Corona? Record year; What could stop the galloping of Altshuler Shaham

A 52% jump in net profit to NIS 138 million, a 41% jump in the volume of assets to NIS 165 billion, and a 88% jump in the number of members in pension funds. Corona? At Altshuler Shaham Provident and Pension, 2020 was a record year.

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The provident arm of Altshuler Shaham, which is traded on the stock exchange, yesterday released strong reports for 2020, which were supported by the company’s continued growth and fundraising – both new and competing entities. NIS 4 billion, more than 3.5 times since it was issued less than two years ago.

Right: controlling shareholder Gilad Altshuler and CEO Yair Levinstein Photo: Tommy Harpaz

Altshuler Shaham is considered one of the great success stories of the capital market. The company’s good performance over time built it a strong brand, which led to an increasing flow of funds. In the financial field, the size advantage has significance, and this is seen in the results of the investment house: the sharp increase in assets has improved the level of profitability of Altshuler Shaham Gamel. If in 2018 the profit rate before tax from revenues was 13.2%, in 2019 it climbed to 20.1% and in 2020 it has already reached 24%.

The investment house should receive further impetus to improve profits from the acquisition of Psagot Investment House. As you may recall, last month Altshuler Shaham signed an agreement to purchase Psagot for NIS 910 million, with the goal of acquiring the provident and pension activities that manage NIS 70 billion, and selling the rest of the assets.

Such an addition of assets is expected to further boost the level of profitability of the investment house. Initially, there will be merger costs, so it is possible that there will be no improvement in profitability in 2021, but looking at the medium to long term, there is no doubt that profitability, which is still improving, will only increase.

The key question that arises is whether the unusual and unusual rate of organic asset growth that the company has introduced in recent years will continue. Altshuler Shaham has been, almost consistently, at the top of returns over the years.

The investment house is still ranked high in long-term ratings, but in the past year is not in first place. The field of camels is quite competitive, and the trends in it are affected by performance. That is why it will be challenging for the investment house to continue to maintain such a high fundraising rate, when there are entities that perform better, and also when it is currently the largest entity anyway.

The question also arises as to whether, with such a large volume of assets, the company will be able to generate excess returns as in the past. The investment house believes that even if they are not always ranked in the first place, they will be able to maintain a high level of performance, as a large part of their assets is invested overseas, where the level of liquidity of the markets and the variety of investment options are quite large.

The camel market is performance sensitive. In contrast, in the pension market, the company’s other area of ​​activity, the market behaves differently. Pension fund members are in no hurry to move funds. In retirement, Altshuler Shaham is another relatively small player, with a market share of less than 4%, so its growth potential in this market is significant.

On the other hand, the “threat” of continued growth at high rates may come from the field of default pension funds. At the end of the year, the Capital Market Authority is expected to hold a new tender for the management of default pension funds. The terms of the tender are being built these days, and the winners may be granted Yanukah defenses, which will give them a competitive advantage in recruiting peers.

Another threat to further expansion may come from the regulator: The Competition Authority is currently examining the deal to acquire Psagot. Approval for such a transaction is not trivial, as it is the largest and fastest growing body in the camel market that buys the second largest body. The capital market estimates that if the deal is also approved, there is a reasonable chance that it will be carried out under restrictions, which may moderate Altshuler Shaham’s strengthening from the merger.