How the bubble of Turkish investment funds burst?

In Turkey, the country has long been in a state of high inflation and currency depreciation. The Turkish lira in the hands of ordinary people has been shrinking. To protect their wealth, people are looking everywhere for investment channels that outperform inflation. Domestic bank deposit yields cannot keep up with the increase in prices, which has created a development space for alternative investment funds. The local central bank has tightened monetary policy, with the intention of suppressing inflation, but this has further pushed up the demand for high-yield funds in the market.

Many asset management institutions seized this opportunity to issue products. Some funds specifically bet on small-cap listed stocks. These stocks have a very small circulation and low trading volume. A small amount of capital entering can drive the stock price to rise rapidly. The fund's net value rises rapidly, and the attractive yield data attracts more funds to enter. As the net value rises, the promised return figures become increasingly exaggerated. In just three years, the total scale of these problem funds exceeded $20 billion. A large number of ordinary retail investors saw the high returns and continuously invested funds, and the bubble gradually expanded.

The regulatory authorities noticed abnormalities in 2025 and publicly warned the market that some funds were engaging in stock price manipulation. However, the enthusiasm of market funds did not subside, and the asset management scale continued to expand rapidly. During this crisis, the Tera Portfoy and Pusula Portfoy institutions were the center of the entire bubble. Before the crisis broke out, the management scale of these two companies experienced explosive growth. The overall asset management scale of the industry increased from $246 billion to $329 billion within a year.

The management assets of Tera expanded tenfold, reaching $14.3 billion. Pusula's scale increased by 13 times, reaching $13.2 billion. By August, the two had become the largest non-bank asset management entities in the local industry. The TLY hedge fund under Tera had the most astonishing performance. In the first half of 2025, the return in the product in local currency reached 747%, and at that time, there were less than 200 holders. By September, the cumulative return exceeded 15,000%. Until the redemption wave arrived, this model was directly reversed.

Fund managers heavily invested in small-cap stocks. These stocks usually had low trading volumes and their prices were easily manipulated by funds. As long as funds purchased and bought stocks, the fund's net value could keep rising. Once investors collectively applied for redemption, the funds needed to sell stocks to obtain cash. Without sufficient funds in the market, the stock prices would plummet rapidly. As prices fall, the net value of the fund would fall further, resulting in more redemption requests. It becomes a vicious cycle.

Some institutions informed the regulators that they did not have enough cash to handle investors' redemption requests. The regulators then intervened and ordered 131 funds from seven asset management companies to enter the liquidation process. The news spread quickly, and market panic quickly spread. The main stock index in Turkey dropped largely, achieving its worst monthly performance since the 2008 financial crisis. The market entered a bear market.

The regulatory authorities have formulated a phased redemption plan, extending the liquidation period to six months to prevent a concentrated sale of underlying stocks from causing a collapse in asset prices. The regulatory authorities have set tiered redemption standards. Investors with an investment amount of less than 100 million liras can receive a full refund. Investors who have invested more than or exactly 100 million liras can receive a temporary sum of 100 million liras first, and the remaining funds will be calculated and distributed after the asset disposal is completed.

The Turkish Savings Deposit Insurance Fund has set up a dedicated account. Investors who are willing to return the excess returns recognized by the regulatory authorities can go through a dedicated reporting channel. However, it is still impossible to determine the total loss that investors will incur in the end. The core difficulty lies in the fact that small-cap stocks held by the fund have sparse trading volumes, and large-scale selling will depress the trading price. The actual realized value of the assets is highly uncertain. JPMorgan Chase's calculation suggests that this turmoil in the asset management industry will bring a huge downward risk to Turkey's 3% GDP growth target in 2026.