On November 18, 2024, the Israeli Securities Authority (“ISA”) published a circular on the offering of collective investment schemes (the “ Circular“). The Circular presents several new insights on how the ISA interprets and applies the Joint Investment in Trust Law, 1994 (“Mutual Funds Law“) and the Regulation of Investment Advice, Investment Marketing, and Portfolio Management Law, 1995 (“Investment Advice Law“).

This summary only highlights key insights from the Circular, and should not be viewed as specific or exhaustive legal guidance. Given the complexity and length of the Circular, and its innovative content, we recommend seeking individual legal advice on the Circular’s implications.

1. Limitations on Public Offering under the Mutual Funds Law

   • Maximum 50 retail unitholders in global funds: the Circular stipulates that global funds cannot have more than 50 retail Israeli unitholders at any given moment (unless they are regulated under the Mutual Funds Law).
   • Responsibility for offerings made by others: Israeli private placement rules limit the offer and sale of units/shares to up to 35 retail investors every 12 months. The Circular emphasizes that: (a) this restriction applies to all parties involved in offering (or marketing) – including intermediaries acting on behalf of the fund manager; (b) investors and offerees are aggregated across all of the entities involved in the offering; (c) all involved entities are required to ensure that the overall number of investors and offerees is not exceeded (i.e. each entity is required to take means to prevent others from making it cross the limit).
   • Aggregating investors across multiple funds: According to the Circular, where several funds (presumably, under the same management) invest in a single underlying fund, they might be required to count retail investors and offerees collectively, even if there were other underlying investments in each of the funds (the example given in the Circular relates to several funds, each with 3 underlying investments, one of which is identical). The Circular could also imply that the underlying fund, should look-through the investing funds and count end-investors as its own.
   • Offers made by objective advisers – the Circular could imply that objective advisers, are considered “offerors” of funds they advise investors to purchase (even though they are not remunerated by the fund provider), unless such funds are publicly offered in the EU or in the US.. Previously, the market practice reflected that investment advisors are not subject to public offering restrictions if they are not “biased” (i.e. do not receive fees from asset managers or otherwise cooperate therewith).

2. Licensing Requirements for Investment Advice or Marketing

• •  Referring investors to advisers/marketers – according to the Circular, a person that refers investors to an adviser, and within this framework, engages in a preliminary discussion with the investor about a financial asset (e.g. a fund), thereby creating “initial interest” in such asset, could be viewed as providing “investment advice” (which requires licensing unless an exemption applies).

This summary presents possible implications of the ISA’s key positions, but it should not be regarded as conclusive or specific legal advice. It is essential to seek personalized legal advice due to the complex regulatory framework.