Turkey fund liquidations deepen risks for asset managers and investors

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Turkey fund liquidations risk

Highlights

Tera Portfoy and Pusula Portfoy assets surge tenfold and 13-fold to $14.3 billion and $13.2 billion, respectively, from August 2025 to August 2026.
Tera's TLY hedge fund delivers a 15,000% cumulative lira return by September 2025, swelling to $5 billion assets with 102,616 investors, amid inflation at 60%.
Regulators widen investigations into suspected manipulation, jailing 56, as JPMorgan warns fund shocks threaten Turkey's 2026 GDP growth forecast of 3%.

Liquidation drive follows rapid fund expansion

As reported by Reuters, the regulatory intervention comes after months of concern that some funds are too concentrated in single stocks or other assets and may struggle to meet investor withdrawals. The Capital Markets Board says Turkey's portfolio management industry assets rise to $329 billion in August 2026 from $246 billion a year earlier, while two firms at the center of the turmoil, Tera Portfoy and Pusula Portfoy, post especially sharp growth.

Tera's assets under management increase more than tenfold to $14.3 billion over that period, while Pusula's assets jump 13-fold to $13.2 billion. By the end of August, Tera ranks sixth and Pusula eighth among Turkey's portfolio managers, each holding more than 4% of total managed assets, making them the largest non-bank players in the sector.

Investor demand is fueled by tight monetary policy, which is intended to curb inflation and encourage lira savings, and by the appeal of products promising returns above inflation and local deposit rates. Some funds also trade recently listed small-cap shares, where limited liquidity allows sharp price swings that amplify reported daily returns.

One of the clearest examples is Tera's TLY hedge fund, which returns 747% in lira terms between January and July 2025 while it has fewer than 200 investors. After opening to a broader base in July, its cumulative return climbs to more than 15,000% in lira terms by September, attracting 102,616 investors and growing to $5 billion in assets, while Tera's TP2 money market fund reaches $4.6 billion with around 167,000 investors and delivers a 123% return over the same period, when inflation is 60%.

Market fallout spreads across stocks and economy

Turkish officials are warning about manipulation through investment funds as early as November 2025, when Finance Minister Mehmet Simsek says authorities know such activity is being carried out particularly through certain funds and that regulatory gaps will be addressed. Regulators now widen their investigation into suspected manipulation in both stock and fund markets, and Justice Minister Akin Gurlek says the number of suspects rises to 217, with 56 jailed pending trial.

The political and corporate fallout is also widening. Fatma Betul Sayan Kaya, a deputy chair of President Tayyip Erdogan's ruling AKP, resigns from her party posts after allegations that she and her husband make substantial profits trading Ozata Denizcilik shares ahead of the turmoil; she says on X that she takes political responsibility while the claims are examined. Those jailed include senior executives linked to Tera and Pusula, and broadcaster NTV says former central bank deputy governor Erkan Kilimci, later a Tera executive, is also jailed.

The broader market impact remains significant even as Istanbul's main index closes 2.5% higher on Thursday after constituent changes remove stocks caught up in the crisis. The benchmark has its worst month since 2008 in September, the fund liquidation process is expected to take six months, and investors with net investments below 1 million lira receive full repayment while those with 1 million lira or more get an interim payment of 1 million lira.

Uncertainty still surrounds the final investor losses because many of the affected funds hold thinly traded stocks that may be difficult to sell quickly. JPMorgan analysts say the turmoil creates meaningful downside risks to Turkey's 2026 GDP growth forecast of 3%, underscoring how a fund-sector shock is now feeding into wider market and economic concerns.

Our earlier coverage of redemption pressure at Blue Owl’s large private credit funds described how investor withdrawal requests began to ease after a year of heavy tender demand, even as sizable backlogs persisted because of 5% repurchase caps. The piece highlighted that while some flagship vehicles saw lower requests quarter-on-quarter, certain funds still faced elevated redemption pressure tied to concentrated investor bases and sector exposures, underscoring how liquidity-management limits can prolong stress in fund structures.

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