The Turkish economy has managed to weather the impact of global shocks in recent times, due largely to the introduction of intelligent macroprudential policies. The Turkish lira has appreciated around six percent against the dollar so far in 2016, while annual inflation has slowed to 6.57 percent, reaching its lowest level in three years. GDP growth, meanwhile, accelerated to four percent in 2015 from 2.9 percent the year previous, and current account deficit fell from $52bn in June 2014 to $35bn in November of last year, in 12-month rolling terms. On top of fiscal and monetary policies, Turkey, as an oil importing country, has benefited from the decline in global oil prices.
The country’s success has been such that its economy looks set for great things. Policymakers have set their main priorities in line with their desire to see strong and sustainable economic growth, and a reduction in unemployment, as was announced by the Turkish authorities in the government’s 10th Development Plan and the 2014-16
The country has made savings as a result of these plans. Despite some shrinkage after the 2008 financial crisis, the savings rate has been accelerating (see Fig. 1), aided by the contribution of macroprudential measures, structural reforms and new incentives for the private pension system. The current gross saving rate is 15 percent, up from 13 percent in 2008.
The Turkish lira has appreciated around six percent against the dollar so far in 2016, while annual inflation has slowed to 6.57 percent, reaching its lowest level in three years
Turkey needs to maintain investments close to 21 percent of GDP in order to grow at a sustainable rate, according to the IMF. With the aforementioned savings rate of 15 percent, however, the country has to fill a saving deficit of about six percent of GDP through external financing, which often is only available in the form of volatile portfolio inflows or short-term borrowing, and is hard to sustain over time. Thus, Turkey would need to raise savings to about 18 percent to sustain high growth, while reducing dependence on external financing, which can cause market volatility.
A long-term downward trend in real interest rates is leading to lower growth in deposits, though savings interest in other financial products (such as real estate, corporate bonds and derivatives) is on the rise.
Ak Portfoy, a subsidiary of Akbank, the leading private bank and asset management company in Turkey, has focused on new product innovations to interest investors in alternative investment vehicles, such as real estate and venture capital funds. We believe Turkish investors will allocate a higher portion of their investments to these new products, which will help them diversify their exposures with a better risk/return trade-off.
Ak Portfoy manages local and foreign investment funds, pension funds and the portfolios of institutions within the framework of portfolio management activities. In addition, we have been providing discretionary portfolio management services to our clients since May 2006.
Portfolio Ideas is a financial advisory service that utilises asset classes which aim for higher returns than the time deposit rate. This fulfils one of the most basic, yet unmet, needs in the affluent retail investor space. For retail clients, the most important question is when to invest in different asset classes, and when to get out of them. Because retail investors don’t have the necessary background or time to follow markets and undertake research, they often stay out of investing altogether. Our product addresses this problem by providing clear and continuous directions about when to invest and what to invest in.
As a result, retail investors are brought back into financial markets and the aforementioned opportunity arises for them to realise returns at a rate higher than the time deposit rate. Currently, the time deposit rate in Turkey floats around double digit territory, which makes this a hard task to achieve. With Portfolio Ideas, client money is managed according to a client’s risk appetite and Ak Asset Management’s house view on financial markets.
This product is the first of its kind in Turkish capital markets, in the sense that it combines complex models and investment committee decisions to provide clients with a tailored solution that meets their risk appetite.
All clients have to do is take the risk profile test and locate their preferences in one of our market portfolios. Akbank customer managers inform each client about recommended portfolio changes and request their consent to implement these changes. This allows clients to benefit from Ak Asset Management’s investment expertise to the fullest extent, while allowing them to make the final decision themselves.
Other products in the market direct clients on an ad-hoc basis, giving them mostly ‘buy’ ideas when client managers see an opportunity. Such products often don’t consider the overall financial situation and preferences of a client, but rather base their ideas on the subjective judgement of investment advisors. Effectively, this kind of advice is mostly of a trading view, rather than a long-term investment view.
In contrast to these existing products, Portfolio Ideas takes a client’s financial situation and risk preferences into consideration, then gives objective investment advice based on a multilayered investment process. Our investment advice has continuity and is long-term in nature, which is very different from conventional products that seek to turn a quick profit.
Property and equity
The first real estate investment fund in Turkey was established by Ak Asset Management. We have built a bridge between real estate and the financial sector, creating a new asset class for corporate and individual investors seeking alternative investment instruments. With our real estate fund, investors may benefit from appreciation in the real estate sector and relatively exorbitant rent revenue. It’s highly probable real estate investment funds may reach the capacity of $3.4bn in a couple of years.
A private equity investment fund (PEIF) gives the opportunity for indirect investment in small start-up companies. With the expectation of high returns from this fund, Ak Asset Management has established the first PEIF in the Turkish capital market. This PEIF is a new alternative asset class, previously unavailable to Turkish investors. Our purpose is to provide investors with a choice to diversify their portfolio with higher potential returns through reduced volatility. Turkish institutional investors and pension funds will be able to invest in private equity assets via this regulated fund structure.
Ak Asset Management, as the leading company in the Turkish asset management sector, has launched a mobile application to provide monthly investment suggestions and factsheets of investment funds to savers. Thus, investors will be able to enhance their investment decisions thanks to investment suggestions prepared by our investment and asset allocation committee, as well as quantitative and algorithmic models. This robo-advisory asset allocation model also aims to increase savers’ profits when compared to real interest rates.
The latest Turkish development plan forecasts an increase in the number of people enrolled in private pensions, from the current five million to nearly nine million by 2018. The government has supported the private pensions sector through incentives such as tax deductions and contribution matching. Its goal is to boost the country’s domestic savings rate, one of the economy’s main weaknesses, alongside its current account deficit.
Turkish pension funds’ assets under management (AUM) have exceeded $17.1bn. Ak Asset Management, with its 21 percent market share, is the market leader in terms of AUM, driven by the returns of the funds we manage. In the last five years, 90 percent of the pension funds managed by Ak Asset Management have over-performed against their benchmark peers. Also, four of the top 10 pension funds, in terms of returns, are managed by Ak Asset Management. On top of this, we offer the widest range of investment alternatives to our customers – something we are very proud of and aim to maintain into the future.