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Turkey wealth fund chief rebuffs criticism of Erdogan’s role

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Via Financial Times

The chief executive of Turkey’s sovereign wealth fund has defended Recep Tayyip Erdogan’s close involvement in its running despite criticism from opposition parties and foreign investors, saying that “every sovereign wealth fund is a political animal”.

Zafer Sonmez, who was brought into run the fledgling $33bn fund in 2018, told the Financial Times that the Turkish president, who serves as its chairman, was “aware of everything” that it does. 

The president’s son-in-law, Berat Albayrak, who is Turkey’s finance minister as well as the fund’s deputy chairman, was in “daily contact” with Mr Sonmez, receiving “continuous updates” as the most active member of its board, Mr Sonmez added.

Turkish opposition figures have accused Mr Erdogan of seeking to run the fund as a “family business”, while analysts wonder whether the fund will face political pressure to pursue investments that lack a sound business case. But Mr Sonmez rebuffed the criticisms. 

“Every sovereign wealth fund is a political animal,” he said in a rare interview. “Can someone say to me, for example, that GIC of Singapore, chaired by the prime minister of Singapore, has no political relationship . . . [or that] the Public Investment Fund in Saudi Arabia, chaired by [Saudi crown prince] Mohammed bin Salman . . . is not politically related?”

The fund needed a “determined political mindset”, he said, adding that his mantra for countering the concerns was “governance, transparency and accountability”.

The fund has just undergone an audit by KPMG to consolidate its assets, which were worth a total of $223bn in 2018 with an equity value of $33bn. It has also been reviewed by credit rating agency Fitch, which last week announced that it would be rated BB- in line with the Turkish government’s rating. 

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Now Mr Sonmez, a former banker who is well regarded in the Turkish investment community and abroad, is on a mission to “win hearts and build trust” and attract foreign direct investment to Turkey — no mean feat when net FDI last year hit its lowest level since 2004.

Given Turkey’s lack of oil and gas reserves, the Turkey Wealth Fund (TWF) is not comparable with the vast funds run by the likes of Norway, Saudi Arabia or Qatar. Mr Sonmez describes it as an Asian-style asset-backed development fund. The inspiration is Singapore’s Temasek or its Malaysian counterpart Khazanah Nasional, whose Turkey office he used to head. 

The fund was established in 2016, just a month after a violent attempted coup d’état sent shockwaves through the country. The following year Mr Erdogan transferred the government’s stakes in a string of the nation’s biggest companies, including Turkish Airlines, Turk Telekom and two large banks, to the fund.

It aimed to jump-start the struggling economy by leveraging the fund’s assets to support key infrastructure projects. But it was largely dormant for its first two years as it was beset by infighting between factions loyal to the president and the then-prime minister. For a time it was chaired by a former bureaucrat who came to meetings carrying a gun

In September 2018 Mr Erdogan asserted his authority by sacking the entire board and appointing himself as the fund’s chairman. Mr Sonmez was brought in as chief executive. 

The 45-year-old wants the fund’s assets to triple in value to $100bn by 2023. Within five to 10 years, he wants to make the TWF a “sustainable” payer of dividends to the government. At the same time, he wants to reduce the country’s chronic current account deficit by investing in petrochemicals, mining and coal, developing Turkey’s capital markets and supporting entrepreneurs by filling gaps in the start-up funding ecosystem. Right now the fund has little cash to play with; most of its income is generated from the national lottery and horseracing licences that it owns. Instead, it plans to ask foreign investors to help support an investment programme that it hopes will reach $10bn a year by 2023.

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Analysts do not dispute the merits of the fund’s stated aims; their doubts are about its ability to meet its targets and the risk of political interference. “There is good logic in what they are trying to do,” said Tim Ash, a strategist at BlueBay Asset Management in London. “Zafer is a good guy but, given what we know about Turkey, can he say no to Erdogan?”

Earlier this month, a change in the country’s banking law prompted speculation that the fund would be asked to finance what Mr Erdogan has termed his “crazy” project to dig a new waterway through Istanbul. 

Mr Sonmez insisted that the change in the law was a technicality, but he did not rule out the prospect of getting involved in Canal Istanbul. While the $15bn project was “not on my list”, he added that the fund would explore anything that the Turkish government viewed as a strategic goal. With any project, he said, the fund would “look at the feasibility and economics, and, if it makes sense, we can invest”.

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