Turkish Sovereign Wealth Fund

Sovereign wealth fund may be defined as a state-owned investment fund or an entity that is typically created by governments with budgetary surpluses for mainly capital preservation and/or investment return purposes.

Since 2005 at least 40 sovereign wealth funds were created globally and Turkey joined among these countries such as Canada, China, Japan, US and Qatar in 2016 by enacting the Law numbered 6741 on the Establishment of the Turkish Sovereign Wealth Fund Management Incorporation (“Law”).

The Law was published in the Official Gazette dated 26.08.2016 and numbered 29813. The Law sets out that the Turkish Sovereign Wealth Fund Management Incorporation (“Company”) shall be established with the main purpose of establishing and management of a wealth fund and sub-funds, which will be performed in accordance with the principals of professional management. The Turkish sovereign wealth fund (“SWF”) shall operate under the Prime Ministry and shall be subject to civil law.

The areas of activities that the Company shall undertake within national and international primary and secondary markets are defined under the Article 2 as below:

• The purchase and sale of shares of domestic and foreign companies, shares and debt instruments of issuers established within Turkey and abroad, capital market instruments issued on precious metals and goods, participation shares to a fund, derivative instruments, lease certificates, real estate certificates, specially designed foreign investment instruments and other instruments,
• All kinds of money market transactions,
• All kinds of commercial and financial activities,
• All kinds of project development, developing external project loans and performing all kinds of commercial and financial activities.

The Company is expected to take into consideration the objectives set forth in the strategic investment plan and preferences of liquidity, investment, risk and yield during conducting the above defined activities.

The Company was registered to the Trade Registry Office on the date of the entry of the Law into force.

The Company’s initial capital is set forth as TL 50 million which is covered by the Privatization Fund.

Decision of the Council of Ministers

The Decision of the Council of Ministers on the Structure and Operation of the Turkish Sovereign Wealth Fund Management Incorporation (“Decision”) was published in the Official Gazette numbered 29883 and dated 09.11.2016.

Pursuant to the Article 3 of the Law, the Decision defines the operational principles, organizational structure and revenues of the Company and sets forth provisions related to areas such as internal control and rights and obligations of the employees and executives of the Company.

i. Operational principles

The Company’s operational principles are set out within Article 5 of the Decision and accordingly the Company shall protect the interests of the funds established and managed by itself by taking principles of objective good faith, duty of care and prudence as a basis. Within this scope the following principles shall be complied with by the Company:

• The Company and fund managers shall comply with the investment principles defined by the Law, strategic plan, internal regulation, certificate of incorporation and the articles association. The documents in relation to these decisions shall be kept at the Company for at least five years.
• The Company and fund managers shall establish and manage portfolios in accordance with the investment strategy defined within the strategic plan, internal regulation, certificate of incorporation and the articles association.
• The fund managers shall not profit from an investment transaction of the portfolios in the form of a commission, rebate etc. on behalf of themselves or third parties.
• The Company and the employees shall not conduct any legal act on the assets within the portfolios on behalf of themselves or third persons apart from the purpose of portfolio management.
• The Company shall take measures to prevent the persons employed with the Company from conducting transactions on behalf of themselves by benefiting from the opportunities of the Company or the Turkish SWF apart from an ordinary relationship of employment.
• The Company shall take measures to prevent the use of research results obtained for investment and information obtained during management of the fund on behalf of the Company or the third parties prior to the funds.

ii. Organizational structure and committees 

The entities necessary for the Company and the funds shall be established by a decision of the board of directors. The board of directors shall also approve job description and work flows of these entities.

The Company shall establish a board of advisors which will convene at least twice a year. The advisory board’s function and work procedures shall be set out by the board of directors.

A board of executives may also be established by a decision of the board of directors and the limits of their duties and authorities shall be defined via a decision of the board of directors.

An investment committee is also required to be established for each sub-fund that will be created within the scope of the Turkish SWF. The committee will include at least one member of the board of directors, a general manager and portfolio executive.

iii. Strategic investment plan

The three-year strategic investment plan which will include the Company and affiliated companies together with the Turkish SWF and the sub-funds within it shall be prepared by the board of directors and submitted to the Council of Ministers for approval.

iv. Executives and employees

The employees of the company shall consist of a general manager, deputy general managers and expert employees and other persons.

The members of the board of directors and the general manager are required to possess the necessary qualifications prescribed by the Law.

The executives and employees of the Company shall demonstrate the necessary professional due care and diligence required for their works and decision making, refrain from conflicts of interest and acts and transactions that may effect their good faith and impartiality.

The executives and employees of the Company shall not disclose any confidential information obtained for the purpose of their work to third persons and shall not use these information for their or third parties’ interest.

v. Resources of the Turkish SWF

The Article 20 of the Decision sets out that the resources of the Turkish SWF shall include the following:

• The corporations and assets which are within the scope and programme of privatization and decided to be assigned to Turkish SWF by the Privatization High Council together with the cash surplus decided to be transferred to Turkish SWF from the Privatization Fund,
• The surplus income, resource and assets owned by public institutions and corporations and decided to be transferred to the Turkish SWF by the Council or Ministers or to be managed by the Company,
• The finance and resources obtained by the Turkish SWF from domestic and international capital and money markets without the requirement to obtain the necessary licences and permits as per the applicable legislation,
• The finance and resources obtained by methods other than capital and money markets.

vi.Separation of assets and prohibition of pledging or collateral

The assets of the Turkish SWF and the assets and rights assigned to the Company for management are separated from each other as per Article 20 of the Decision and they shall not be collateralized or pledged except for the acts and transactions of the Turkish SWF and sub-funds as defined within the Decision.