Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Turkey has drafted in two of the country’s biggest banks to liquidate 131 investment funds involved in the collapse of a speculative bubble that has shaken its capital markets and put billions of dollars of investments held by tens of thousands of investors at risk.
Turkey’s İş Bankası and state-run Ziraat Bankası will oversee the funds’ liquidation, regulators said. Recent data suggests the liquidated funds have about $17bn of investments, held in more than half a million accounts on behalf of 300,000 investors.
“We have placed the problematic area under quarantine,” Mehmet Şimşek, finance minister, said in a television interview on Friday, adding that there was “no systemic risk” and that the affected funds accounted for just 10 per cent of the investment fund sector. The other 90 per cent had “continued to operate healthily”, he said.
The liquidation process, which is expected to take up to three months, is part of a series of measures that authorities have rolled out this week in a swift and apparently comprehensive response to the problem.
The central bank provided banks with liquidity support on Thursday to avoid forced selling when the stock market threatened to crash. A state-owned Islamic bank began talks to take over two household savings companies owned by a fund manager at the centre of the scandal.
Four unnamed suspects have been jailed pending trial, including a fund board chair and board members, while 51 people face travel bans and asset restrictions, officials said.
“Legal action is being taken against malicious individuals and organisations that target citizens’ savings through Ponzi-like schemes and obtain illicit gains through misleading guidance,” justice minister Akın Gürlek wrote in a social media post.
The liquidators will make gradual sales of assets held by the funds, with the proceeds returned to investors in proportion to their holdings, regulators said. Turkey’s Capital Markets Board has acknowledged concerns about inflated fund valuations, raising uncertainty over the amounts that will be returned to investors.
“I don’t think as yet this crisis is systemic — not if the Turkish authorities act now with vigour — as they are,” said Timothy Ash, senior emerging-markets sovereign strategist at RBC BlueBay. “But I think [they] also [need to] undertake a broad root-and-branch reform of the regulatory environment around Turkish equities.”
Turkey’s benchmark BIST 100 stock index was down 1.3 per cent by lunchtime on Friday, leaving it about 8 per cent lower for the week — its worst weekly performance since the March 2025 sell-off following the detention of Istanbul mayor Ekrem İmamoğlu.
The core of the problem, analysts said, lies with a group of investment funds that over the past two years built concentrated positions in related companies, bidding up their share prices and flattering the funds’ own net asset values.
Spectacular reported returns attracted new investors, providing fresh money to buy the same or related stocks. Index provider MSCI warned in June that “co-ordinated trading behaviour” may be distorting stock market prices.
This week, the cycle went abruptly into reverse when leading Istanbul fund manager Pusula Portföy said some of its funds could not meet redemption payments to investors on time. Alarmed retail investors rushed to withdraw their savings, and other funds reported problems meeting redemption requests.
The Capital Markets Board said on Friday that it had begun to act to toughen up market rules when it saw in late 2025 that some investment funds “caused price movements in shares . . . that could not be explained by economic reality or the companies’ financial fundamentals”.
Şimşek said publicly in November that the government knew “manipulation” was taking place.
