Turkey widens fund probe with new detention orders as 131 funds enter liquidation

Istanbul prosecutors on Sept. 19 ordered the detention of two more executives linked to the collapse of Turkish investment funds, widening a probe that has already put four suspects behind bars, as authorities press ahead with the wind-down of 131 funds holding $18.3 billion in assets. Treasury and Finance Minister Mehmet Simsek has sought to reassure investors that the damage is contained, saying the affected funds account for roughly a tenth of the market and that "there is no widespread systemic risk."

The new orders target Serdar Turhan of Pusula Portföy and Alper Öztürk of Tera, Hürriyet Daily News reported. Four suspects had earlier been remanded in custody, and 51 people are subject to travel bans and asset freezes. The regulatory intervention followed disclosures by Pusula and Tera that they had defaulted on payments to investors trying to redeem their fund holdings; Atlas Portföy also reported payment delays at a money market fund.

A week of mounting stress

The pressure built over several days. Turbulence began Tuesday and intensified Wednesday, Türkiye Today reported, before the Capital Markets Board, known as the SPK, halted trading on Sept. 17 in funds run by seven asset managers on TEFAS, Turkey's electronic fund trading platform. The regulator then ordered 131 funds into liquidation. Daily Sabah put the assets under management of the liquidated funds at 890 billion lira, or $18.3 billion, out of 2,038 funds operating in the country, and reported that the seven firms also include A1 Capital, Bulls, Hedef and Pardus.

Two of Turkey's largest lenders were assigned to run the unwinding. İşbank will oversee the Tera funds, while Ziraat Bank will handle those of the other six companies. Under the SPK's rules, cash from asset sales and maturing investments is to be distributed to investors in proportion to their holdings at intervals set by the banks, with unfilled redemption orders placed through TEFAS settled first. The liquidation period is three months, which the regulator can extend, and the funds are closed to purchases and redemptions through TEFAS and every other distribution channel.

Central bank and regulators move to limit contagion

The Central Bank pledged to increase funding through one-week repo auctions and to reduce collateral haircuts, and the banking regulator temporarily eased capital rules for listed banks buying back their own shares. The Financial Stability Committee called the fund problems "temporary and manageable" on Sept. 17 and promised steps to ease the liquidity squeeze and prevent spillover.

Simsek said on Sept. 18 that the difficulties were confined to a limited number of funds, with 90% of the market functioning normally. "We have quarantined the troubled segment," he said. He added that the liquidation would be carried out, that investors' savings would be returned over a period of time and that the underlying assets would be protected. Nikkei Asia reported that the minister said regulatory changes should prevent any contagion risk to Borsa Istanbul and that authorities had committed to close monitoring of the market.

The equity market has already absorbed a hit. Borsa Istanbul's main index closed 2.95% higher Thursday after the authorities' measures but was 1.5% lower at 0754 GMT on Friday and remained down about 8% from the previous Friday's close, Daily Sabah reported. Türkiye Today reported that more than 500,000 investors were awaiting payouts from the funds placed in liquidation.

What it means

The detention orders show Ankara treating the episode as a matter for prosecutors as well as regulators, which raises the stakes for the portfolio managers involved but does nothing on its own to return money to investors. That task now rests with İşbank and Ziraat, and the decision to hand the wind-down to two of the system's largest balance sheets, alongside the central bank's repo and collateral steps, indicates the authorities are prioritizing an orderly liquidation over a fast one. Simsek's message that the trouble is quarantined will be judged against two measurable benchmarks: whether the three-month timeline holds without extension, and whether the main index stabilizes once forced selling by the failed funds stops. An 8% weekly decline shows the cost already incurred, and with more than half a million investors waiting on distributions, the pace of those payouts will determine whether the crisis stays confined to the 131 funds or erodes confidence in the wider fund market that the minister says is still operating normally.