Magurit Chairman Erez Rosenbuch has emerged victorious temporarily in a battle against the Phoenix over proposed changes to the fund’s statutes and board of directors. The Phoenix sought to reduce management fees paid to Rosenbuch’s management company, but fell short of the necessary majority. As a result, Rosenbuch and his team will continue to receive management fees equivalent to 1% of the fund’s assets per year. This victory allows Magurit’s management company to enjoy millions of shekels in fees, making up more than half of the company’s revenues.
Magurit is a REIT fund traded on the Tel Aviv Stock Exchange, and its management fees are derived from the volume of its assets. This model, which is common in REIT funds, has faced criticism as there is no connection between these fees and the return achieved for investors. The Phoenix, owning 19.8% of Magurit, along with Mor Gemel and Pension, decided to oppose Magurit and initiated a war against the company. The conflict arose when the Magurit board of directors extended the management fee agreement with Rosenbuch’s company for seven years without a general assembly, angering the Phoenix and Mor Gemel and Pension.
Despite attempts at negotiation, the Phoenix rejected any compromise. Rosenbuch, leveraging his connections in the capital market, managed to secure support from shareholders who opposed the Phoenix’s proposed changes. Among these supporters were institutional bodies such as the pension fund of Hebra Kadisha, the National Fund for Israel, the Arab Funds for Widows and Orphans, and the Pai Fund. These entities have invested in Magurit since its listing on the Tel Aviv Stock Exchange in 2016. The Phoenix, Moore, and other opposition entities voted against Rosenbuch’s proposal.
In a surprising move, the Cypress Hedge Fund, founded by Gil Deutsch, Roni Biram, and Amir Efrati, voted against the Phoenix. Had they voted in favor, the Phoenix would have achieved the necessary majority for their proposed changes. Deutsch and Biram, who made their fortune from the sale of the investment house Excellence to the Phoenix in 2009, have since invested their proceeds in various ventures, including the establishment of investment funds. The voting pattern of the Cypress Hedge Fund may have been influenced by a desire to engage in dialogue with Rosenbuch and negotiate management fee reductions peacefully.
The Phoenix, disappointed with the outcome, decided to withdraw the funds it had invested in Magurit. While this is only a slight setback for the larger Brosh organization, it is a potentially more significant blow for Deutsch and Biram personally. The duo had previously sold Excellence to the Phoenix amid a contentious deal that involved legal battles and exposed secret recordings. The decision by the Phoenix to withdraw their funds from Magurit may signal the beginning of a snowball effect that could impact management fees in other funds.
Criticism has been directed towards REIT funds like Magurit, Keystone, Manivim, REIT 1, Aloma, and Generation Capital, all of which operate under a similar model. These funds charge management fees based on the size of their assets, leading to concerns about their motivation to rapidly expand through expensive acquisitions. The role of management fees in the funds has come into question, especially when they do not correlate with investor returns. The support given to Rosenbuch in his battle against the Phoenix may have broader implications for the management fees of other funds, including those managed by Deutsch and Biram.