Hedge Funds Within the Scope Of The Turkish Capital Markets Legislation

Hedge funds are regulated as a type of mutual funds within the scope of the Capital Markets Law numbered 6362 (“CMB”). According to article 52 of the CMB; Mutual funds are pursuant to the provisions of the CMB, the money or other assets collected from the savers in return for the fund participation share, and the portfolios of assets and rights determined by the Capital Markets Board in accordance with the principles of ownership. They established by the portfolio management companies with the fund by-law and have no legal personality and defined as property.

Hedge funds are regulated as an investment fund type in Article 25 of the Communiqué on Principles Regarding Mutual Funds numbered III-52.1 (“Communiqué No III-52.1“), but it is not clearly defined. Based on the scope of the legislation, the definition of hedge funds can be defined as a type of mutual fund that can be sold to qualified investors and can invest without being subject to a certain portfolio and transaction restrictions.

In hedge funds, the fund founder is allowed a limitation in the fund prospectus, although there is no restriction on the minimum investment amount or the maximum number of investors. However, an important difference between hedge funds from other mutual funds is that they can only be sold to qualified investors.

Qualified investors in accordance with Article 4 of the Communiqué on the Sale of Capital Market Instruments No. II-5.2 (“Communiqué No. II-5.2“); It is defined as professional customers, including those who are defined as professional based on demand and defined in the regulations of the Capital Markets Board regarding investment institutions. According to Article 31 of the Communiqué on the Principles of Establishment and Operation of Investment Institutions numbered III-39.1 (“Communiqué No III-39.1“), “professional customer” is defined as a customer with experience, knowledge, and expertise that can make their own investment decisions and evaluate the risks undertaken. In order to be considered as a professional customer, some conditions must be met or some qualifications must be possessed.

  • Domestic and foreign investment funds, pension funds,
  • Investment trusts, brokerage houses, banks, insurance companies, portfolio management companies, mortgage finance institutions,
  • Foundations, public benefit associations,
  • Retirement and aid funds, funds established in accordance with Temporary Article 20 of the Social Insurance Law No. 506,
  • Other investors to be determined by the Capital Markets Board to be similar to these institutions in terms of their qualifications,
  • Organizations meeting at least two of the criteria for total assets of 50.000.000 TL, annual net revenue of 90.000.000 TL, and equity capital over 5.000.000 TL,
  • Those who are accepted as professional customers based on the request defined in Article 32 of the Communiqué numbered III-39.1

If it is necessary to explain article 32 of the Communiqué numbered III-39.1; Those who are considered as general customers can benefit from the services and activities offered by the investment firm as professional customers if they request in writing and prove that they meet at least two of the conditions listed below.

  • To have performed at least 10 transactions with a volume of at least 500.000 Turkish Liras every 3 months in the last year in the markets where transactions are requested,
  • The sum of financial assets including cash deposits and capital market instruments it owns exceeds 1.000.000 Turkish Liras,
  • Having worked for at least 2 years in one of the senior management positions in the field of finance, or worked as a specialist for at least 5 years in the capital markets field, or having an Advanced Level License in Capital Market Activities or Derivatives License

Hedge funds; Different from other mutual funds, they can invest within the investment strategies and limits included in the fund’s information documents, without being subject to the portfolio and transaction limitations in the Communiqué numbered III-52.1. However, the condition of obtaining permission from the relevant authority should be met for foreign funds whose shares will be taken into the portfolios of hedge funds. In this context, the prospectus and investor information form are included in which countries established funds can be included in the portfolio. The Capital Markets Board may impose restrictions on foreign fund shares to be included in the portfolios of hedge funds.

With the Communiqué numbered III-52.1, additional conditions have been introduced regarding the establishment of hedge funds and the issuance of participation shares for managers and personnel:

  • The institutions that will sell the participation shares of the hedge funds ensure that the sales of the participation shares are made by the sales personnel who have sufficient knowledge and experience in this field.
  • These organizations are obliged to obtain and keep the information and documents that the investors to whom the sales are made are qualified investors.
  • All portfolio managers of the hedge fund must have an advanced level license certificate for capital market activities and a derivative instruments license certificate, and the necessary knowledge and experience in these funds.

Applications for the establishment of hedge funds and registration of fund shares are concluded in a similar way to mutual funds. By allowing the investment restrictions of hedge funds to be freely determined in the fund prospectus; They can be established as a high-risk mutual fund consisting of a single portfolio or as a fund basket consisting of hedge funds.

In case the value of the participation shares of the free funds in the fund basket exceeds 10% of the total fund value, these fund baskets are not subject to the general investment limitations specified for the fund baskets in the Communiqué numbered III-52.1.

The share prices of hedge funds must be calculated at least once a month and notified to investors. The daily calculation and announcement requirement of the unit share value for other funds does not apply to hedge funds. In hedge funds; Different periods can be determined in the prospectus and investor information forms for the return of participation shares to the fund.

There is no limit set in the legislation regarding the purchase-sale number of participation shares of hedge funds. However, it is possible to determine a lower or upper limit for the number of purchases of fund shares in the fund prospectuses.

Institutions that will mediate the sale of shares of hedge funds are obliged to employ sales personnel with sufficient knowledge and experience in this regard. In addition, these intermediary institutions are obliged to obtain and keep information and documents showing that the investors whose shares are sold are qualified investors.

Advertisements cannot be made regarding the sale and public offering of hedge funds. However, it is possible to conduct promotional activities for qualified investors, provided that they do not fall within the scope of the public offering.

In terms of hedge funds, unlike other funds, it is exempted from the independent audit obligation for interim financial statements. Financial statements regarding hedge funds are disclosed to the public within 60 days following the end of the relevant account or investment period and are sent to the shareholders within 10 weekdays following this announcement via the most appropriate means of communication.

As mentioned above, no standard has been set within the scope of the legislation regarding the portfolio and risk limits of hedge funds. However, it is possible to include limits in hedge fund prospectuses. This prospectus and related prospectus changes will be announced in Trade Registry Gazette.

Finally, if the responsibility of the hedge fund is mentioned, the assets of mutual funds; can not be used for any purpose other than fulfilling the obligations of the fund founder arising from the Capital Market Law, the Communiqué numbered III-52.1, and the fund prospectus. The assets of the fund cannot be pledged or seized by third parties. In addition, provided that there is a provision in the internal statute and it is for the fund account, the loans used by the fund and the financial futures contracts to which it is a party and similar transactions carried out on behalf of the fund can be shown as an assurance.


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