Turkey's markets regulator has tightened rules governing hedge funds, introducing limits on concentrated investments and related-party exposure amid concerns over unusual market returns. Under updated guidelines from the Capital Markets Board, hedge funds will face limits on holdings of an issuer's free-floating shares ranging from 2% to 8%, depending on the company's free-float ratio. Funds will also be prohibited from investing more than 20% of their portfolios in capital-market instruments issued by affiliated entities controlled by their management. Additionally, the combined value of securities that individually represent more than 5% of a hedge fund's portfolio cannot exceed 20% of the portfolio. Funds have until the end of 2026 to comply fully, with excess positions reduced by at least one-third by Oct. 31 and two-thirds by Nov. 30. The measures follow concerns that some Turkish investment funds have gained tight control over liquidity in relatively illiquid stocks, coinciding with unusually large fund returns and steep gains in individual equities, raising questions about potential price manipulation. Global index providers MSCI, S&P Dow Jones Indices, and FTSE Russell have raised concerns about shareholder transparency, free floats, and market accessibility in Turkey, with MSCI warning it could review Turkey's emerging-market classification if authorities fail to improve transparency ahead of a November assessment.
MSCI IncTurkey's tightened hedge fund rules and MSCI's warning about market accessibility could lead to a review of Turkey's emerging-market classification, potentially affecting MSCI's index business.
