Finance knows how to manufacture proof of its own success. Regulators ought to be worried. A fund buys a thinly traded stock, and the price naturally climbs. The portfolio appreciates. The performance attracts new subscribers, whose money funds further purchases. And so the manager parades a return manufactured by none other than himself, while the investor believes he has found a new El Dorado.
It is a well-oiled infernal machine, and it has a name, the circularity of valuation. It takes on singular proportions in an ecosystem where structural market liquidity is thin, where holdings are highly concentrated, and where the line between asset management and equity stakes in issuers is blurring. A shallow emerging market, Turkey met all three conditions.
The country has thus just replayed this mechanism of redemption defaults for the umpteenth time. Its markets regulator reacted, as always, by liquidating funds: 131 vehicles, to be precise, belonging to seven asset managers, one of which, Tera Portföy, accounted for 65% of them on its own. The result is 455,758 investors dispossessed, with $17 billion in assets at stake. Or how the valuation of a portfolio becomes an abstraction the moment one tries to sell it…
A Price Is Not an Exit
A stock market price reflects the transactions actually carried out, but it does not guarantee that every share could change hands at that same price. Thin volumes, sometimes just a handful of trades, are enough to conjure up a considerable capital gain. Performance, moreover, is often inversely proportional to how easily a security can be liquidated. Behind a sophisticated architecture, the dependency is strikingly rudimentary, and many a greedy speculator lured by the sirens of easy profit finds himself without a chair long after the music has stopped.
Such is the fundamental paradox of illiquidity dressed up as return: the harder an asset is to sell, the more its face value can be inflated without anyone contesting the price, since no transaction comes along to test it. A fund holding 8% of a listed company whose free float does not exceed 12% can “create” a price with just two matched orders. It is a fiction that holds only so long as the fund never sells.
In this Turkish case, the mechanism was aggravated by extreme concentration. How can diversification exist when a single manager holds two-thirds of the assets concerned? Logically, a single grain of sand is enough to bring the edifice down.
The Authorities Had Been Warned
The chronology makes the Turkish affair politically damning. In its statement of 18 September, the national regulator acknowledged having observed price manipulation by certain funds as early as the last quarter of 2025. The price swings of certain companies, at times aberrant, bore no relation to their fundamentals, as the Financial Stability Committee, chaired by Finance Minister Mehmet Şimşek, had already noted on 2 December 2025. The danger had been identified, in other words, at the very top of the pyramid of financial oversight.
Between that December finding and the September liquidation, nine months went by. Nine months during which the funds kept collecting, buying, posting performance. Nine months during which new savers joined them, reassured by the absence of any public warning signal. Nine months that beg a simple question: what more than a diagnosis made at the highest level does it take to trigger an intervention? An open crisis, probably… The regulator waited for the fire before calling the firefighters.
On 23 June 2026, MSCI in turn relayed the concerns of international investors about possible coordinated trading, about links between certain funds and small listed companies, and finally about the reliability of the data. The index provider called for greater transparency on beneficial owners and for reinforced oversight. Suspicions of anomalies were now crossing borders.
MSCI’s entry into the debate is no small matter, because the New York-based firm does not comment lightly. Its classifications, emerging market or frontier market, determine the allocation of hundreds of billions of dollars of institutional capital. By voicing its reservations publicly, MSCI implicitly signaled to international managers that Turkey was on the verge of becoming a reputational risk as much as a market risk. For a country structurally dependent on foreign capital inflows to finance its current account deficit, the stakes reached far beyond the 131 liquidated funds.
The courts will have to establish the alleged manipulations, who profited, and where individual responsibility lies. The authorities, for their part, will have to explain how they handled the warnings. Yet the string of arrests will not explain why a risk known for months ended up freezing, and most likely vaporizing, savers’ money. A regulator is judged not by how well it keeps its timetable, but by the savings it protects.
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