Last month's redemption defaults at Tera Portfoy and Pusula Portfoy sparked heavy withdrawals across investment funds, cutting the sector's portfolio value by 1.5 trillion liras, official data show. The hit showed up first in stocks, erasing billions on the Istanbul exchange, but the strain is now brushing up against company debt.
With asset bases shrinking, managers have less room to take risk, especially if they hold bonds tied to firms at the center of the turmoil. Over the past month, Turkish regulators have unwound scores of investment funds, highlighting how redemptions are compelling managers to overhaul portfolios.
Turkey's lira corporate bond market has swelled over the past decade to more than 1 trillion liras as of late September, according to Ak Yatirim, and mutual funds own about a third of it. As investors pulled cash, managers sold what they could offload quickly, leaving a heavier tilt to harder-to-trade corporate paper.
In Istanbul, Perform Portfoy's fund manager Altan Aydin said, "Most funds are likely to remain cautious on corporate bonds for some time." He added that selling the most liquid assets first left corporate bonds as a bigger share of portfolios, an exposure managers are reluctant to add to.
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There is a focused risk tied to debt from entities connected to the crisis-hit firms. Bloomberg's data show about 35 billion liras of those bonds are outstanding. On Oct. 5, the market was hit again as Tera Yatirim Bankasi missed 6.05 billion liras in principal and coupon payments. On Thursday, regulators pulled Tera Yatirim Menkul's application, which sought to sell debt amounting to 69 billion liras along with a capital increase, citing "prevailing circumstances and existing uncertainties."
Even so, established borrowers are still tapping cash. This month, a Garanti BBVA unit sold lira-denominated bonds, and major issuers including Turkcell AS and Akbank TAS secured funding through private placements. Aydin expects smaller companies to feel the squeeze, while well known issuers keep market access.
"Money market and short-term debt instrument funds were among the key buyers of corporate bonds," said Alp Serbetli, head of Treasury at ICBC Turkey Investment. If those holders need to sell to meet redemptions, bids may be scarce. A Gedik Yatirim report found that the funds regulators unwound held 58.6 percent of assets in limited-liquidity instruments, about 334 billion liras. Pixis Capital's managing partner, Omer Gencal, said, "The issue is not the amount of these corporate bonds, but the ability to sell them," and warned that outflows are pressuring prices and rollovers in a market lacking market makers or buyback backstops.
Some see the slowdown as temporary. "A few small- to mid-sized firms could be negatively affected by recent developments, but I don't think this will reach a scale that would have a meaningful impact on the market or the sector as a whole," said Altug Ozaslan, founder of Fortuna Capital. In plain English: liquidity is thinner, swings can widen, and funding favors the best known issuers. For your portfolio, the watch items are issuer quality and how fast a fund can turn its bond holdings into cash.
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