Jefferies CEO: “There is an influx of innovation here that makes Israel an important place for investors”

“There are a lot of people who were very frustrated that they missed the deal to purchase a stake in the Tel Aviv Stock Exchange after they saw it. I'm talking about American businessmen, very familiar names. It's true that they are pro-Israel, but they are first and foremost sophisticated investors. Not all of them are Jewish either, this was not a deal by Jews or pro-Israelis, but a deal by veteran businessmen who wanted to make money. Therefore, if the stock exchange would want another deal of this type, the demand for its shares is there,” said Rich Handler (62), CEO of the Jefferies Group, in an exclusive interview with Calcalist, describing the sale of a package of Tel Aviv Stock Exchange (TASE) shares to foreign investors last January.

Pro-common sense and pro-financial investments

Handler, one of the longest-serving CEOs on Wall Street who has been at the head of Jefferies for more than twenty years, also personally knows hedge fund star Bill Ackman who, together with his wife Neri Oxman, purchased 4.9% of the TASE. Ackman's participation made the deal particularly notable, and at a time like this that raises doubts about the interests behind it - are they indeed only related to business or rather mainly because of the timing and because of Ackman's loud and sweeping support for Israel on X (formerly Twitter) since October 7th? Ackman's share in the NIS 353 million deal is small money for someone valued at $4 billion. As evidence, he made the purchase not as part of his Pershing Square hedge fund, but privately.

“This is an investment for all intents and purposes from Bill Ackman's point of view,” Handler insists. “In terms of the amount, it is too small for his hedge fund that makes investments in the billions of dollars levels, but he saw two things in this transaction: the first is an excellent investment for him and his family. It is true that he is very pro-Israeli, but he is also very pro-common sense and pro-financial investments. And the icing on the cake is also the fact that it is about supporting the country he loves. But this is not philanthropy, it is an investment because the Israeli stock exchange is very important. Many investors on a global level want to gain access to Israeli companies and the stock exchange is the entry portal and a center for many excellent companies, so why not invest in it? If you are bullish on Israeli companies, you should also be bullish on the Tel Aviv Stock Exchange.”

But most Israeli companies still dream of an IPO on Wall Street and not in Tel Aviv, and do it there, in many cases with your support.

“Every local stock exchange loses membership to Nasdaq or the New York Stock Exchange because they have the greatest liquidity and their markets are the deepest and most mature, but over time we will see more and more dual listed companies in Tel Aviv. On my current trip, I met with a number of other stock exchanges in the world, and they all do similar things to what the stock exchange in Tel Aviv does. Some even cited TASE as an exchange that is several steps ahead of them. Since arriving in Israel, I’ve also met a number of companies that are listed on the Tel Aviv Stock Exchange and they are simply phenomenal. My job now is to connect them with investors who will understand this.”

The rise of Jefferies

The meeting with Handler takes place during his short visit to Israel, a non-trivial visit for a Wall Street man who runs an investment bank that employs 5,500 people worldwide, including in the United Arab Emirates where Handler passed through on his way to Israel.

Jefferies, a modest entity compared to the giants, traded on Wall Street at a value of around $9.6 billion, is part of the top ten of Wall Street institutions alongside giants such as Goldman Sachs and Morgan Stanley. According to Dialogic's ranking, Jefferies entered the top ten in the global investment banking activity of mergers and acquisitions. Handler joined Jefferies in 1990 when it was still a small and unknown investment bank and turned it into one of the fastest growing and strongest players in the field of mergers and acquisitions and IPOs.

The past two difficult years in the economy, and especially in the financial market, are evident not only in the decline in market shares, but also in the performance of Jefferies, whose revenues fell from a record $7.1 billion in 2021, to $6 billion in 2022, and to $4.7 billion last year. The profit also plunged from more than a billion dollars in the peak year to $262 million in 2023.

Additional transactions in Israel

In the last four years, Jefferies has increased its activity in Israel with a team of about 12 people, most of whom fly between Tel Aviv, London and New York, including analysts who conduct reviews in English of Israeli companies traded in Tel Aviv in order to arouse interest among foreigners. At first, some of the transactions led here by Natti Ginor, who is responsible for local operations, were met with a backlash. The first transaction of the bank that grabbed headlines here was the exchange's first offering of its own stock on the Tel Aviv Stock Exchange in collaboration with many foreign investors, and others followed later. According to estimates, Jefferies is currently organizing several additional transactions for the sale of portfolios of venture capital funds to investors from secondary funds. Since the beginning of the war, Jefferies also led the sale of the shares of the fintech company Pagaya for $95 million in early March.

Handler and Jefferies President Brian Friedman, are both Jews who have known everything and everyone in Israel for years and do not hesitate to leverage their connections for deals. For example, the evening before the interview, Handler was hosted for dinner by his old friend Ishay Davidi, whom he helped to raise FIMI’s first fund. On the other hand, they also know everyone in the U.S. - from businessman Mike Milken, with whom Handler worked when he was young, to Warren Buffett, with whom Jefferies owns a joint company in the mortgage field. Buffett's Berkshire Hathaway is also a small shareholder in Jefferies.

The current visit is part of the tour of all the sites where Jefferies has employees, but as Handler himself defines it, this time the story in Israel is different: “It was especially important for me to come to Israel to support my friends and show how much Jefferies is committed to the region. Here everything is very personal for us, I wanted to come and feel what is really happening here, to share the situation with our people around the globe and show support, and even though there was no specific deal on the agenda, suddenly several specific transactions are on the agenda, which is always welcome. While I am very bullish on the long-term prospects for Israeli companies and its economy, that does not detract from the compassion I have for those suffering in Gaza, the hostages and their families and the immense humanitarian toll that is being incurred.”

He is not prepared to refer to those specific transactions, but rather to highlight areas in which Jefferies' customers are particularly interested today, and these are of course the transactions in the field of finance that are taking place today, primarily the sale of the Phoenix agencies and Isracard, after the Harel deal fell through, transactions in the infrastructure sector and as usual high-tech, there Jefferies has been particularly active in the last four years. Jefferies also recognizes a great interest on the part of foreign investors in real estate and data centers in Israel.

Do you have any advanced deals on the table in Israel that arouse interest among foreign investors despite the complex situation here?

“It is clear that the events in Israel were traumatic for everyone. You can see it on their faces and feel it in the air. However, Israel is very strong and resilient, so even despite this cloud of sorrow that hangs over everyone, they also know that their responsibility is to keep moving forward. This is also the feedback that I receive from our clients, and therefore the state continues to move forward. In the end, the questions that are being asked are the same sort of questions we saw in the case of the Tel Aviv Stock Exchange deal: Is it a good company? Is the price fair? Is the deal structured correctly? If so, the investor does it, and if not, then no, and without underestimating the power of recent events, it doesn't matter what happens here in the background.”

What is Israel's main challenge in the eyes of foreign investors today?

"Most of the institutional or professional investors that I meet do not think that the war is an event that has a long-term impact. Most believe that it is a short-term challenge, and therefore will return operating here. In their hearts and minds they have never left Israel and the investor community that I meet is very supportive of Israel. There is an influx of innovation here that makes Israel an important place for investors, therefore even those who are not here at the moment, will return as soon as things return to normal."

"I believe the rating will change"

How much are the foreign investors you talk to bothered by the downgrade of Moody's credit rating and further possible downgrades that may come later?

"Credit ratings are very important and I, as a bond professional originally, study them in depth. But this is more a reflection of the current moment in time and does not refer to the quality of the country, its fiscal responsibility, or its ability to reach budget decisions. None of the financial metrics was questioned in this scenario, but only in reference to the increased risk due to the war. I believe that the rating will change as soon as Israel moves to the next stage, but the thing with the rating agencies is that they tend to lower the rating faster than they raise it. This is their mentality, but they too will return to focus on the advantages of the economy and not on the geopolitical situation."

The world is already starting to talk about the opening of the IPO window on Wall Street, will there also be a place for Israeli companies?

"The question here is a larger issue than the Israeli companies. In recent years, since the increase in interest rates, it has been very difficult to price the risk because of the significant gap between the sellers who set prices that were too high and the buyers who quoted prices that were too low. Therefore, in the last two years, a large backlog has been created at a historic level of transactions, both of issuances and of mergers and acquisitions transactions. Now, when it starts to appear that the risk-free interest rate is stabilizing between 4% and 5%, we can once again talk about deal making. I think that we will see an improvement in every quarter of the year, more sales transactions and mergers, more transactions in the secondary market. This will be a worldwide development, but Israel will participate in it. Israel is in a good position for increased activity in the capital market and that is why we have invested in increasing our workforce here in the last two years. In my view, one should be aggressive at difficult times, and gear up while the whole world feels uncomfortable and then remain humble in the good times. If you know how to do this, you will know how to navigate through the economic market cycles. This is of course easier said than done, but we did not slow down our activity here even during the war – holding discussions with those same clients, promoting ideas and making suggestions."

How close are we to the end of the negative cycle?

"I actually don't think there is a need to rush and lower the interest rate in the U.S. If you look at the American economy, you see that unemployment is at a good level, inflation falling more slowly than we may like, but the economy is rising, and consumers and the financial markets are in good shape. But at the same time the commercial real estate market is challenging and there are also the geopolitical risks and the uncertainty of the election campaigns that are taking place this year in many places. Therefore, in such a situation, I would like the Fed to keep their economic ammunition to deal with much worse future possible crises. Interest rates can be lowered slightly, but it should not be cut quickly, and I will not be disappointed if it remains unchanged for a while."

"People got used to interest rates"

In a scenario where interest rates do not fall in the near future, where will this leave the rally on Wall Street we have witnessed in recent months?

"The indices on Wall Street are close to their peak and most of the work has been done so far by the magnificent seven, but I do recognize in the last three or four months that it is expanding to other parts of the market as well, which is a good sign. People got used to the new interest rates and understand that it is not the end of the world, which makes the current market a good opportunity. It’s not super high and not super low, it's time to do business. I've been through multiple financial crises starting in 87, 90, 94, 98, 2001 and so on. At the end of the day, the world always gets better and recovers. The sun always shines, so you can sit and worry about everything and do nothing, or you can do what Israelis are doing now: taking a step forward each day.”