Türkiye's liquidation of investment funds worth $18.3 billion will not put pressure on the Borsa Istanbul Stock Exchange (BIST), as regulatory changes should prevent any contagion risk, Treasury and Finance Minister Mehmet Şimşek said Friday, adding that authorities would monitor the market closely.
"There is no widespread systemic risk. There is no structural problem in the stock market or the fund market. 90% of the fund market continued to function healthily," Şimşek told the private broadcaster NTV.
Turkish authorities announced Thursday a series of measures to ensure market stability after some investment funds defaulted on redemption requests, triggering steep falls in Türkiye's main stock index.
The capital markets regulator suspended trading and ordered the liquidation of 131 investment funds managed by seven portfolio management companies, including Tera Pörtfoy, Pusula Pörtfoy and Hedef Pörtfoy, on the TEFAS electronic fund platform.
The assets under management of liquidated funds exceed TL 890 billion ($18.3 billion).
The Capital Markets Board (SPK) mandated Friday the country's largest public and private banks, Ziraat and Işbank, to oversee the liquidation of the funds.
"The liquidation process will proceed in a sound manner," said Şimşek Friday.
Authorities jailed four executives pending trial and imposed travel bans and asset restrictions on 51 other people Friday in investigations into alleged market manipulation, Justice Minister Akın Gürlek said.
The probe followed a criminal complaint by the SPK over alleged manipulative transactions in some investment funds and shares, Gürlek said.
Şimşek said authorities would monitor markets, although he said regulatory changes should have reduced the risk of volatility recurring.
The Financial Stability Committee, Türkiye's top coordinating body for financial-sector risks and crisis response, had convened on Monday to discuss measures aimed at preventing systemic risks in the markets.
The committee said problems were concentrated in a specific segment of the fund market and were "temporary and manageable in nature."
"What happened in the markets ... was essentially a credit and liquidity problem in a limited number of funds," said Şimşek.
The authorities' actions helped the main index recoup some of its losses Thursday, but it is still down around 8% since last Friday's close. The BIST 100 was down around 1.5% at 0754 GMT, after closing 2.95% higher Thursday.
The SPK said Friday Ziraat Bank and Işbank would convert fund assets into cash and distribute proceeds to investors, with the liquidation process expected to be completed within three months unless extended.
Işbank was mandated to oversee the liquidation of Tera Pörtfoy's funds and Ziraat to oversee funds established by A1 Capital, Atlas, Bulls, Hedef, Pardus and Pusula, the regulator said.
The four jailed suspects included a fund board chair and board members, Gürlek said, adding that the court ordered restrictions on accounts and assets to prevent them from being transferred.
Authorities also launched proceedings against people accused of using social media to manipulate capital markets, with 16 suspects jailed pending trial, the minister added.
Şimşek said free funds, or hedge funds, operate under relatively loose regulations worldwide and are generally used by qualified investors.
The sector expanded after such funds began trading on the TEFAS platform in 2019, he said.
"We are talking about a limited number of funds," Şimşek said. "There are 2,038 funds in Türkiye, and we are talking about 131 of them."
Şimşek said around 90% of the fund market continued to operate normally, while the funds in question accounted for approximately 10% to 11% of total fund assets.
"This does not mean that these funds have no assets," he said. "The SPK will carry out the liquidation process in line with established principles."
Şimşek said a fund guide introducing stricter rules for free funds had been published at the end of August, bringing the sector closer to international standards.
"Some areas have transition periods to allow the market to adapt," Şimşek said. "The collateral structure has been strengthened. We have taken steps to address concerns regarding collateral."
He added that regulations introduced in 2024 requiring money market funds to invest in Treasury securities considered to carry virtually no risk would also help address current concerns.
Şimşek also said there was a clear need for stricter rules in the non-bank finance sector and that authorities are working on regulations.
