Turkey’s Sovereign Wealth Fund Promises Better Governance, More Synergies to Bolster Returns
Bonds & Loans
Published: 8 May 2017 11:04
Details about Turkiye Varlik Fonu, Turkiye Wealth Fund tasked with generating over US$200bn in economic activity in the years to come, have been scarce since the fund was put in place last year. We speak with Mehmet Bostan, the well-known banker assigned with setting up and managing the fund, about how TVF is positioning itself to jolt the economy back to life and make Turkish companies more influential on the world stage.
Q. What were the key drivers behind setting up the Turkish sovereign wealth fund? How do you expect it to benefit the country’s economy?
Current global economic realities put an even stronger emphasis on the real economy, productivity and, more importantly, on sustainability and good corporate governance.
In line with this trend, we embarked on a promising mission and established Turkey Wealth Fund as we build a yet stronger Turkey for future generations. The pre-requisite to being in the champions league is to have big players and great teams. Turkey Wealth Fund will be such a team on the one hand and build the necessary infrastructure for the establishment of similar teams on the other, all the while being an effective instrument, especially for increasing Turkey’s power among global competition.
As per the main rationale of setting up TWF, firstly, we want to improve the value of key public assets. For the last 15 years, the government fundamentally changed the way bureaucracy operated and brought efficiency to state owned enterprises. We believe, however, that there is still significant potential to harness. Opportunities exist in realizing further value in the individual companies as well as in synergies among them.
Secondly, we want to help develop strategically important industries, support infrastructure investments and aid Turkish companies in becoming global players. With these objectives in mind, we would like to attract new sources of financing and provide capital for these investments globally.
And finally, we want to deepen the financial markets in Turkey by introducing a variety of products. AS TWF, we will be active in the capital markets both as an investor and an issuer.
Q. How does TVF differ from other sovereign wealth funds globally? What are some of the main strategic objectives for the fund?
Today there are 82 sovereign wealth funds in more than 40 countries worldwide. The total size of these funds globally has reached approximately 7.4 trillion dollars. The only country that does not have a sovereign wealth fund among G20 countries was Turkey. By studying 10 different models in the world, we designed a model suitable for Turkey. 8 of the 20 largest sovereign wealth funds in the world are based on non-commodity assets. In other words, countries are setting up wealth funds to increase the value of assets in their hands.
TWF was established to increase the value of Turkey’s assets and make strategic investments to increase Turkey’s competitiveness. We will think, act and invest with future generations in mind. We will focus on high value added investments such as technology, informatics and FinTech. Logistics is a field we are very interested in and where we already have strong assets.
TWF will be an investment platform for domestic and international investors and an entry route to the Turkish market.
Q. I understand government stakes in some of the largest companies in Turkey will be transferred to the sovereign wealth fund. How does that process work and how does it impact these companies?
If you look at sovereign wealth funds in the World, you see three different types of management philosophies.
Some act like savings funds – which focus their investments mostly internationally and in minority shares. Their objective is to diversify from the country risk.
Some adopt the passive holding company approach. Mostly minority with some majority shares only in national assets.
The one that we will adopt is the strategic architect approach. We will be active investors with a long-term performance focus and help our portfolio companies in their strategic direction. First of all, we are currently reviewing and analyzing our portfolio companies to be able to make some critical decisions. We are asking ourselves: are we going to grow through current operations in the given company? Or are we going to help that company make investments in new areas – geography, product or technology -wise?
We will soon start a diagnostic process for all the companies and appraise their potential.
Following that initial review, we are planning to launch transformation and value creation programs for each company and we will regularly review their performance and make sure sustainable results are achieved.
TWF will help its portfolio companies in this journey in two ways.
First, we will develop a common set of governance practices and working principles for all our assets. We will also develop a value creation strategy for each company that will focus on growth play, margin improvement and transformation opportunities.
At the central support level, we will develop shared services that will help our portfolio companies. We will create synergy opportunities such as common procurement systems, real estate and infrastructure developments, which will be to the benefit all the companies in our portfolio.
Q. TVF seems to have some fairly ambitious revenue targets. What kind of progress have you made in attracting assets? And where do you expect assets under management to be in the coming years?
With the right strategic plan, as the Turkey Wealth Fund, we aim to contribute to economic growth and increase our current values several-fold in the long-term. We believe that this potential exists in our companies and in new investments we will be making.
We have identified our objectives for the short, medium and long-terms. In the short term, firstly, we will be focusing on the full organizational set-up of TWF. Several assets were transferred to TWF and we want to establish the right operating model with these assets. We will also develop common programs, like setting up a Leadership Academy, in order to support our assets for best-practice management principles. And lastly, we will prepare a strong pipeline of potential investments and new projects to undertake. We have started all of the aforementioned already and plan to achieve our objectives by the end of this year.
In the mid-term, we will help our assets / companies in starting their transformation programs for higher growth, operational improvement and synergies across portfolio companies. At this phase, you will also see partnerships between TWF and other Wealth Funds and a series of investments in new projects.
Our long-term objectives are three-fold: First of all, this will be a professionally managed fund. Therefore, healthy financial returns of portfolio investments would be a key objective. We also want to assist Turkish companies in becoming global players and also increasing Turkey’s competitiveness in strategically important industries.
Q. What are some of the biggest challenges you have faced so far in setting up the fund?
Attracting top talent for such a niche and thus far peerless area for Turkey has been a challenge, incentivizing top talent when private sector at large provides competitive premiums is an issue not only for TWF, but a common problem of SWFs worldwide.
TWF has been under significant spotlight since its establishment. The starting phase of every organization is critical. We have been entrusted with our country’s primary assets, which comes with great responsibility. We are treading this critical path with great care and due effort. Every decision is thoroughly thought out as we try to assure all aspects are duly reviewed. We are doing our best to inform the public and the global community at large about our fund. Transparency and responsibility are at the core of all of our operations.
About the Author
Bonds & Loans is a trusted provider of news, analysis, and commentary that helps illuminate the most significant issues, events and trends impacting the global emerging credit markets.
- Bonds & Loans Latin America Deals of the Year Awards 2018
- BBH: Frontier Sovereign Rating Model for Q1 2018
- Standardisation and Harmonisation Will Propel the Sukuk Market Forward
- As Chile Elects a Conservative, is Latin America Cooling on Populism?
- Brown Brothers Harriman: Emerging Markets Preview for the Week Ahead
15 Feb 2018