Turkey's $20 Billion Fund Collapse Explained

Patrick Boyle On Finance

The episode dissects the September 2026 collapse of Turkey's $20 billion investment fund industry, spearheaded by Emre Tezmen's Tera group. It details how affiliated funds artificially inflated stock

Key takeaways

• Emre Tezmen's Tera flagship fund reported a 66,000% return over three years by holding 99% of its assets in its own parent company stock.
• Money market funds lent billions via reverse repo loans using artificially inflated shares as collateral, mirroring Bill Hwang's Archegos leverage strategy.

Main topics

• Turkish investment fund collapse
• Portfolio pumping and circular trading

Notable quotes

"The fund's purchases, he said, push up affiliated stock prices, which inflates the fund's net asset value, which makes the fund management business appear more valuable, which elevates the parent company's earnings and its stock price."

Conclusion

The episode demonstrates how opaque valuation loops and weak regulator

Transcript preview

Speaker 1 (0:00) The Turkish financier Emre Tezmen did not believe that anyone could control the stock market. He told Bloomberg this back in April, saying, you cannot control anything 100 % in a market. If that were the case, prices would only go up. Now that is a great point, but for the better part of three years, prices at Terra, his financial group, did only go up. Its flagship investment fund reported a return of more than 66,000 % over three years, and that's considered really good performance. Terra, a brokerage firm with around 130 employees, was at times worth more than the global investment bank Lazard, which employs several thousand people, which seems a bit strange but possibly his 130 employees were just way more productive than the slackers at Lazard. Then, about five months after that interview, everything fell apart. Turkey's capital markets regulator ordered the liquidation of 131 investment funds holding about $20 billion and 455,000 people found that their savings were locked inside. Turkey's Justice Minister has since described the whole thing as a Ponzi-like scheme, which is never a good sign. And when a fund's returns depend on a steady stream of new money coming in, its collapse is going to raise the question of who exactly was buying at the top. So, in this video, we will look at how the alleged scheme worked, why some Turkish money market funds, the product people treat like cash, ended up holding the bag, what Bill Hwang and Bernie Kornfield have to do with any of this, and what lessons the rest of the world might want to take away. Mostly, though, we're going to try to solve a mystery. As his funds collapsed, Tesman posted a statement on social media blaming the whole thing on a planned, deliberate and organised speculative attack by notorious malevolent forces. That is a serious allegation and I think we should take it seriously. So, over the course of this video, let's try and work out who these malevolent forces might be. It would appear that Emery Tesman was rarely troubled by self-doubt. He told Bloomberg that his ambition was to build the Goldman Sachs of Turkey. We should note that Goldman Sachs took more than 150 years to build, surviving several financial panics, and grew to employ tens of thousands of people, while building the reputation that Matt Taibbi of Rolling Stone summed up as a great vampire squid wrapped around the face of humanity. Terra was a lot younger and smaller, but it had recently signed a deal to sponsor a Turkish football club, so that's kind of similar. Tesman had a straightforward view of finance too. I make money, the investor makes money, he told one interviewer, and what does the state lose? There's no problem here, he said. We'll have to come back to that question though. So, how did the Goldman Sachs of Turkey manage to so comprehensively outperform the actual Goldman Sachs? Well, if you want a stock price to go up, you need buyers, and if you run an investment fund, the most convenient buyer you can find is, of course, yourself using your customers money. Bloomberg found regulatory filings showing that at one point in 2023, Terra's flagship fund had 99 % of its assets in a single stock. shares of its own parent company, Terra. Most fund managers would consider that a fairly concentrated portfolio. Orkin Saka, a lecturer at City St. George's University of London, described how this works to Bloomberg back in April, long before any of it had fallen apart. The fund's purchases, he said, push up affiliated stock prices, which inflates the fund's net asset value, which makes the fund management business appear more valuable, which elevates the parent company's earnings and its stock price. As he put it, this loop is self-reinforcing by construction. That's a very academic way of describing a perpetual motion machine. Turkey's Justice Minister later went with the less academic description of Ponzi-like. Before I dig into how Terra kept that machine running, let me tell you about this week's video sponsor, Saley. Mobile roaming is one of the last industries still run on the hotel minibar pricing model. The product is perfectly fine, but the price is revealed later, and it's always considerably more expensive than you expected. You land somewhere, check a map, send a few emails, and a month later you discover that finding directions to your hotel cost about as much as the hotel did. Saley is an eSIM app that solves this problem. You pick a prepaid data plan for wherever you're going, and they offer affordable plans in over 200 destinations. Because it's prepaid, you know exactly what you'll pay, so there are no surprise roaming fees and no need for angry calls to your phone company. What I like most is the convenience. You install the Saeli eSIM once and that's it. There's no need to install a new eSIM for every country you visit. You just choose a plan in the app and it activates automatically when you land. If anything does go wrong, their live chat support is available 24-7, which is useful when you're in a different time zone and your problem doesn't care what time it is back home. Saley also blocks malicious sites, trackers, and ads while you browse, which has the pleasant side effect of saving you data. They now offer app-based phone numbers too, so you can hand out a Saley number to shops and delivery apps and keep your real one to yourself. To get an exclusive 15 % discount on Saley data plans, download the Saley app and use code BOIL at checkout, or click the link in the description. So anyhow… A mild version of this sort of thing happens everywhere. Academics call it portfolio pumping. In a 2002 paper called Leaning for the Tape, Carhartt, Canyal, Musto and Reed showed that some American mutual fund managers buy extra shares of stocks that they already own at the very end of the quarter, nudging up the closing prices their performance is measured on. The prices then drift back down the following day. The American version is worth a few basis points of performance a few times a year, in time for the quarterly rankings. Terra's fund was buying the shares of its own affiliated companies all year long, and it reported 66,000 % returns, which just shows you what you can achieve with a bit of determination. To keep a machine like this running, you need a steady supply of new money, and in Turkey that wasn't very hard to find. Inflation had averaged about 50 % a year for three years, eating away at people's savings, so a fund reporting more than 1500 % in a single year was going to get a lot of attention. And with inflation at 50 % a year, a big number on a fund statement probably seems a bit less crazy than it would somewhere else. Back in 1998, the economists Siri and Tufano showed that investors pile into top performing funds far more eagerly than they pull money out of bad ones. Terra's brokerage also took companies public. After all, they were trying to be the Goldman Sachs of Turkey, and its fund would