and the workers are convinced.

Why do you think you are better than the banks?

First of all, it's a fact. For three years at Apex, and previously, with other funds I have managed, I outstrip the banks in yields. Whatever happens, with my strategy I will never be worse than the banks.

How can you achieve such a situation? It sounds incredible.

In both possible scenarios I outdo the banks; if I am optimistic about the market, meaning that I think the [stock] market will rise, I hold onto the same rate of shares as the banks. And if I am pessimistic I hold onto less than them. So I will always be better than them.

If you hold the same rate of shares, how can you be better?

I simply know how to choose investments better.

The stock market is doing great. Are you optimistic or pessimistic?

Today I am still optimistic, but am already leaning outward. I am still sticking with the shares, which can rise further, but am getting out of shekel bonds.

Have you sold all your Shahar [shekel government bonds]?

Yes. Thirty-five percent of my portfolio was in shekels. Now I don't have a single Shahar [bond]. The shekel market is shouting to the heavens. Yields are low. I am waiting for the market to correct itself, then I'll jump in. I am increasing euro investments a bit. I believe the dollar will continue to weaken.

Does that mean that the saying about you private brokers, that you take bigger risks than the banks, is wrong?

Of course. My strategy is conservative. In the long run those who get rich are the ones who sought low yields with low risks, and not those who try to "get rich quick." They get rich during the good years and lose their shirts during bad years. On the other hand, in a good year I make a moderate yield of 15 percent and in bad years the yield can drop to nothing. It is better to manage a conservative portfolio. Fluctuations are more damaging than people think.

Are you planning to invest abroad due to the tax parity?

I am in no hurry at present. My gut feeling is that anyone investing abroad will get hit hard. [US Federal Reserve Chairman Alan] Greenspan is the world champion, so maybe he will pull off a miracle and partially stem the U.S. crisis. It is clear, however, that rising interest rates worldwide will harm the markets. America will go into an economic slowdown and drag the whole world after her.

I am optimistic about Israel. 2005 could be a great year for shares. The problem is the danger from America. We are living on borrowed time. The economy will win, and sometime it will explode in America. The U.S. already realizes this has to be sorted, but the question is how to do it without shaking things up too badly. Otherwise what's bad about buying shares here? Buying shares in a bank that gives a yield of 12 percent on the money, priced at its shareholders equity, is a worthwhile deal. True, it is not as good as a year ago, when the banks were trading at 70 percent of their equity value after they had begun to recover, but it's still okay.

When I invest in shares I constantly ask myself, where is the down side, not just where is the up side.

Everything looks good, so why is there a feeling that your fund members have a problem?

What problem?

Berger Holdings, which is controlled by the National Workers Federation, bought DS Securities & Investments and Apex and now wants to merge the two. The members now do not know who will be managing their money next year.

First of all, I own 50 percent of Apex provident funds, and I have to agree to such a merger.

Will you agree?

No. Apex will not be merged with DS.

That's an unequivocal statement... If they paid you enough, surely you would be willing to accept. They paid Amit Berger and he accepted.

Look. Everything has its price. Even my shares in Apex.

So if you were offered a good price you would take it and the merger would go through?

It's a possibility, but my scenario is different.

What is that?

To continue growing fast and to float the company on the stock exchange in three years time.