Turkey: The Missing BRIC

Harriet Davies London 8 February 2011


Turkey's strong economic performance in recent years suggests that its should be added to the "BRIC" countries as a leading developing nation.

While the famous Goldman Sachs BRIC acronym may be less relevant now than 10 years ago, as numerous emerging markets surge onto the global market place with a dynamism that often overwhelms their developed counterparts, it is nevertheless a credit to the country’s recent performance that some think it should have a “T” added to it.

Turkey weathered the financial crisis well, with GDP growth rebounding to an estimated 7.3 per cent last year (source: CIA). Like most countries which had a banking crisis fresh in their memory, it had recently cleared up and strengthened its own banking system, following the 2001 crash. This fast growth is creating abundant opportunities for wealth managers, says Serkan Gur, a director at Crossbridge Capital, which focuses on serving emerging markets clients, who was born and raised in the country. The firm hired Gur and his partner Atilla Uygun, who specialise in Turkish clients, from Merrill Lynch BofA last year, with the intention of growing this business.

The competitive landscape

Competition used to come from wealth management departments of foreign banks, but over the last two to three years almost all the domestic banks have set up their own private banking arms. Big wealth management players such as Credit Suisse, Julius Baer, UBS and HSBC all offer services in the country, and foreign players have been buying up domestic banks over recent years.

More recently, local boutique firms have begun to enter the picture, but this is still a fledgling business model there. Foreign boutique firms do have a competitive edge on pricing though, says Gur, as well as more experience in complex products.

To an extent foreign and local firms are offering different services, as foreign firms typically look after clients’ offshore assets. One challenge facing these firms at the moment is that residents increasingly want to keep their assets onshore. This is because in the current climate there are many domestic high-growth businesses and projects offering large, if risky, returns – something which makes tempting investment for a client base which Gur describes as “brave” in its attitude towards risk. He thinks this is, however, a phase, and offshore services will remain in demand.


A quick glance at the country’s statistics reveals the following:

It has a population of 77.8 million, and with a median age of 28.1 years, is one of ageing Europe’s youngest countries. In 2010, there were 32,299 high net worth individuals in the country (with $1 million plus of investable assets), according to Gur (source: The Banking Regulation and Supervision Agency of Turkey).

The country also has the highest number of billionaires per capita in Europe. Gur adds this has a darker side, as it points to the inequality there; however, it undoubtedly offers good prospects for wealth managers. The overall fortune of the 100 wealthiest people in Turkey amounted to $87 billion, as at 2010. Furthermore, as of March 2010, Istanbul ranked behind only New York, Moscow and London in terms of the number of local billionaires (source: Forbes survey).

The clients

The Turkish client base is very competitive, and prefers advisory to discretionary services, says Gur: “They expect a ‘one-stop shop’, and demand advice on everything from the sale of a business, to buying property in London for children coming to study here.” Tarek Khlat, chief executive of Crossbridge, says this is why he sees the firm’s business model as best suited to serve the market.

Due to the country’s inflationary past, residents there have experienced losing money quickly if they didn’t invest it well – they couldn’t afford to leave it sitting in a bank account. Because of this reality, they know a lot, says Gur, and there is a strong culture of being literate in finance and business. Thus, they are looking for professional advice to add to this, but like to remain involved.

Real estate is a hugely popular investment, another product of the country’s inflationary history, which has built mistrust of monetary assets. On paper Turkey has a low savings rate at around 18 per cent, (although high by developed standards, this is relatively low for a developing country). But according to Gur many people manage their savings through property and the liquid assets data on savings is misleading.

Nowadays, the country has markedly reduced both inflation and the volatility of inflation. In 2009 inflation was running at 6.3 per cent, and this rose to an estimated 8.7 per cent last year (source: CIA). The debt-to-GDP ratio is now below 50 per cent.

With these changes, people are starting to move away from this method of saving. The days of default and double-digit inflation are over, Gur thinks, and judging from the data the country has now been stable since around 2002.

Turkish property prices have risen by two to three times over the past few years, and – no doubt astonishingly for westerners – most people tend to  buy their houses outright, says Gur. The local mortgage market is very underdeveloped, he says, with the first long-term mortgage having only been offered in 2008. As this develops, it will have knock-on effects on the real estate market; and it is also likely to impact the way Turkish people manage their money.

The trillion dollar economy

Another big story is the growth of Shariah investing. Last year, a Turkish bank issued the first bank Sukuk, or Shariah-compliant bond, to originate from Europe; it was oversubscribed. The rich have become richer in Turkey, but there is also lots of new wealth, and in Gur’s experience this tends to be more religiously conservative than the inherited wealth. Meanwhile, the ruling Justice and Development Party is more religiously conservative than the former government. Gur describes Shariah investing in the country as “a huge opportunity”, and the firm is rapidly growing this business area.

Turkey is also being boosted by inflows of foreign direct investment, and Gur thinks it could become investment grade this year, prompting a big reallocation towards the market (as this would mean pension funds had to include it in their portfolios). Again, this would clearly have knock-on effects on asset prices. While capital flows have traditionally come from the US and Europe, they increasingly come from the Middle East, and are invested in large-scale projects such as in the energy, infrastructure and real estate sectors.

“Turkey is not far away from becoming a trillion dollar economy,” says Gur. In 2010 it was estimated as being worth $729.1 billion (official exchange rate). He thinks this is one of the really big opportunities wealth managers have, and the big players in the market are noticing. “They have been increasing allocation in terms of staff and investment,” he says, “they’re aware.”


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