Highlights of the Communiqué Amending the Communiqué on Principles Regarding Portfolio Management Companies and Activities of Such Companies

Introduction

Recently, portfolio management companies (PMCs) in Turkey have been growing rapidly in both number and volume. This rapid growth has brought with it the necessity to make amendments to the law on PMCs. On the sector side, it is believed that PMCs generally have difficulties in accessing the technical means and establishing the employment and organizational structure they need to operate more efficiently. Most PMCs suffer large losses from their capital until they make a profit, and therefore those that do not have enough capital cease their operations. We anticipate that the Communiqué Amending the Communiqué on Principles Regarding Portfolio Management Companies and Activities of Such Companies (Communiqué) published in the Official Gazette dated February 18, 2023, may be useful in overcoming these problems. The most important changes brought by the Communiqué can be listed as (i) increase of the minimum requirements for initial capital and equity capital, (ii) establishment of service units within the company, and (iii) employment of a set number of managers.

Lower Limit Increase for Initial and Equity Capital

Pursuant to art. 2 of the Communiqué, the minimum possible initial capital of a PMC has been increased from 6 million TRY to 30 million TRY. This lower limit was increased from 3 million 750 thousand TRY to 15 million TRY for PMCs with limited activities. As in the previous regulation, the minimum limits on equity capital vary according to the size of the relevant portfolio. However, with the recent amendment, a significant increase was made in the minimum limits of equity capital. Pursuant to Art. 11 of the Communiqué, the minimum equity capital limit is set at 30 million TRY for companies with a portfolio size of up to 1 billion TRY, while the minimum equity capital limit for companies with a portfolio size exceeding 36 billion TRY is regulated as 100 million TRY. This increase in the initial and equity capital requirements of PMCs can be considered a precaution regarding the current and potential resource needs and shortages of companies.

Employment of a Set Number of Managers

It can be evaluated that the amendment made with the Communiqué in relation to company management may solve the organizational problems of PMCs to a certain extent. Pursuant to the relevant articles (art. 3 and art. 7) of the Communiqué, a new structure has been introduced stipulating that the number of managers in a given PMC cannot be less than three, four, five and six, respectively, in proportion to the portfolio sizes set out in art. 11. In addition, pursuant to art. 7, in cases where portfolio managers and the fund service units are established within the company, the requirement for the fund manager to be employed exclusively and on a full-time basis is regulated. We are of the opinion that these new regulations will positively impact the efficiency and organizational structure of PMCs.

Service Units to be Established within the Company

Another noteworthy amendment is by virtue of art. 4 and Art. 6 which provides for the internal employment structure of research, risk management, internal control and service units for broadly authorized PMCs. Thus, the units that are most important for PMCs will be established within the company and this will strengthen the organizational efficiency and integrity of PMCs.

Conclusion

Many PMCs cannot continue to operate and cease their activities due to insufficient capital. Furthermore, there are financial and managerial obstacles standing before the development and continuity of PMCs that have commenced their activities without sufficient financial strength. The above-mentioned new regulations are aimed to strengthen PMCs in terms of management and capital. Thus, in the coming days, it may be possible to observe positive developments regarding PMCs, as they strengthen their financial and administrative structures by adapting to the changes brought by the Communiqué.

Tagged with: Gökçe, Görkem Gökçe, Nazlı Nehir Sertbaş, Commercial & Corporate