The liquidation of the Turkish funds caught up in last month's turmoil is proceeding at the planned pace, but the final wind-down will take more time, Treasury and Finance Minister Mehmet Şimşek said Tuesday.
Investors in the funds still to be settled are expected to receive interim payments of up to TL 1 million once a liquidation bill now before Parliament becomes law, Şimşek told private broadcaster Habertürk.
He added that people who made real gains of TL 10 million or more from market-disrupting activity will be asked to return the money voluntarily, and will face legal action if they do not.
The scandal broke just over a month ago, when several investment funds said they were unable to satisfy redemption demands, prompting prosecutors to open an investigation into allegations of widespread market manipulation.
Regulators placed seven firms managing 131 funds into liquidation, affecting nearly half a million individual investors. The Justice Ministry says 85 people have been arrested.
"The liquidation process is going at the speed and within the framework we foresaw," Şimşek said. "An interim payment has been planned in liquidation, because final liquidation will take time."
Liquidation is split into ordinary and extraordinary procedures, with ordinary liquidation applying to firms whose finances are relatively manageable. The 66 funds run by A1 Capital, Bulls and Pardus have been wound down this way, completing three of the seven companies, Şimşek said.
A total of TL 40.8 billion has been paid to 45,747 accounts.
Hedef Portföy, which has 31 funds including four money market funds, will also go through ordinary liquidation, bringing the total to four of the seven companies, the minister noted, adding that the process would probably finish by the weekend.
Atlas Portföy's owners are in talks with the liquidating institution and have shown willingness to put resources back, he said. The remaining firms are Tera and Pusula. Only two funds still involve a complicated process, he said, without naming them.
Investors in equity funds have received about 58% of what they had invested as of Sept. 17, Şimşek said, while those in money market funds earned a 1.43% return.
Once the bill that is due to be debated at Parliament this week becomes law, payments of up to TL 1 million will be made quickly, depending on the resources in each fund, the minister said.
Small investors and money market funds will be paid first, covering a further 390,000 accounts and putting a large part of the process behind, he said.
The Savings Deposit Insurance Fund (TMSF), the Justice Ministry and the Central Registry Agency (MKK) are working together and have identified people who profited from market-disrupting activity, Şimşek said.
In the first stage, those with real gains of TL 10 million or more will be approached. If they do not return the money voluntarily, the Justice Ministry will begin legal proceedings.
Authorities also aim to recover assets that were transferred unlawfully to people and companies that benefited from the funds, in case the funds themselves lack enough money, he said. The personal assets of people who acted together will also be pursued.
The risks from the troubled funds have been contained and do not threaten the wider economy, Şimşek said. The problem area has been "quarantined" and direct effects limited, though some indirect effects are possible. "I am not underestimating indirect effects," he said.
The risk of contagion to banks is very low, he said. Banks' direct exposure to the risky funds is TL 1.3 billion, against total banking sector assets of about TL 56 trillion, and risky assets make up about 0.09% of the real sector's total assets, he noted.
Outflows from the funds have largely stopped, Şimşek said. Net outflows total TL 647 billion, about half from foreign investors. Şimşek said most of the money has moved into bank deposits, which have risen by TL 685 billion since Sept. 17.
The Fund Guide issued in late August was an important step that raised transparency and closed most gaps, but it is "not enough," Şimşek said.
Further rules are being studied. The minister said sanctions against market manipulation and coordinated trading will be raised significantly, and supervisory institutions will be strengthened. "If necessary, we will transfer some of our tax inspectors to these institutions by law," he said, adding that the government will also fill any gaps in legislation.
Measures under consideration include independent verification of reported free-float ratios and whether funds sold to retail investors should be open to the electronic fund trading platform TEFAS. Work on permanent reforms was drafted earlier, but the priority is to finish the liquidation first, Şimşek said. The government will consult the industry and weigh the risk of over-regulation.
Şimşek said opening hedge funds to TEFAS in 2019 was a decisive factor in the current problems and that they would not have arisen otherwise.
Türkiye's $1.8 trillion economy cannot be financed by banks alone, he noted, and at least 30%-40% of financing should come from capital markets, which he said will emerge from this episode healthier. "This area is too valuable to be left to the greedy and the fraudsters," he said.
