A crunch in redemptions last week snowballed when some asset managers could not meet withdrawal requests, which helped knock Turkish shares lower. In response, authorities are meeting to iron out the technical steps for liquidations and investor payments. Treasury and Finance Minister Mehmet Simsek is chairing the talks that started Thursday, and the agenda includes how repayments will work, with meetings expected to run into Friday.
Among those at the table are the Capital Markets Board, Istanbul Settlement and Custody Bank (Takasbank), the central bank, and the Banking Regulation and Supervision Agency. Officials have also weighed pooling assets from the affected funds to simplify paying investors, according to Bloomberg News.
On Sept. 17, the Capital Markets Board moved to liquidate roughly $20 billion spread across 131 funds operated by seven portfolio managers. Turkiye Is Bankasi AS was appointed to oversee the winding down of funds run by Tera Portfoy Yonetimi AS; Ziraat Bankasi AS was tasked with handling the funds tied to the other six managers, including Pusula, Hedef and Bulls. Nearly 456,000 unique investors are tied to these funds, based on figures released Wednesday. Simsek has argued the fallout is confined to a limited slice of the industry and is not a systemic risk. Last week, he said Turkey counts more than 2,000 investment funds, adding that officials have effectively "quarantined" the troubled corner of the market.
As of 3:15 p.m. in Istanbul, the benchmark Borsa Istanbul 100 Index was lower by 2.3%. The broader BIST All Shares Index fell 2.5%, with more than 500 stocks lower and only about 65 higher. Foreign investors were net sellers of $110 million of Turkish equities last week, suggesting limited changes in overseas exposure so far.
Meanwhile, authorities broadened probes into the turmoil. Turkey seized assets connected to executives at several investment firms after prosecutors opened investigations into suspected market manipulation and other irregularities; separately, a court in Turkey ordered the arrest of two more Tera board members. Separately, the regulator curbed withdrawals and transfers at six securities firms - Tera's and A1 Capital included - in order to examine cash flows, BloombergHT reported Wednesday.
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If you hold emerging market funds or trade Turkish names, expect more headlines while authorities work through payments and investigations. The key watch items are how quickly cash is returned to the nearly half a million investors involved and whether the selloff broadens beyond the quarantined funds. For everyone else, it is a reminder that liquidity can vanish fast when too many people want out at once.
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