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EXCLUSIVE INTERVIEW: Crossbridge Capital On The Promise, Challenge Of Turkey

Tom Burroughes

27 November 2012

As this publication explained recently (see here and here), Turkey is a country that has come a long way from the financial turmoil of a decade ago and is gradually flexing its muscles as a country that wealth managers need to study. At Crossbridge Capital, Serkan Gur, executive director, recently shared his views about the country.

How much potential do you see in Turkey as a source of clients for wealth managers and as a wealth management jurisdiction in its own right?

Across the MENA region - with a total amount of available wealth estimated to be over $800 billion - Turkey is number one in terms of total assets available and total number of HNW individuals, and only second to Saudi Arabia in terms of the number of UHNW individuals according to unofficial recent studies.

In the region, foreign wealth managers will continue to capture most of this wealth because the majority of local banks can’t compete. However, Turkey has, to a certain extent, succeeded in growing a nationally and internationally competitive wealth management industry. There are many reasons beyond this including well regulated and competitive financial markets (no restrictions on foreign investment or ownership in financial institutions unlike most other emerging market countries), and growth in the pool of wealth and HNW individuals preferring to invest in local business to take advantage of the world’s best growth rate (although there’s still significant Turkish assets and investments abroad).

What are the drivers for this, and why?

The development of wealth management looks promising in Turkey because more Turks are likely to enter the HNW individual band every year, giving wealth managers an increasing pool of prospects. The Turkish economy has organised family interests which control large shares of its economy like most other EM countries. However, this family-oriented interest focuses on local productive economic activities which generate wealth.

What sort of challenges remain for Turkey to be a wealth management centre?

Wealth management opportunities in a certain market are a combined function of the market attractiveness and market entry business conditions. Market attractiveness combines metrics on the potential of the market and its suitability as a platform. We can name market stability, wealth management profitability and potential customer base as the most important attributes in these metrics.

Among the main factors determining market entry business conditions are ease of entry, regulation, recruitment and competitive landscape. Turkey excels in the majority of all the above-mentioned areas. It has a well-regulated financial services sector with no limitations on foreign investments. Its HNW and retail clients are separately serviced either through private banking divisions of retail banks or by independent local external asset management companies (Crossbridge Capital is already working with major ones in the local markets supplying them product expertise and solutions). It has a highly-educated and young work force with competitive compensation levels.

Does the geo-political situation (proximity to Syria, the Kurdish issue, etc.) give any cause for concern?

Although on geo-political grounds there are a couple of turbulent issues with potential to give Turkey some headaches - like the Syrian conflict, Kurdish unease and secular/non secular differentiation in parts of the society - all things considered these are neither too new nor too likely to cause political instability given the government’s 10-year long service history and ever-increasing (50 per cent in the last elections) support of the Turkish nation.

Turkey recently was upgraded by Fitch to investment grade status. Can you explain, beyond the obvious, what is the significance of this?

One major development of the recent past has been Turkey’s upgrade to “investment grade” level by Fitch ratings. Although the market norm for being on the radar of worldwide investment vehicles is having the investment grade rating from at least two out of the three major credit agencies, either Moody’s or S&P or both will have to upgrade their ratings as soon as possible, because the economics point to investment grade and it’s only going to show work not properly done if any of these agencies stay behind for too long.

Among the well-documented benefits of the upgrade of a country, like increased FDI, better sustained growth and increased economic activity, there are also significant potential opportunities from the wealth managers’ point of view.

As firms like ours already know and have successfully implemented over the years, most new client wealth is created through merger and acquistions and foreign direct investment and it’s a very strategic necessity to have merchant banking and private banking services all in one place and in the same platform.

Likewise, the investment grade rating will undoubtedly increase the amount of wealth to be managed as well as the required quality of services offered. This is another area we are strongly positioned at both outside and inside of Turkey (through local partnerships) for our Turkish clientele.