May 4, 2006
Unmasking Israel’s Mystery Benefactor
The mystery man of the Israeli economy, as he was dubbed by the country's media, is alive and well and living in Los Angeles.
His name is Elliott Broidy, and in the last two years he has raised $800 million to boost private enterprise in the Jewish state.
Broidy earned the "mystery man" label through his reticence to go public, in contrast to his more flamboyant peers. But in his first interview with an American publication, the 48-year-old entrepreneur, who founded Broidy Capital Management in 1991, talked about his motivation, strategy and background.
Sitting at a large table in the impressively furnished boardroom of his Century City office suite, with a stunning view of the Hollywood Hills, Broidy recalled his full press entry into the Israeli capital market.
The year was 2002 and, on the face of it, the timing couldn't have been worse. The intifada was at its height, the high-tech bubble had burst and the global economy was in the doldrums.
With the right connections and introductions, Broidy met with Prime Minister Ariel Sharon and such top-level political figures as Ehud Olmert, Benjamin Netanyahu, and Amir Peretz, now head of the Labor Party.
He had met with Sharon a number of times when the latter served as foreign minister in the late 1980s, and again a few years later when Broidy initiated some small-scale investments in Israel.
A longtime supporter of the Jewish state, Broidy said that "a strong and vital Israel is important to the United States, to American Jewry, and to me and my family."
Broidy's proposal to establish a large private equity fund for investments in Israel's "old" economy -- agriculture, manufacturing, capital management -- found a warm welcome among government officials at a time when most investors were shunning the strife-racked Jewish state.
"Charity is charity and business is business," Broidy remembers Sharon telling him. "Do something that makes sense and a profit for your investors."
Thus encouraged, Broidy established Markstone Capital Group and set a goal of raising $500 million. That ambition "was met initially with great skepticism" in Israel and the United States, Israeli financial analyst Guy Rolnik observed in retrospect.
"But the dubiety is being replaced by awe.... It is a major triumph," Rolnik wrote recently.
The analyst predicted that the infusion of large equity funds could "democratize" the Israeli economy by possibly ending the long dominance of 10 large Israeli family-based investment groups, which traditionally cut all the big financial deals in the country.
Broidy's first prospect was New York State Comptroller Alan Hevesi, and after several months of vetting Broidy's proposal and meetings with Israeli business and political leaders, the New York State Common Retirement Fund signed on for $200 million.
On the other coast, the California Public Employees Retirement System (CalPers) put in $50 million, and additional amounts came from similar funds in Oregon, New Mexico, North Carolina and New York City.
"Broidy did a remarkable job in assembling such a group of diverse investors," said Richard Gunther, himself a major investor in Israel who also has a stake in Markstone.
"When you try to raise money for Israel investment from private people, particularly Jewish ones, you can appeal to both their heart and their head," said Gunther. "But when you try to do business with public pension funds, these are hard-nosed people, who deal strictly from the head. Their investment decisions in this case represent a notable vote of confidence in Elliott and in the future of the Israeli economy."
With the pension funds as a solid base, corporate and private investors, foundations, banks and insurance companies in the United States and Israel swelled the pot, and Markstone raised its goal to $800 million, with a minimum investment of $1 million plus.
The $800 million figure, raised between 2003 and 2005, makes Markstone the largest private equity fund in Israel, with 90 percent coming from American investors and 10 percent from Israelis. The fund is now closed.
So far, Broidy has invested $350 million, and his strategy is to buy a controlling interest in well-established companies and infuse Markstone's international marketing and financial expertise to raise their values.
Among the main acquisitions have been the Steimatsky book chain of 150 stores, considered the Barnes & Noble of Israel, Netafim drip irrigation systems, Nilit specialty nylon manufacture, Solomon-PKN money management firm and Golden Pages, Israel's equivalent of the yellow pages directories, which also provides cellphone and Internet services.
The most recent addition has been Bank Hapoalim's provident and mutual funds.
When asked what rate of return investors might expect, Broidy, a man who weighs his words carefully, said it would be "many times more than from bonds or stocks."
Robert Moskowitz, managing director of Shamrock Capital Advisors, and other financial experts, point out that investors in private equity funds are in it for the long haul, generally three to five years, have no guarantee that their investments will pay off, and generally do not see major returns until a company controlled by the fund is sold or goes public.
However, projecting the state of the Israeli economy to the years ahead, Moskowitz hazarded a guess that investors could anticipate a doubling of their capital in five years, or an annual rate of return of 20 percent.
Judging from a 90-minute interview, Broidy doesn't fit the stereotype of the hard-charging American capitalist. He is soft-spoken, reluctant to speak of his personal life or accomplishments, and categorically refuses to say a bad word about anyone.
"I am a positive person and I don't like to criticize," he said, noting that his main purpose in talking to The Journal was to encourage other large-scale American investors to explore the growing, profitable Israeli market.
Yet, while his business decisions may be ruled by ledger balances, his private charities and communal activities point to his concern for Israel and for the Jewish community.
He is a major donor to the United Jewish Fund and Friends of the Israel Defense Forces, a trustee of USC and USC Hillel, serves on the Hebrew Union College-Jewish Institute of Religion board of governors, and is an executive board member and former trustee of Wilshire Boulevard Temple.
The Reform congregation's senior rabbi, Steven Leder, has known Broidy for 19 years, officiated at the wedding of Elliott and Robin, and is an unabashed fan of the couple.
"Elliott is devoted, funny, actually quite shy, but on the spot when an important decision has to be made," Leder said. "Robin is the energizer -- they come as a package."
"Elliott is something of a political genius," Leder added. "He'll sit quietly in a meeting while everyone wrestles with some problem for 30 minutes. Then he'll step in with the exactly right solution, which he had spotted 29 minutes earlier."
Broidy is one of the largest donors and key lay leader at USC Hillel. USC Hillel's top professionals, Rabbi Jonathan Klein and Executive Director Steven Mercer, enthusiastically lauded his leadership, especially in Israeli-related programs.
Mercer credited Broidy and Stanley Gold, chairman of the USC Board of Trustees, with persuading the campus administration to reinstate the university's study program in Israel, which had been halted during the intifada.
The choice of the name Markstone for his fund also illustrates Broidy's attitude toward Israel.
"During one of my trips to Israel, I visited the memorial erected for Col. David 'Mickey' Marcus, a West Point-educated officer, who distinguished himself in World War II," said Broidy. "He was killed fighting for Israel during the War of Independence under the nom de guerre Michael Stone. I was so impressed by his devotion to Israel that I decided to use a loose combination of his real and wartime names for my fund."
One of Broidy's early involvements in Israel on the economic side came in the mid-'90s, when he joined Angelenos Gold and Stanley Chais in revitalizing the California-Israel Chamber of Commerce.
"At that point, the chamber had lost vitality and become dormant," recalled Gunther, one of the original founders.
The catalyst in this effort was Gerry Stoch, Israel's economic attaché for the southwestern United States at the time and now vice president for finance and administration at Markstone's Tel Aviv office.
Broidy was born a second-generation Angeleno; his father was a schoolteacher and his mother a nurse. He attended University High and earned a bachelor's degree in accounting and finance at USC, where he remains strongly involved in the Marshall School of Business.
He showed an early entrepreneurial spirit at age 19, when he became the owner of a coin-operated laundromat (a quarter per load) in East Los Angeles. Later he worked as a CPA for a large accounting firm before becoming an independent money manager
He and his wife, Robin, formerly an entertainment industry lawyer, live in Bel Air with their three children, ranging in age from 2 to 10.
Politically, Broidy declared himself neutral on the Israeli scene. "It would be presumptuous to tell Israelis how to vote," he said.
He shows no such reticence about American politics. He is active in the Republican Jewish Coalition as co-chair of its Israel Affairs Committee, and his boardroom displays autographed, framed photos of President Bush and Secretary of State Condoleezza Rice, as well as Sharon. He was listed as one of the main financial underwriters of Bush's second inaugural gala in 2005.
Outside the Jewish community, he serves the city of Los Angeles as a commissioner of the Fire and Police Pension Fund and a director of the Police Foundation. A recent appointment is to the oversight board of the U.S. Homeland Security Advisory Council.
As Markstone's chairman, Broidy is a hands-on executive, who works closely with his two Israeli partners on all investment and development decisions. On the average, he flies to Israel every six weeks, each time staying seven to 10 days.
He plans one additional private investment in the Jewish state.
"When I find the time to look around," he said, "I want to buy an apartment or house in Israel."