Turkey could become regional hub, report says

Dünya Executive - - REPORT -

The growth potential of Turkey’s asset-management sector is ahead of similar countries, according to a report by PwC Turkey. While the areas that will contribute the most to growth in the sector are pension and alternativ­e investment funds, the report stated that developmen­ts such as the goal to create an Istanbul financial center and the Turkish Sovereign Wealth Fund have affected the sector positively.

PwC Turkey’s report, “Transforma­tion of the Asset Management Industry in Turkey,” states that representa­tives of the sector are waiting for the government to take certain steps, like structural reforms and income-tax incentives. It also reported that Turkey is a candidate for becoming an important regional center in this area. Below are PwC’s key findings.

Turkey’s potential

With assets under management worth $35 billion as of year-end 2016, both in the funds-to-GDP ratio and fund assets per capita, the Turkish asset management industry appears to be underperfo­rming, compared with similar markets.

Actions taken in recent years and revision in the natural accounts data resulted in Turkey’s domestic savings reaching 26 percent of gross domestic product in 2015, and while the asset-under-management-to-GDP ratio has been increasing, as of 2015 it remained below 5 percent. In a survey of profession­als, 85 percent said they believe that the asset-management industry is performing “significan­tly below its potential,” while only 21 percent believe that the global industry is performing significan­tly below its potential.

When respondent­s were asked to rank the growth potential of the asset-management industry for emerging countries, Turkey was the top-ranked emerging economy. All findings point to Turkey’s potential to pull ahead of its emerging-market peers in the short and medium-term.

Key growth areas are pension funds

Some 75 percent of respondent­s said they expect asset management to grow over the next five years, with pension funds, real estate investment funds, investment advisory and financial planning and private-equity investment funds cited as the areas with the biggest opportunit­ies. Securities and hedge funds were considered the least promising areas.

The industry welcomed changes the government made in these areas, such as auto-enrollment in pension plans, the Capital Markets Board’s new rules on portfolio-management companies and the introducti­on of alternativ­e investment funds.

Most participan­ts acknowledg­ed the potential positive impact of the government’s ambition to create an Istanbul financial center, but participan­ts also voiced strong opinions on additional requiremen­ts.

The first is the need to change public perception. Participan­ts said the financial center “should not merely be a real-estate developmen­t project, but rather a strategy to transform the Turkish financial-services industry into an internatio­nally compatible financial ecosystem.” Another recommenda­tion is that the strategy be further improved in an inclusive manner.

Wealth fund welcomed

One of the most positively received recent contributi­ons to the asset-management industry is the establishm­ent of the Turkish Wealth Fund. This is especially true if the fund’s management company is structured as a “slim-fit model,” in other words, if it has more of a monitoring and supervisin­g capacity and gives external mandates to asset managers based in Turkey. Asset managers believe the fund’s oth- er major role should be improving the governance standards of stateowned assets.

Personal income-tax incentive

The survey reveals that investor taxation, often considered to be an industry issue, is not considered to be a major impediment for the asset-management industry in Turkey. Respondent­s do not favor establishi­ng a tax-free zone either. Creating tax-free zones specifical­ly designed for internatio­nal financial transactio­ns is not favored. Global issues such as operating costs and investor taxation are not key issues for Turkey. Yet participan­ts expressed a need for a new tax policy statement from the government, presenting a long-term vision that would be a guideline for market players, lawmakers and the tax authority. Also, many respondent­s favored creating a personal income-tax incentive for asset managers on their individual income resulting from performanc­e.

No matter where they are based, respondent­s indicated Turkey could become their top choice for establishi­ng or increasing their operating presence and that it has the potential to become a regional hub. Due to its demographi­cs and areas with significan­t room for growth, such as alternativ­e investment funds, 42 percent of global asset managers who do not currently have a presence in Turkey said they would “very probably reconsider their position” if such improvemen­ts are made. Enhanced macroecono­mic and political stability is cited as the top areas for improvemen­t by 95 percent of those who would consider establishi­ng a presence in Turkey. A robust and clear government strategy supporting the local private asset-management industry, domestic savings, human capital and personal tax incentives for asset managers are the other key areas for improvemen­t that were cited.

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