Turkey considers pooling frozen assets to repay investors after $18B fund crisis

Turkey’s Capital Markets Board, known as the SPK, has kicked off the liquidation of 131 investment funds after a cascade of redemption failures exposed deep cracks in the country’s fund management industry. The assets involved total roughly $18.3 billion, or about 890 billion Turkish lira, and approximately 350,000 investors are now waiting to find out when, or if, they’ll get their money back.

The regulator is exploring whether pooling the frozen fund assets could streamline repayment to investors. Seven portfolio management companies are caught up in the unwinding, and the SPK has tapped major Turkish banks to oversee the process.

How the crisis unfolded

The trouble started when Pusula Portfoy and Tera Portfoy disclosed that they could not meet investor redemption requests. Tera Portfoy alone faced collective redemption demands of roughly 300 billion lira, the equivalent of about $6.15 billion. That’s a staggering outflow for any single fund manager, let alone one operating in an emerging market.

The disclosures triggered a swift market reaction. Borsa Istanbul’s benchmark index dropped 2.6% intraday as investors scrambled to assess how far the contagion might spread. Authorities moved quickly to freeze the assets of executives linked to several firms, including Tera Yatirim, Pusula Finans Holding, Hedef Holding, and Bulls Portfoy. Investigations into possible market manipulation are ongoing.

The liquidation plan

The SPK initiated the formal liquidation process on September 18 and has set a target of three months to complete it, though the regulator retains the authority to extend that timeline.

Turkiye Is Bankasi has been assigned to handle the liquidation of Tera Portfoy’s funds. Ziraat Bankasi, which is state-owned, will manage the funds linked to A1 Capital and other affected firms.

The liquidation rules prioritize pending redemption orders, meaning investors who already submitted withdrawal requests before the freeze should, in theory, be at the front of the line. After that, the SPK plans to gradually sell off fund assets and distribute the proceeds proportionally among remaining investors. There is no fixed repayment date.

The pooling concept under consideration would consolidate frozen assets across the affected funds, potentially simplifying the distribution process. Rather than liquidating each fund in isolation and dealing with 131 separate recovery timelines, a pooled approach could create a single mechanism for converting assets to cash and paying out investors.

Systemic risk or contained mess

Turkey’s Treasury Minister Mehmet Simsek has publicly stated that the situation poses no systemic risk to the broader market.