On July 28, 2026 the Knesset passed the Law for the Encouragement of Activity in the Capital Market (Fund Reform), 2026 (the “Fund Reform”). Chapter B of the Fund Reform introduces into the Joint Investment Trust Law, 1994, a new category of funds – the private investment fund in trust (קרן השקעות פרטיות בנאמנות), along with a package of related changes affecting the mechanics of the product, the regime for foreign funds, and enforcement. The Fund Reform will take effect within six months of publication, that is, on February 2, 2027.
To date, the Investment Trust Law has required funds to invest predominantly in publicly traded securities, while alternative assets have remained beyond the scope of permitted investments. The hedge fund in trust (קרנות גידור בנאמנות) broadened the permissible investment strategy with respect to traded securities, but did not extend it to alternative assets. The regime with respect to hedge funds in trust was established pursuant to a temporary order issued by the Israel Securities Authority (ISA), which is scheduled to expire in early 2027.
The Fund Reform addresses two distinct market needs: it places on a permanent statutory footing a supervised mutual-fund product that may employ investment strategies for the purpose of hedging risks, and enables investment in alternative assets within the scope of supervised mutual funds.
Thus, the Fund Reform enables a fund investing in alternative assets to publish a prospectus under the Investment Trust Law and to offer investments to retail investors pursuant to the supervised framework established under that law. At the same time, once the fund obtains Private Investment Fund in Trust status (קרן השקעות פרטיות בנאמנות), it becomes subject to oversight, supervision, and reporting requirements to the ISA.
The Israeli reform follows a well-established regulatory trend across Europe. Within the EU, managers of alternative investment funds are subject to regulation pursuant to the Alternative Investment Fund Managers Directive (AIFMD). The regime is gaining increasing market acceptance: as of September 2025, 236 such funds were registered in the European Union, of which 137 are domiciled in Luxembourg – Europe’s preeminent fund jurisdiction, in which the RAIF and SIF regimes likewise operate for professional and well-informed investors.
What Is a Private Investment Fund in Trust? The Definition and the Two Sub-Types
The category of private investment fund in trust is defined by the following two cumulative conditions:
- The fund agreement expressly provides that the fund constitutes a private investment fund in trust;
- The fund’s investment policy authorizes the manager to undertake one or more of the following actions – to acquire and hold securities that are not traded on an exchange or regulated market and assets that do not constitute securities, or to implement investment strategies for the purpose of hedging risks.
Accordingly, the Fund Reform regulates a single category of fund with two possible characteristics: a fund whose investment policy permits the acquisition and holding of non-traded securities and assets that are not securities, and a fund whose investment policy permits the implementation of investment strategies for the purpose of hedging risks. Insofar as the applicable conditions are formulated as “one or more,” the existence of a fund combining both characteristics is not ruled out.
For a fund for which the relevant limb of the definition authorizes investment in non-traded alternative assets, the list of assets it is authorized to acquire and hold extends beyond those enumerated in Section 59 of the Investment Trust Law and includes the following:
- securities that are not listed for trading on an exchange or regulated market;
- financial assets within the meaning of the Regulation of Investment Advice Law, excluding units of a partnership that does not invest exclusively in securities;
- loans, other than loans in respect of which the interest or return thereon is deemed to constitute business activity;
- rights in or relating to real property, other than a right the sale of which is subject to land appreciation tax under the Real Estate Taxation (Appreciation and Acquisition) Law, 1963, or would have been so subject but for an exemption under such law;
- digital assets (excluding CBDC);
- and any other asset the Minister of Finance may prescribe.
A fund may be set up either as an open-end fund or as a closed-end fund.
How the Product Works: Fixed Dates, Non-Cash Consideration and the 12% Concentration Limit
The majority of the related amendments are intended to serve a singular purpose – namely, to reconcile the structure of a mutual fund with the characteristics of an illiquid portfolio.
The principal amendment pertains to the fixed-date fund. Pursuant to the general rule set forth in Section 47 of the Investment Trust Law, the interval between consecutive fixed dates, whether for the offering of units or for their redemption, shall not exceed twelve months, or such longer period as may be prescribed by the ISA in accordance with the type of fund, provided that such period shall in no event exceed thirty-six months. In the case of a private investment fund, that maximum period is extended to fifteen years.
Non-cash consideration in an open-end private investment fund shall serve the same purpose: consideration upon the sale or redemption of units may be provided other than in cash, subject to such conditions as the Minister of Finance shall prescribe by regulations.
The Fund Reform further prescribes a concentration limit, pursuant to which exposure to any particular borrower, to shares of a particular corporation that are not traded on an exchange, or to rights in any particular real property, shall not, in each case, exceed 12%, unless a higher percentage is prescribed by the Minister of Finance by regulations.
How the Reform Affects Foreign Funds Offered in Israel
The reform further affects the manner in which foreign funds may be offered in Israel. The definition of a foreign fund (קרן חוץ) in Section 113A of the Investment Trust Law is expanded from investment in securities to investment in securities or another asset. Section 113D of the Investment Trust Law, which enumerates the provisions of the Investment Trust Law applicable to foreign funds whose units have been approved for offering in Israel, is likewise amended. A separate regime is added thereunder for a foreign fund possessing characteristics analogous to those of a private investment fund in trust, by applying specified publication and disclosure provisions by reference to the private-fund regime applicable to an Israeli private investment fund in trust.
What the Israel Securities Authority (ISA) Must Put in Place by February 2, 2027
The relevant provisions take effect six months after the Fund Reform was published, and that period is intended for the ISA to prepare the rules and directives that will give the new regime its practical content. The matters to be regulated include, among others:
- Prospectus -what must be included, and which particulars may be completed after the prospectus is published.
- Asset valuation and prices -how the fund’s asset values and the purchase and sale prices are calculated.
- Offering of units -the addition to the unit price and the conditions for charging it, the manner and timing of publishing unit prices and redemption prices, and, in a closed-end fund, the offering dates, the number of units offered and how they are allocated among subscribers.
- Redemption and settlement -the redemption of units, and the time and manner of transferring non-cash consideration and deducting the addition from the redemption price.
- Investment restrictions -diversification within the concentration limit set by the law; short sales, options and futures, differentiated by type of fund; credit and the permitted level of liabilities; and the types of assets and the conditions for acquiring them within the list as enacted.
It should also be borne in mind that the scope of the Investment Trust Law, defined in Section 2(a) by reference to joint investment in securities, has not been changed: a structure investing in a manner not regulated under the Investment Trust Law remains subject to all restrictions of the Israeli Securities Law, 1968. The exclusion for arrangements with no more than fifty participants made without an offer to the public likewise remains as it was.
What Fund Managers Should Decide in the Coming Months
Managers of alternative investments currently operating under the exclusion face a decision of principle: to stay within a private structure, or to move toward a regulated framework with all its pros and cons. The second route means approval as a fund manager, engaging a trustee, building the fund structure around the concentration limit and the fixed-date regime, and taking on a full reporting and disclosure regime.
How We Can Help
We advise fund managers both of mutual funds within the scope of the Investment Trust Law and private investment funds. We accompany managers through every stage of the process – from assessing how the Investment Trust Law together with the Fund Reform apply to a particular business model, through building the fund structure, preparing the prospectus and handling the process with the ISA, to tracking ISA rules and directives as they are published and adapting documentation and operational infrastructure accordingly.
