When you look into saving patterns in Turkey, you will notice that around 70% of total savings are made up of time deposits which reflect the risk appetite of Turkish investors. In the past, the unstable political environment in Turkey led to a lack of confidence by investors when it came to risky assets. High inflation and high interest rates, which persisted for years, eliminated the generation of capital markets products. In recent years, with the changing political and economical environment, investors are seeking to invest in long-term capital market instruments. We believe with the help of ongoing economical sentiment, investors’ savings will be directed towards mutual funds, which create long-term value with different investment strategies.
fe: Capital deposits have historically earned high double-digit returns for retail investors. With the interest rates falling, do you envisage more retail investors looking towards funds for higher returns or are retail investors still very wary of the higher risk profile of funds?
Interest rates have dropped dramatically to single digit figures. It is the first time this has happened in the last two decades in Turkey. The current market conditions create a perfect venue to raise investor awareness regarding professional services provided by asset management companies. I expect low interest rates will lead to the creation of new capital market products. I think real sector companies are willing to borrow from the local market by issuing their own corporate bonds. In the short run it is expected that the corporate bond market will evolve in Turkey. On the other hand, important portions of savings, which were initially invested in time deposits, are shifting towards mutual funds. Investors with a low risk appetite prefer to invest in capital guaranteed and protected funds rather than in other instruments. I think we will experience a transition period to conventional funds from liquid non-risky assets, in particular bond and equity long-only funds. I believe Turkish capital markets will grow in parallel with the asset management sector. Throughout this development stage Is Asset Management has a mission to lead the sector and to sustain its leadership thanks to its experienced and skilled staff and effective organisational structure.
fe: The Turkish government has committed to bringing about greater stability of interest rates and exchange rates. Will this approach help attract foreign investment to Istanbul?
After the 2001 crisis, the Turkish government, together with the IMF, carried out effective economical policies. Turkey reached Maastricht criteria levels on some economic fundamentals such as budget deficit and public debt ratio, thanks to its fiscal reforms and discipline on its expenditure side. These developments helped raise investors’ confidence in the economy and foreign direct investments and portfolio investments started to increase.
Central banks of developed countries implemented expansionary monetary policies by injecting excessive money into the system and cut the policy rates to nearly 0%. This global cycle of easing interest rates helped the Turkish Central Bank (TCMB) to drop the short-term borrowing rate to unprecedented levels. The market predicts that there is still room for interest rate cuts by TCMB to 6.5% in the upcoming three months. Even though the roll-over ratio of Turkish Treasury exceeds by 110% of its redemptions, the easing cycle of interest rates currently drives the bond market and facilitates borrowing of the Treasury from market players. Recently sovereign bonds’ interest rate might seem low but when we compare it with the developed countries, which have negative inflation rates, they are still very attractive with 9.5% nominal rate of return with two years duration.
fe: The pension fund market in Turkey has experienced significant growth and Turkey still has a very young population demographic. How do you think this sector will develop going forward?
The individual retirement system in Turkey has been growing gradually since its foundation in 2003. Despite the high volatility in the financial markets in 2008, the industry grew over 40%. The growth rate of the system for 2009 is expected to be around 45%. Since it began, around 1.9m subscribers have participated in the system and nearly US$5.7bn (€3.9bn) has accumulated in pension funds. The accurate statutory infrastructure, tax incentives and performance of funds paved the way for the pension fund industry in Turkey. With these initiatives on retirement, I think an era was initiated for the accumulation of domestic capital through collective investment vehicles and I anticipate that the majority shareholders of most of the listed companies will be local pension funds in the upcoming decade.
fe: The Turkish market has always been relatively conservative, but now products such as exchange-traded funds and structured products are gaining market share. Do you think this bodes well for the introduction of other more alternative asset classes and investment vehicles?
In the last decade, because of high interest rate levels, Turkish investors were very risk averse, preferring short-term instruments such as time deposits. It was rational investment behaviour for that time period as these instruments presented the highest returns in the market. Nowadays the climate within financial markets is changing and low interest rates will push investors to invest in more sophisticated products. I expect fund managers that have a large variety of products with high performance will differentiate themselves in the sector. Is Asset Management has aimed to increase its market share by generating competitive products which will meet needs and preferences of the investors in the near future.
IS ASSET MANAGEMENT
fe: Is Asset Management is part of a larger banking corporation. Can you outline the positives to being part of a
Since its establishment in 2000, our institution has a vast amount of advantages from being a part of Isbank Group. Isbank is the largest private bank in Turkey, with 1,061 domestic branches that cover all cities in Turkey. By launching the first mutual fund in 1987 Isbank reached another milestone for Turkish Capital Markets and its fund industry. Is Asset Management’s experienced team has the heritage of Isbank’s mutual fund management know-how which dates back to 1987. Being part of such a pioneering institution gives us powerful brand recognition and trust in the national and international arena.
Our company is the asset management arm of Isbank and provides discretionary and non-discretionary asset management services. Mutual funds, pension funds, insurance companies, charities, foundations, endowments and high net-worth individuals make up of our clientele portfolio. Our assets under management reached around US$6.5bn as of 24 September 2009, and with 24% market share, we are the leader of asset management sector in Turkey.
fe: How do you see Is Asset Management developing over the next few years?
The Turkish asset management sector is quite young compared to the developed countries. Despite its short history, the sector grew rapidly in recent years. By August 2009, assets under management reached $25.7bn compared to $3.5bn in 2002. As we have seen in other developed countries, mutual funds play a very important role in adding depth to capital markets. Household habits of investing in funds are the key foundations for the sector’s growth.
Current national and international economic developments are affecting the investors’ choice of investment vehicle. The interest rate cuts that took place all around the world by central banks caused investors to search for alternative investment vehicles. Investors came to realise the importance of investing in capital markets through professional asset management companies. I believe that another important factor that could be capable of changing households’ saving behaviour and contributing towards the growth and development of our sector is the individual retirement system. I think our vision, which is to be the most preferred asset management company, while managing Turkey risk will always keep us confident about realising our goals.
fe: How do you see Is Asset Management’s relationship with international partners developing in the future?
We are always looking at ways to expand our business and striving to increase our presence in international markets. We work towards these goals with strategic partners in the international arena. These alliances could be formed in order to create new investment vehicles or to place our current products such as Turkisfund (Sicav) in other markets. The importance our firm gives to globalisation was shown when it became a corporate member of the European Fund and Asset Management Association (EFAMA). This membership not only raises our international recognition but also creates a path for potential collaborations.
fe: Your firm is a Turkish asset manager that has a Luxembourg-listed Sicav. Would you say Turkey offers a good investment opportunity to international clients now and in the future?
Turkey has a population of 72 million, 61% of whom are under 34 years old and has the fifth largest work force within the 27 EU countries. It was ranked the fifteenth most attractive FDI destination after seeing $18.2bn of inflows in 2008. Our country hosts a fast growing, mature and experienced financial industry that raises the standard of Turkish economy through 49 banks with $518bn of total assets, as of July 2009. All the factors I mentioned above put Turkey on the map for international investors, as a destination for investment and capital accumulation.
Turkisfund (Sicav) is the first Euro-based mutual fund established in Luxembourg in 1997. The fund became fully compliant with the directives of Ucits III in 2007. It is an investment vehicle for foreign investors residing in Europe who seek to invest in the Turkish capital markets. Turkisfund (Sicav) is an umbrella fund, which provides investors with the opportunity to select among various sub-funds (Turkisfund Equities, Turkisfund Bonds and Turkisfund Eurobonds) according to their specific needs and preferences. Turkisfund (Sicav) is managed by Is Asset Management, the leader in the Turkish Asset Management sector. Turkisfund Equities’ objective is mainly to invest in equities listed in Istanbul Stock Exchange while Turkisfund Bonds’ portfolio consists of sovereign bonds and high yield fixed income securities denominated in Turkish Lira.
The fund generated attractive returns since inception. In the last five years Turkisfund Equities and Turkisfund Bonds returned 16.23% and 18.06%, in Euros, on an average annual basis, respectively. In the first eight months of 2009 Turkisfund Equities and Turkisfund Bonds generated 80.14% and 23.91% return on a euro basis. Turkey presents diversification and value creation opportunities for investors who are regularly investing in developed countries’ capital markets. By investing in Turkisfund (Sicav) international investors have the advantage of investing in a fund, which is managed by an experienced local asset manager.
©2009 funds europe