Altshuler Shaham Finance 2025: Pension Funds the Story, Alternatives Color the Profit, Credit Still Needs Proof

Company Overview

Altshuler Shaham Finance is no longer just a listed wrapper around a pension and provident-fund franchise. In 2025 it looks more like a financial platform trying to build three engines at once: pension and provident funds, alternative investments, and non-bank credit. The problem is that the report gives investors two very different messages at the same time: net profit jumped to NIS 153.7 million, while operating profit fell to NIS 132.4 million. That is the core issue. The improvement in the headline came mainly from revaluations, success fees and partnership income, not from a broad operating improvement across the business.

What is working now is also clear. The pension and provident activity still generated almost all of the group’s external revenue, NIS 897.2 million out of NIS 935.0 million, and still produced segment profit of NIS 171.9 million. At the same time, alternative investments moved from a small strategic add-on into a segment that now looks material on paper, with segment profit of NIS 60.6 million. Credit is no longer immaterial either: the net loan book grew to NIS 354.1 million from NIS 64.3 million at the end of 2024.

What keeps the thesis from becoming cleaner is that the mature engine is funding the newer ones while the newer ones still do not show a conservative, plain-vanilla earnings profile. Credit is still loss-making. Alternatives rely heavily on revaluations and partnership economics. And the company itself is already signaling, through dividend policy and bank facilities, that it currently prefers platform building over a simple cash-distribution story.

That is also why this report matters now. A quick read could produce a simple conclusion: this is a pension house that has successfully diversified. The more conservative read is different: diversification is progressing, but common shareholders still depend mainly on the pension engine, while taking on more underwriting risk, more funding complexity and more exposure to accounting gains that will only be tested later.

The group’s economic map now looks like this:

This chart captures the central gap in the 2025 story. Alternatives already generate attractive numbers at the segment line, but less than half of that segment result reached the common-shareholder line. That is a meaningful gap between value created somewhere inside the structure and value that is actually accessible to the listed equity.

Events And Triggers

This year did not stand on its own. In 2024 the company entered credit through the acquisition of Credits, and in 2025 it expanded that base: Altshuler Shaham LeBniya was established in July 2025, and a guarantees license was obtained during the fourth quarter. At the same time, the alternative-investments platform kept expanding through Altshuler Real Estate, Altshuler Investment Funds and iFunds, to the point where the segment now materially changes the consolidated picture.

The first trigger: in March 2026 the board approved a dividend of only NIS 17 million based on the 2025 financial statements, even though the company’s policy speaks about distributing at least 75% of distributable profits, subject to legal and financing constraints. The reason it gave was blunt: business development, funding part of the credit activity with equity, and preserving room for additional opportunities. This is not a technical footnote. It is a capital-allocation statement.

The second trigger: in February 2026 the non-binding on-call credit facility from Bank B was increased from NIS 200 million to NIS 300 million on the same general terms, and the company said that by the approval date of the report it had total credit facilities of NIS 650 million for customer lending. The meaning is straightforward: management is choosing to accelerate the credit engine faster than internal equity alone would allow.

The third trigger: those facilities are not backed only by the credit business itself. The pledges in favor of the banks sit on the company’s rights vis-a-vis Altshuler Gemel under the service agreement between the parent and Altshuler Gemel, and the three banks rank pari passu on those rights. In other words, pension and provident funds are not only the mature profit engine of the group. They are also the collateral layer enabling the jump in credit.

The fourth trigger: in alternatives, iFunds finished 2025 with a distribution agreement with Discount Bank, and after the reporting date a distribution agreement was also signed with Mizrahi Tefahot. That matters because if the company wants alternatives to depend less on valuation gains and more on recurring management and distribution income, distribution breadth is one of the first things that has to move.

The fifth trigger: credit did not stand still after year-end. The company says that after the reporting date it extended additional net credit of about NIS 63 million, and Altshuler Credit LeBniya alone advanced another NIS 12 million after year-end. This is not a story that stopped on December 31. It is moving into 2026 at full speed.

Efficiency, Profitability And Competition

The central takeaway here is simple: 2025 was weaker operationally and stronger accounting-wise. Those are not the same thing.

Pension Still Holds Up The House

The pension and provident segment ended the year with NIS 163.9 billion of assets under management, slightly below NIS 165.6 billion at the end of 2024. That happened in a year when market conditions were very favorable, while the company also recorded around NIS 11.0 billion of contributions. The problem is on the other side of the ledger: transfers out of funds reached roughly NIS 29.8 billion, and benefit payments were another NIS 7.0 billion.

The line makes the point quickly. This is not a collapse, but it is not a clean growth path either. After improving through most of 2025, AUM fell in the fourth quarter from NIS 167.5 billion to NIS 163.9 billion. Put that together with pension and provident net management-fee income falling to NIS 897.2 million from NIS 905.6 million, and segment profit declining to NIS 171.9 million from NIS 192.1 million, and the picture is a mature engine that still works very well but no longer enjoys the same pricing ease.

That does not mean the franchise is weak across the board. The company still held 40.5% market share in savings for every child, 14.4% in provident funds for investment, and 12.9% in provident funds. The human-capital profile also shows where the center of gravity still sits: 722 of the group’s 828 employees are tied to pension and provident activity. But that strength no longer translates automatically into better financial results. The anchor revenues are still there. Pricing power is less clean.

Alternatives Are Expanding, But The Clean Bottom Line Is Smaller Than The Headline

The alternatives segment shows the opposite pattern. External revenue was still modest at NIS 15.1 million, but segment profit jumped to NIS 60.6 million from a loss of NIS 9.1 million in 2024. On the surface that looks dramatic. Underneath, the profit source is less straightforward: the company recognized NIS 49.8 million of finance income from a financial-asset revaluation and NIS 24.8 million as its share in profits of associates.

Operationally, there is a real growth story here. Managed and distributed assets rose to USD 758 million from USD 374 million at the end of 2024. Altshuler Real Estate reached cumulative fundraising of USD 188 million. Altshuler Investment Funds reached USD 90.7 million. And iFunds added a distribution layer that is now widening into the banking system.

But anyone who stops at the NIS 60.6 million segment result misses two heavy caveats. First, a meaningful part of that profit sits on valuation marks, forecast success fees and partnership income, not on recurring management and distribution fees. The company itself says it cannot estimate when some of the yet-unrecognized amounts will be recognized, in what final amount, or whether they will be recognized at all. Second, even once the segment result was recognized, only NIS 24.3 million was attributable to the company’s shareholders, while NIS 36.3 million went to non-controlling interests.

The sharpest example is the ASRE Churchwick partnership. In 2025 the partnership generated profit of about NIS 47.4 million, but before tax only about NIS 19.15 million was attributed to the company’s shareholders, while about NIS 28.25 million was attributed to minority interests. That is the difference between value created inside the structure and value that actually belongs to the public share.

There is still additional upside that has not been recognized. The potential success-fee range still not recognized stands at USD 13 million to USD 26 million for the real-estate activity and another USD 4 million to USD 6 million for investment funds. That can become real upside. It can also remain a long-dated paper number.

Credit Is Scaling Fast, But It Has Not Yet Moved From Buildout To Proof

The credit story is impossible to miss. Net customer credit rose to NIS 354.1 million at the end of 2025 from NIS 64.3 million a year earlier. Of that amount, NIS 305.4 million came from business credit and NIS 48.7 million from construction finance.

But this growth has not yet translated into profitability. The segment generated NIS 21.5 million of finance income in 2025 and still ended the year with a segment loss of NIS 11.5 million. Credit-loss expense rose to NIS 5.7 million, credit-related funding expense rose to NIS 8.7 million, and total expected credit-loss allowance reached NIS 7.1 million.

Asset quality also deserves attention. 64.46% of the business-credit portfolio is exposed to construction and real estate, 56% of the portfolio matures beyond 365 days, and the aging report already shows NIS 12.1 million of gross overdue receivables in the business-credit book, including NIS 5.0 million more than 365 days overdue and another NIS 1.7 million in restructured loans.

That does not automatically make the portfolio weak. On the contrary, the company emphasizes collateral, personal guarantees and secured lending, and in construction finance it showed one borrower with a NIS 100 million credit line, NIS 50 million utilized credit, projected surplus of NIS 147.2 million and 34% LTV across six projects. But it does mean the portfolio is not yet seasoned enough to be treated as a mature engine. One borrower in construction finance and 64.5% exposure to construction and real estate still describe a book that should be judged first through underwriting quality, not through growth optics.

Competitive conditions are also demanding. The company entered a market dominated by banks and established non-bank lenders. Its claimed edge is brand credibility and cheaper funding than smaller rivals. Its weakness is that it still has not shown a full cycle of origination, collection, arrears management, collateral realization and normalized profitability.

Cash Flow, Debt And Capital Structure

This is where a quick read of the cash-flow statement can mislead. The right frame here is all-in cash flexibility, not a simple free-cash-flow shortcut. The reason is that in a lending business, customer credit and related bank funding both run through operating cash flow. So the NIS 172.5 million of operating cash flow in 2025 does not mean the same thing it would mean in a plain services company.

The cash-flow statement shows both sides of the credit engine very clearly: a NIS 293.6 million use from the change in customer credit, offset by a NIS 297.6 million source from the change in bank loans used for non-bank credit. In other words, a meaningful part of reported operating cash flow reflects loan-book growth and its funding, not plain cash available to common shareholders.

The period ended with only NIS 87.5 million of cash and cash equivalents, versus NIS 84.0 million a year earlier. That happened after NIS 58.0 million used in investing activity, NIS 111.0 million used in financing activity, and NIS 85 million of dividends paid during the year. The real cash takeaway is that the company is not building a large cash cushion. It is actively recycling cash into the buildout of the newer engines.

The balance sheet tells the same story. Total liabilities rose to NIS 933.5 million from NIS 664.3 million. Short-term credit jumped to NIS 439.6 million from NIS 92.5 million, while long-term bank loans declined to NIS 240.7 million. At the same time, equity attributable to shareholders rose to NIS 595.0 million, but that increase came alongside a NIS 42.8 million return of capital to minority holders and NIS 85 million of dividends.

This bridge matters because it links profitability to capital structure. Without the finance-income layer and associate profits, the year would have looked much less impressive. That means the company can continue to show sharp swings in profit before tax even without a dramatic change in underlying operating activity.

On covenants, the current picture is still comfortable. At Altshuler Gemel, which is effectively the funding anchor, quarterly management-fee income stood at about NIS 221 million versus a NIS 200 million minimum, equity excluding capital reserves stood at about NIS 446 million versus a NIS 245 million minimum, the debt-coverage ratio stood at 2.02 versus a 2.8 ceiling, and the debt-service ratio stood at 3.04 versus a 1.5 floor.

But covenant comfort is not the same as funding comfort. A large part of the facilities is on-call, meaning non-binding lines whose actual amount and terms can change at the banks’ discretion. On top of that, the agreement with Bank B includes standard acceleration clauses, including in the case of acceleration demands from other creditors. That is not an immediate stress point today, but it is a reminder that the company is choosing to grow through a flexible funding layer, not through long-dated, quiet leverage.

Outlook

Finding one: 2025 proves that the company can build new engines, but not yet that those engines are already producing stable, plain shareholder earnings.

Finding two: pension and provident funds still finance the whole story. They are not just the largest revenue engine. They are the asset base against which the parent is effectively borrowing to support credit growth.

Finding three: alternatives have crossed the relevance threshold, but most of the new profit there still depends on marks, success fees, minorities and realization timing.

Finding four: credit now has facilities, a guarantees license and a construction-finance channel, but 2025 still does not provide a full underwriting proof point.

That makes 2026 look much more like a proof year than a breakout year. If the company can show three things over the next three or four quarters, the thesis can improve meaningfully: relative stabilization in pension AUM and fee economics, continued alternatives growth through recurring management and distribution income rather than mainly valuation effects, and credit progressing toward break-even without a sharp worsening in provisions or arrears.

In pension, the main requirement is stabilization. It does not need an exceptional jump, but it does need to narrow the gap between favorable markets and pressure on fee income. If even a strong market backdrop does not produce a clearer AUM trend, then the base funding the newer growth bets becomes less predictable.

In alternatives, investors should follow two different tracks. The first is operational: whether iFunds, Altshuler Real Estate and Altshuler Investment Funds continue to expand managed and distributed assets, and whether the new bank-distribution agreements actually convert into recurring fee streams. The second is accounting: how quickly partnership profits and success-fee economics move from model-based value into realized cash and recognized income that is less dependent on forward assumptions.

In credit, the key question is not only how large the book becomes, but at what cost. The company already says it expects to increase its funding sources in 2026, through bank funding and potentially through bonds or commercial paper. That can support growth. It also means the expansion path now pushes the company into a phase where cost of funds, collateral quality and expected credit-loss behavior will become core elements in every read of the next reports.

The guarantees product also matters. No guarantees had yet been issued by the reporting date, but the company says first framework agreements were signed after year-end. That can be positive because guarantees broaden the product set without requiring exactly the same balance-sheet profile as straight lending. On the other hand, once the activity scales, it will also pull in dedicated capital and liquidity requirements.

If the coming year has to be summarized in one sentence, it is this: the structure is already built, but the company still has to prove that the structure can generate recurring profit, accessible cash and disciplined risk-adjusted returns.

Risks

The first risk is gradual erosion in the pension base. This is not a tail-risk issue. It is a slow-burn one. Even moderate fee pressure or continued net transfers out can weaken exactly the segment that funds the expansion of the other activities.

The second risk is credit quality. The book grew very quickly, exposure to construction and real estate is high, the company already reports NIS 12.1 million of overdue gross receivables, and construction finance currently rests on one borrower. At this scale, one underwriting mistake can still be very visible.

The third risk is funding structure. On-call facilities gave the company speed, but they also leave it dependent on bank appetite, pledged rights tied to Altshuler Gemel, and in one case cross-default style acceleration language.

The fourth risk is earnings quality in alternatives. Revaluation gains, forecast success fees and partnership profits are all legitimate sources of profit, but they are also highly sensitive to timing, assumptions and market conditions. The company itself says it cannot estimate when some amounts will be recognized, how much they will ultimately be worth, or whether they will be recognized at all.

The fifth risk is capital allocation. Once the company cuts the dividend in order to expand credit and pursue additional opportunities, investors are no longer buying only a stable pension engine. They are also buying management’s capital-allocation judgment.

Conclusions

Altshuler Shaham Finance exits 2025 as a more diversified company, but not as a simpler one. Pension and provident funds still carry the cash generation, the funding layer and the operating moat. Alternatives now contribute meaningfully to profit, but a large part of that contribution is accounting-heavy and sits above the common-shareholder layer. Credit has already become a real business, but not yet a proven one. That is exactly what the market will have to judge over the next year.

Current thesis in one line: this is still fundamentally a pension-and-provident franchise trying to become a broader financial platform, but in 2025 the new profit arrived too quickly through marks and funding expansion, not yet through simple, high-quality shareholder earnings.

What changed versus the older reading is that the new engines are no longer theoretical. Alternatives are already material, and credit is already large enough to move the balance sheet and capital allocation. The strongest counter-thesis is that management is building new profit engines at the right time, with a strong brand, relatively competitive funding and comfortable covenant headroom, so 2025 may only be the first stage before maturation.

What can change the market’s near- to medium-term reading is not one more headline number, but the combination of three tests: whether pension stabilizes, whether credit grows without worsening asset quality, and whether alternatives start producing more cash and less model-driven profit. That matters because this is ultimately a test of whether a mature pension engine can be turned into a broader financial platform without diluting earnings quality for common shareholders.

Over the next 2 to 4 quarters, the thesis improves if the company stabilizes the pension base, moves credit closer to break-even without worsening asset quality, and shows more recurring, realized economics in alternatives. It weakens if outflows continue in pension, if provisions and arrears rise sharply in credit, or if alternative-investment profits turn out to be much stronger on paper than in cash.