Turkey’s Markets Regulator Tightens Rules for Hedge Funds
Turkey’s markets regulator announced new rules limiting hedge funds’ exposure to related parties and capping concentrated investments, in a bid to address concerns about abnormal returns and repeated warnings from global index providers.
On Saturday, Turkey's markets regulator introduced stricter rules for hedge funds, responding to concerns over market manipulation and unusual returns. Under the new guidelines from the Capital Markets Board, hedge funds must limit their investments in an issuer's free-floating shares to between 2% and 8% based on the company's free-float ratio.
Additionally, funds are barred from investing more than 20% of their portfolios in capital-market instruments issued by related entities controlled by their management. The regulator further tightened restrictions by prohibiting the combined value of securities that individually make up more than 5% of a hedge fund's portfolio from exceeding 20% of the total portfolio.
Funds have until the end of 2026 to fully comply with these new requirements, with excess positions needing to be reduced by at least one-third by October 31 and two-thirds by November 30. These measures come after reports of some Turkish investment funds gaining excessive control over liquidity in relatively illiquid stocks, leading to unusually large fund returns and significant gains in individual equities.
This has sparked questions about potential price manipulation, related-account trading, and distorted valuations in Turkey's equity market. Major global index providers MSCI, S&P Dow Jones Indices, and FTSE Russell have expressed concerns about shareholder transparency, free-floats, and market accessibility in Turkey, with MSCI warning it could review the country's emerging-market classification if authorities fail to improve shareholder transparency by November.
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