"FIMI has been around for 15 years, so it is possible to talk about perspective. Our returns are the best in the world by a large margin, which show that FIMI is in great shape compared with other private equity funds. A Google search will not yield funds like ours with such returns," First Israel Mezzanine Investors Fund (FIMI) founder and CEO Ishay Davidi told "Globes" in an interview last year.
Some people will undoubtedly consider Davidi's remarks as an exaggeration, but they are in fact grounded in reality. A report by US-based alternative assets data intelligence company Preqin ranks FIMI in fourth place worldwide in terms of long-term return for investors. In the segment of non-US and European private equity funds, it is in first place.
Preqin examines and analyzes the results of over 5,700 private equity funds worldwide. It found that FIMI funds' internal rate of return (IRR) averages 31% - an extraordinary figure, especially given the fact that this is over a long period, and not just one year with several successful exits.
Davidi founded FIMI in 1996, and it raised $120 million for its first fund. The fund invested in mature companies in two ways: buyouts, usually with partners; and financial investments through unsecured mezzanine loans, with the option of converting the loans into equity.
During the first fund's ten years of operations, it made several very successful investments, including in Tadiran Communications, Matrix IT Ltd. (TASE:MTRX), and Tadir-Gan (Precision Products) Ltd. (TASE: TDGN), which generated an average annual IRR of 40%.
The fund's high IRR whetted investors' appetites, and FIMI has subsequently raised $1.1 billion for four more funds. FIMI has invested $1.5 billion altogether to date, including leverage, in 65 companies and made 36 exits. In 2011, FIMI had six exits for a total of NIS 850 million, making a profit of NIS 540 million. It sold its holdings in Orian SM Ltd. (TASE:ORIN), Merhav Ceramics and Building Materials Center Ltd. (TASE: MRHV), Solbar Industries Ltd. (TASE: SLBR), Ophir Optronics Ltd., Metro Motor Marketing Ltd..
Despite FIMI's wide-ranging operations, it operational team numbers only 13 people, including its partners Gillon Beck, Sam Vlodinger, Ami Boehm, Ron Ben-Haim, and Chelly Pardo.
"We're an efficient organization by every measure," said Davidi in his interview with "Globes", adding, "The cooperation between the partners is extraordinary."
Markstone's dismal returns
Preqin's review only included leading private equity funds that have been in business for several years, so FIMI was the only Israeli firm to make the grade. However, Preqin's rankings include foreign funds that invest in Israel. Apax Partners' Apax Europe VI Fund, which acquired control of Tnuva Food Industries Ltd. in 2007, has an average IRR of 9.6% since its launch in 2005; the Apax Europe V Fund, which made one of the most successful investments in Israel in the past decade as a partner in the acquisition of Bezeq Israeli Telecommunication Co. Ltd. (TASE: BEZQ), has had an average IRR of 28.9% since its launch in 2001.
In contrast, Markstone Capital Partners Group LLC, run by managing directors Ron Lubash and Amir Kess, has had dismal returns. Markstone, which also founded the foundered Prisma Investment House, has achieved an average IRR of just 0.9% since its launch in 2004. Markstone's other unsuccessful investments include Tomcar Inc. and Elran (DD) Real Estate Ltd. (TASE:ELRE). It has had some good exits in Golden Pages Ltd., Zeraim Gedera Ltd., and most recently in Netafim Ltd.
Markstone raised $800 million in 2003-04 from institutional investors, including California Public Employees' Retirement System (CalPERS) and Israeli insurance companies Clal Insurance Enterprises Holdings Ltd. (TASE: CLIS) and Menorah Mivtachim Holdings Ltd. (TASE: MORA). In 2009, its chairman Elliot Broidy was forced to resign, after confessing to involvement in bribery scandals.
Another fund with Israeli ties included in Preqin's rankings is TPG Capital IP LLC, which invested $300 million in Strauss Group Ltd. (TASE:STRS) unit Strauss Coffee BV in 2008. Founded 20 years ago in San Francisco, TPG currently manages $50 billion. It has had quite good results, reaching 40th place in the rankings with an annual IRR of 18%.
Recent reports in the Israeli media say that TPG is interested in acquiring shares in Orange franchisee Partner Communications Ltd. (Nasdaq: PTNR; TASE: PTNR) from Scailex Corporation (TASE: SCIX; Pink Sheets:SCIXF) that its controlling shareholder, Ilan Ben Dov, has put up for sale.
7,000 analysts in 70 countries
Preqin was founded in 2002, and employs more than 7,000 analysts and experts in 70 countries. They analyze private equity funds, REITs, hedge funds, venture capital funds, infrastructure investment funds, and more. The firm's main clients are investment institutions from around the world, which buy the studies as a tool for decisions on which funds to invest their members' money in. Israeli investment institutions use Preqin's studies.
Preqin monitors 5,700 private equity funds worldwide, but it only ranks funds with a critical mass in the industry, and which have been in operation for several years, in order to be able to compare the investment managers' long-term performance.
Published by Globes [online], Israel business news - www.globes-online.com - on January 24, 2012
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