Explainer-How Turkey’s investment fund bubble burst

In October, Turkey's investment fund sector encountered a severe crisis as regulators ordered the liquidation of 131 funds managed by seven large asset managers, following concerns over their ability to meet redemption obligations. These funds had amassed assets of over $20 billion within just three years, attracting nearly half a million investors, including politicians, former officials, and celebrities, seeking substantial returns to counteract a declining currency and high inflation.

The crisis intensified market volatility, pushing Turkey's main stock index to its lowest monthly performance since 2008 in September. Turkey's monetary policy remained stringent to combat inflation and promote domestic savings, inadvertently fueling interest in funds promising returns above inflation and local deposit rates. Some funds concentrated investments in a single stock or asset, while others had a limited number of investors, leading to increased price volatility and daily fund returns.

Turkish authorities alleged that some funds were involved in market manipulation, prompting warnings from Finance Minister Mehmet Simsek and former Capital Markets Board chairman Omer Gonul. The situation escalated when two prominent asset managers, Tera Portfoy and Pusula Portfoy, experienced rapid growth before the crisis. Tera's assets under management surged 13-fold to $13.2 billion by August 2026, while Pusula's assets expanded 10-fold to $14.3 billion.

By the end of August, Tera was the sixth-largest portfolio manager in Turkey, and Pusula was eighth, each with over 4% of total managed assets. Some funds reported substantial increases in assets and investors. Tera's TLY hedge fund, for instance, saw a 747% return in lira terms between January and July 2025, growing to over 15,000% by September after becoming available to a broader investor base.

Regulatory scrutiny intensified, with Justice Minister Akin Gurlek revealing that the number of suspects had risen to 217, including 56 already jailed pending trial. Notable figures implicated include Fatma Betul Sayan Kaya, a deputy chair of President Erdogan's ruling AKP party, who resigned following allegations of substantial profits from trading Ozata Denizcilik shares ahead of the crisis.

The liquidation process, expected to take six months, will see full repayment for investors with investments below 1 million lira ($20,396) and an interim payment of 1 million lira for those with 1 million or more invested. The Savings Deposit Insurance Fund has opened accounts to facilitate returns for investors who suffered excessive gains from fund sales.

Analysts warn that the fund sector turmoil poses significant risks to Turkey's 2026 GDP growth forecast of 3%, and the actual losses to investors remain unclear due to the potential difficulty in converting thinly traded fund assets into cash.