The portfolio management sector in Türkiye has experienced a 60% growth since the end of 2023, with total assets reaching TL 5.6 trillion (over $164 billion) as of this August, an industry official said on Wednesday.
As deposit rates are anticipated to drop in the period ahead, the interest of investors seeking higher returns is expected to further fuel this growth, according to the Turkish Institutional Investment Managers' Association (TKYD).
With inflation and borrowing costs expected to decline next year, some banks have already begun lowering long-term loan and deposit rates.
Addressing an assessment meeting in Istanbul, TKYD head Yağız Oral highlighted the sector's robust expansion since 2021, with solid returns driving continued investor interest.
"Turkish investors primarily wonder, 'Can we surpass the deposit rate?' Recently, with rising inflation, questions like 'Can we outpace inflation?' also started to emerge," Oral said, pointing to the solid returns that investment funds have delivered in comparison to deposit rates in recent years.
"In 2021, the average return on investment funds was around 41%, while the average deposit rate stood at 18%. In 2022, our sector saw returns exceed 80%, while deposits yielded only about 17%. For 2023, the average fund return was 57%, compared to a 28% return on deposits," he explained.
"This year, both have hovered around 41%-42%, neck and neck."
Annual inflation dipped below 52% in August, compared to its peak of 75% this May. It is expected to maintain the downward trend amid the aggressive monetary and fiscal tightening in the upcoming months.
The government forecasts inflation would fall below 42% by year-end.
The Central Bank of the Republic of Türkiye (CBRT) has held its key policy rate steady at 50% since this March, having lifted the one-week repo rate by 4,150 basis points since June 2023 to counter stubborn inflation.
After its last rate-setting meeting last week, it said it remained highly attentive to inflation risks but dropped a reference to potential tightening, which is said to provide the first guidance signaling that rate cuts will eventually come.
Some economists believe that a rate cut could occur as early as November, while others argue that it might be more prudent to wait until 2024.
Significant real cash inflows
TKYD's Oral emphasized that product diversification and satisfactory returns have strengthened investor confidence in the portfolio management sector, leading to increased investments.
Egemen Erden, a TKYD Board of Directors member, said there was a substantial real cash inflow into the sector since the end of 2023.
"At the end of last year, the sector's total assets stood at TL 3.5 trillion. Now, we've reached TL 5.6 trillion. If we assume that 40% of this growth comes from returns, we can estimate that the remaining 15%-20% represents real cash inflows," Erden said.
As of August, the size of investment funds reached TL 3.6 trillion, while assets under Türkiye's Individual Pension System (BES) surpassed TL 1 trillion. The Automatic Enrollment System (OKS) funds amounted to TL 75.6 billion, with other managed assets totaling TL 879 billion.
When asked about the potential effects of global and domestic monetary easing policies on investor interest and fund inflows, Oral said, "These periods are when asset class diversification becomes more meaningful. In markets where product diversification is intensive, returns can rise sharply."
"I believe that as inflation and deposit rates decline, the variety of asset classes will continue to support returns and the growth of the portfolio management sector."
Foreign interest
TKYD Board Member Emrah Yücel noted that foreign investors had shown significant interest in Turkish assets, particularly since April, although this has not been the case for equities.
"We've seen a net outflow of foreign money from the stock market since the beginning of the year," Yücel said. However, he added that institutional investors, such as mutual and pension funds, have played a stabilizing role in the market.
"We've observed nearly TL 80 billion in growth in the stock positions of pension and investment funds since the start of the year. In a period when foreign investors have been selling, the presence of these domestic actors on the buying side has been a vital stabilizing force for the stock markets," he explained.
Concerns over taxation
Responding to a question about how discussions on capital market taxation affect investor behavior, TKYD Board Member Burak Sezercan argued that if Türkiye wants its capital markets to grow, it should avoid putting market products at a tax disadvantage compared to other financial instruments.
Earlier in the year, initial discussions about taxing gains from stock market investments and cryptocurrency, which many used as a hedge against inflation, caused a dip in equities.
However, Vice President Cevdet Yılmaz on Monday said Türkiye has decided against implementing an additional tax package this year, including a levy on profits from stock trading or cryptocurrency transactions.
That was reaffirmed by Treasury and Finance Minister Mehmet Şimşek, who told investors on Tuesday that the government had no plans for new taxes.