Turkey Orders Liquidation of 130 Speculative Funds

BIST 100 Drops 8% on Fears of Mass Redemptions

Turkey’s financial authorities halted fund transactions at seven asset managers and ordered 130 funds to be liquidated after a stock-market plunge fueled by fears of a fund run, or mass redemptions from speculative funds.

The decision was made at an emergency meeting of Turkey’s Financial Stability Committee on September 17, the Financial Times reported. The move came after the BIST 100, Turkey’s benchmark stock index, fell 8% over two days starting September 15.

Selling pressure began after major asset manager Fusula said it would be unable to pay some investors’ redemption proceeds on time. Terra, another asset manager, also disclosed delays in redemption payments for two of its funds. Atlas extended the waiting period for redemptions at some of its funds. The three firms manage a combined $29 billion in assets.

Over the past two years, those funds concentrated purchases in thinly traded stocks in a bid to drive up share prices. As the net asset value of funds holding those stocks climbed, new investors flowed in. The funds then used that money to buy more of the same shares.

The structure began to unravel in June after MSCI warned there could be “collusive behavior” between the funds and related listed companies. Investors then rushed to withdraw money, but the stocks were so illiquid that asset managers could not sell enough shares to meet redemptions. That led to redemption suspensions.

Turkey’s central bank said the same day it would ease lending and collateral requirements for financial companies. The measure is aimed at helping them secure liquidity more easily and avoid fire sales of assets as stock prices decline.

Han Myung-hyun, Hankyung.com reporter, wise@hankyung.com