Can Turkey’s Fund Crisis Threaten Its Economy?

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What began as a liquidity problem at several Turkish investment funds has developed into a major upheaval in the country’s capital markets, involving 131 funds, $18 billion in assets and 455,758 individual investors.

Turkey’s Capital Markets Board (SPK) ordered the liquidation of the funds after some managers struggled to meet investors’ redemption requests. The regulator said the affected funds, managed by seven portfolio companies, had assets worth around $18 billion.

The liquidity pressure also contributed to a sharp sell-off on the Borsa Istanbul. The BIST 100 index fell more than 8% in one week, its worst weekly performance since March 2025, as funds sold more liquid assets to raise cash.

How the liquidity problem developed

The crisis centred initially on fund managers including Pusula Portföy and Tera Portföy.

Some funds held large positions in relatively illiquid stocks with limited free float. When investors sought to withdraw their money, managers faced difficulties selling those positions without pushing prices sharply lower.

The resulting pressure forced some funds to sell more liquid holdings, adding to the wider stock-market decline. Reuters reported that the structure of the Turkish equity market, with a relatively limited number of highly liquid large-cap stocks, amplified the volatility.

Tera separately disclosed that investors had submitted redemption requests worth approximately 300 billion Turkish lira, while stressing that this represented redemption requests rather than an established debt of that amount.

Regulators had already identified concerns

The SPK said it had observed unusual trading activity in some low-free-float shares before the latest turmoil.

The regulator’s concerns included transactions involving shares that did not appear to correspond with the companies’ underlying financial fundamentals. It subsequently introduced measures intended to increase portfolio diversification.

Three companies have featured prominently in the investigation: Katilimevim, Gündoğdu Gıda and Destek Finans.

The SPK filed criminal complaints over suspected market manipulation and authorities launched a wider investigation. Several executives and other individuals have since faced detention or pre-trial imprisonment. The allegations remain subject to the judicial process.

Concentrated holdings under scrutiny

The scale of some fund positions has become a central issue.

According to disclosures cited in reporting on the investigation, Pusula-managed funds held substantial stakes in several companies, while Tera funds also held significant positions in Destek Finans.

Such concentrated positions can create difficulties when funds need to liquidate assets quickly. A large sale in a thinly traded stock can push the market price down sharply, potentially reducing the value of the remaining portfolio and increasing pressure on the fund.

The issue has also attracted international attention. MSCI has raised concerns about trading practices and transparency in Turkey’s equity market, including questions surrounding potentially coordinated transactions involving smaller listed companies. Reuters reported that international index providers have also raised broader concerns about transparency and market accessibility.

Authorities move to contain the fallout

Turkish authorities have taken a series of measures to prevent the fund problems from spreading.

The SPK ordered the liquidation of funds managed by Tera, Pusula, Hedef, Atlas, A1 Capital, Pardus and Bulls. Its initial September 17 decision covered 130 funds; subsequent regulatory reporting put the total number of affected funds at 131.

The regulator also suspended purchases and redemptions through Turkey’s electronic fund-trading platform for the affected funds.

The liquidation period was later extended from three months to six months, giving managers more time to sell assets under less pressured market conditions. İş Bankası is overseeing the liquidation of Tera-managed funds, while state-owned Ziraat Bank is handling the funds managed by the other six companies.

The Central Bank of the Republic of Türkiye also increased repo funding to 300 billion Turkish lira and temporarily eased certain market-financing and margin requirements to support liquidity.

Criminal investigation expands

The legal investigation has also widened.

On September 25, Justice Minister Akın Gürlek said authorities had placed 76 people under judicial control and that 45 had been jailed pending trial. Authorities have also frozen or seized assets connected to people under investigation.

The investigation examines suspected violations of Turkish capital-markets law and alleged market manipulation, among other accusations. Authorities have not yet established through a final judicial ruling that the trading activity constituted organised manipulation.

Erdoğan says there is no wider financial-system risk

President Recep Tayyip Erdoğan has sought to reassure markets, saying the fund turmoil does not pose a threat to Turkey’s wider financial system.

Treasury and Finance Minister Mehmet Şimşek has similarly described the problem as limited to part of the capital market. Erdoğan said the authorities would pursue those responsible and take steps to prevent similar problems in the future.

The authorities’ intervention has helped contain immediate market pressure, but the episode has exposed vulnerabilities in Turkey’s investment-fund and equity markets.

The key questions now concern how much investors will ultimately recover from the roughly $18 billion in affected fund assets, and whether the ongoing investigation establishes deliberate market manipulation or primarily reveals the risks created by highly concentrated positions in illiquid shares.

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