The Turkish asset management sector is still young and relatively untapped, but is growing thanks to increased demand and first-rate service providers
There is huge potential for growth in Turkey’s asset management sector, but up until recently, due to a period of high inflation and high real interest rates, the growth was weak. But as real and nominal interest rates decline because of increasing stability and the resilience of the Turkish economy towards global shocks, investors started to search for alternatives other than time deposits and T-Bills.
The Mutual Fund (MF) to GDP ratio is 2.6 percent in Turkey. If we exclude Money-market (MM) Funds, it is only 0.6 percent. This ratio is more than 20 percent in Brazil, South Africa and South Korea. Turkey and Russia have the lowest ratios among emerging markets, meaning five to 10 times growth in the sector over the next couple of years would not be surprising.
As a result, a paradigm shift is expected. A new capital market law is expected to be passed in 2012, and this is highly in favour of the asset management industry. Recently, the government has shared the details of the new incentive package designed to decrease the current account deficit and increase the savings rate. This package highly favours pension funds even though the details are still to be announced in the near future. We believe that the main drivers of growth will be pension funds and value-added mutual funds, including equities and discretionary portfolio management.
A perfect position
Turkey is at a crossroads between Europe and Asia; a neighbour to no less than eight countries. It is a country where civilisations and cultures have embraced one another for thousands of years. It also serves as the energy corridor for its region. Furthermore, Turkey is the only country in the region that could meet the increasing regional demand for infrastructure projects and consumer goods with its well-diversified sectors, expertise and know-how. This presents a great investment opportunity.
The country has had an attractive GDP growth rate in recent years; indeed, the second-highest worldwide for the last two years. The main driver behind this growth is the country’s demographic profile, the rising middle class and also Turkey’s growing geo-political significance for its hinterland. The growth is supported by strong domestic consumption, which draws the attention of many players from diverse sectors across the world. The attractiveness of Turkey as an emerging market will continue to support the growth of the economy, especially as the implemented strategies and policies start to diminish the vulnerabilities of our economy, such as the current account deficit and low savings ratio.
The Turkish market has proved to be relatively resilient, due to our low government debt to GDP ratio of 40 percent. The healthy and robust Turkish banking system, coupled with historically low inflation and interest rates, provide an ideal environment for growth.
Ak Asset Management is one of the leading active asset managers in Turkey, with $4.7bn assets under management and a 16.8 percent market share. Ak Asset Management operates in three major business lines: pension funds management, mutual funds management and discretionary portfolio management. The company enjoys a robust market share in all three main business lines with a very strong positioning: market leadership in pension funds (with 20.5 percent market share), market leadership in discretionary portfolio management (with a 30 percent market share), and market leadership in value-added mutual funds such as capital-protected funds, commodity-gold funds and international mutual funds.
Ak Asset Management, with its resilient structure, is one of the best-positioned asset managers in the expanding sector, with full-scope asset management capabilities. The main growth areas in the Turkish market are pension funds and discretionary portfolio management, on which Ak Asset Management has already focused its attention and done pioneering work with its innovative products and services. The pension funds market is rapidly growing due to incentives granted to participants, whereas the discretionary portfolio management and value-added mutual funds are growing due to decreasing interest rates and increasing need for alternative products.
Ak Asset Management’s success in these areas, especially in discretionary portfolio management, derives from superior performance, well-established investment strategies and bespoke investment solutions provided to clients based on both asset allocations and security selections. The investor database includes foundations, insurance companies, institutional clients, central banks as well as high net-worth individuals. In mutual funds, Ak Asset Management has both local and global positioning, not only in terms of the investment universe, but also in terms of the product line for both local and international investors, which supports the innovative characteristic of the company. In this regard, in 2008, Akbank Turkish SICAV – a UCITS fund domiciled in Luxembourg – was established for international clients investing in Turkish Equity and Turkish Fixed Income.
In Turkey, capital markets are still in the early stage of development. Therefore the investment knowhow and investment risk versus reward awareness must be raised in the community. In 2011, Ak Asset Management set up an investment advisory business to serve this purpose that works alongside its investment teams. For the first time this service is provided by a buy-side investment manager. The investment advisory department, with its experienced team, provides written and video commentary, both based on asset allocation and security selection.
Ak Asset Management is differentiated from the market thanks to its innovative product spectrum, its consistent and superior performance, and globally accepted investment process, risk management and compliance standards. The level and quality of the investment management services that the company provides is the outcome of well-defined processes, designed and practised by its qualified HR force.
Ak Asset Management’s corporate culture has innovation and leadership at its core, serving the company to achieve many firsts since its setup. To name a few, the first capital protected fund, the first gold/commodity fund, and the first BRIC fund launched by Ak Asset Management are some of the benchmark products in the Turkish asset management sector. In terms of socially responsible investments, Ak Asset Management was the first asset manager to sign up to the UN Principles of Responsible Investment and intergrate ESG issues with its investment process in Turkey.
The company’s focus is on future results and sustainability rather than immediate short-term gain. It is strongly committed to enhancing the welfare of the society in which it operates, and signing the Principles of Responsible Investment is a strong indicator of this long-term strategic approach to the business. In October 2011, Ak Asset Management was awarded the Best ESG Asset Manager in Turkey by World Finance due to its efforts to implement the ESG issues within its investment process and products.
Potency through policy
There are four main characteristics which define Ak Asset Management. First, the shareholder structure, with local and global partners. Ak Asset Management is 100 percent owned by Akbank. With its robust capital base, reliable deposit structure and solid asset quality, Akbank maintains its leading position in the Turkish banking sector, which was recently awarded the Most Valuable Turkish Banking Brand by Brand Finance. Akbank is the flagship company of Sabanci Group, one of the largest conglomorates in Turkey, which operates over 70 companies in the financial services, energy, manufacturing, cement, and retail sectors, as well as many others.
The second characteristic is corporate values and culture. The company has made a strong commitment to grow together with its clients and partners. First of all, the business model of the company is client-oriented in order to maintain its strong position in the future. Ak Asset Management maintains honest, reliable and transparent communication with its clients and offers tailor-made solutions to meet the financial needs and expectations of those clients. These services and its management approach supports the emphasis given to the clients and differentiates Ak Asset Management from its peers. The strategies and investment techniques aim not only to provide high returns, but also sustainable growth in the long term.
The third characteristic is human capital. Success-driven employees who actively monitor market dynamics are the key to quality services. The company’s employees have so far set the market standards in Turkey in terms of innovation, service quality and customer satisfaction. Ak Asset Management has the highest number of CFA charterholders and candidates in the industry, with increasing numbers of candidates every year. Asset management is no ordinary business: human capital is the main asset and driver for future success. Thus, Ak Asset Management continues to invest in its employees.
Finally, no asset manager can succeed without a strong investment process. We believe, as part of our successful asset management model, we have the best investment process in the industry. Our investment process for various asset classes is aligned with global standards. The process is designed to generate optimal income with low risk levels.