Arıkan Portföy: Ten Years of Balanced Funds in the World's Most Unbalanced Market

Cengiz Arıkan spent fourteen years at Garanti Bankası's asset management division, the last four running the bank's multi-asset fund strategies. SPK filings and company records indicate he departed in late 2009, shortly after a period in which the bank's investment committee overrode allocation decisions on a balanced fund he managed. The committee had reduced equity exposure ahead of anticipated interest rate volatility, a move that, based on subsequent market data, likely cost the fund approximately 200 to 300 basis points over the following twelve months.

The underlying tension was structural rather than personal. A bank-owned fund has constituencies beyond the fund investor (the lending book, the treasury operation, corporate client relationships, regulatory considerations), all of which create pressures on investment decisions that an independent fund manager would not face. Arıkan registered Arıkan Portföy Yönetimi A.Ş. in November 2010. By December, he had submitted his SPK licence application. By the following September, he was managing his first fund.

Before Garanti, Arıkan had a brief period at a smaller Turkish brokerage and, before that, a master's degree in mathematical economics from Bogazici University. The academic background is relevant: the fund management approach he subsequently developed is grounded in quantitative modelling of rate environments rather than discretionary market timing.

The Problem With Balanced Funds in Turkey

The classic balanced fund, as conceived in the American and European markets where the modern asset management industry developed, rests on a simple premise: equities and bonds are negatively correlated in most market environments, so holding both produces a smoother return stream than holding either alone. The canonical expression of this is the 60/40 portfolio (60% equities, 40% bonds), which has delivered strong risk-adjusted returns for most of the past half-century in developed markets.

Turkey presents a structural problem for this model. The relationship between equities and bonds in Turkey is not stable across rate regimes, and Turkey's rate regimes are not stable across time. When the Central Bank holds nominal rates at 25%, government bonds yield 27% and money market funds return 24%. Equities in that environment must deliver returns well above 30% just to compensate investors for taking the additional risk of equity ownership. Most years, they do not. When the Central Bank cuts rates sharply (as it did in 2021-2022 in a policy experiment that most economists consider poorly designed), equities surge while bonds reprice downward. A fund that holds a static 60/40 allocation will be perpetually behind the appropriate positioning, underweighting whichever asset class is benefiting from the current regime and overweighting whichever is suffering.

The response from Arıkan Portföy is a dynamic allocation model developed over the firm's first two years of operation and running, with incremental refinements, since 2012. The model is built around a single variable: the real policy rate: the nominal Central Bank rate minus trailing twelve-month CPI inflation. When the real policy rate is positive, the model overweights fixed income; when it is negative, the model overweights equities and inflation-linked instruments. The model rebalances monthly, using a rules-based approach rather than discretionary judgement. The conceptual framework has been published in several presentations to academic and investment audiences. The specific parameterisation (the thresholds, the allocation bands, the adjustment speeds) is proprietary and not disclosed to investors or the public.

Ten Years, Eight Wins, Two Losses

The Arıkan Dengeli Fonu launched in December 2010 with a benchmark defined as 50% BIST100 total return index and 50% BIST-KYD government bond index. This benchmark was chosen deliberately to represent the static allocation that the model was designed to improve upon. Over ten full years through November 2020, the fund has returned a cumulative 1,847% in nominal Turkish lira terms. The benchmark returned 1,392% over the same period.

The fund beat its benchmark in eight of the ten calendar years. The two exceptions were 2015, when the model was underweight bonds ahead of a series of unexpected Central Bank rate cuts in the second half of the year, and 2019, when the allocation was briefly overexposed to equity just before a significant rate cut in July produced a bond rally that the model was slow to capture. In both cases, the underperformance was recovered within twelve months.

Year by year, the fund's excess returns vary considerably: from over 30 percentage points of outperformance in years when the real rate signal produced a dramatically correct tilt, to modest underperformance in the two miss years. The average excess return over the full decade is approximately 7 percentage points annually. Information ratio over the full period is 0.71. These are not hedge fund numbers, but they are solid and consistent for a balanced fund benchmark.

The most significant test of the model came in 2018, when Turkey experienced a severe currency crisis and equity market selloff. The model had moved to a strong overweight of government bonds and inflation-linked instruments in early 2018, as nominal rates rose significantly. The Dengeli fund declined 8.4% in TL terms that year; the benchmark declined 14.1%. The model did not avoid the losses, but it significantly cushioned them. For investors who need to understand how a strategy performs in extreme stress, 2018 is the relevant data point, and the result is defensible.

The Puzzle: Why Hasn't It Grown?

Arıkan Portföy manages approximately 480 million TL in assets across the Dengeli fund and a smaller bond fund launched in 2016. This is a respectable figure for a single-product boutique in Turkey's independent asset management sector. It is also, by any reasonable assessment of the track record, smaller than it should be. Ten years of documented outperformance, a clearly articulated and repeatable process, reasonable fees, and an investment approach that addresses a genuine structural challenge in the Turkish market should, in most circumstances, attract significantly more capital than 480 million TL.

The explanation is almost entirely commercial rather than investment-related. The firm's sales and marketing infrastructure is, to put it charitably, underdeveloped. There is no dedicated investor relations resource. The fund was listed on TEFAS at launch in 2014, but active promotion to institutional investors did not begin until 2018. Marketing materials consist of a one-page factsheet and a six-slide presentation prepared in 2017 for what appears to have been the firm's first formal investor meeting, held at an academic conference organised by Bogazici University's finance department. There is no regular investor newsletter. The firm's website displays the fund's performance data and a brief description of the investment approach. It was last updated in 2019.

The implicit thesis (that strong performance would eventually attract capital without significant promotional effort) has proven partially correct but far too slow. The fund has grown entirely through word of mouth: referrals from existing investors, introductions through the Bogazici alumni network, occasional mentions in financial media. This organic approach has produced steady, if slow, growth. It has also left the fund significantly below what a more commercially organised operation would likely have achieved. The firm appears to have understood the investment business while underestimating the distribution business: two genuinely different enterprises.

The Real Limitations

Beyond the commercial underdevelopment, there are three genuine investment-related constraints that prospective investors should understand.

The first is currency concentration. The Arıkan Dengeli Fonu is entirely denominated in Turkish lira and invests exclusively in domestic Turkish assets. There is no USD, EUR, or any other foreign currency exposure. For investors whose liabilities are entirely in lira, this is appropriate. For investors with any international exposure (which describes most of Turkey's wealthier households, many of whom hold significant property, education costs, or business relationships in hard currencies), the fund provides no hedge against lira depreciation. The stated rationale is that the mandate was designed for domestic allocation; adding international exposure would require a different fund structure and a different analytical capability. This is probably correct. But it remains a genuine limitation for certain investor profiles.

The second is model transparency. The real-rate allocation model is the core of the product's value proposition, and investors cannot evaluate it fully because the parameterisation is not disclosed. The counterargument is the track record itself: ten years of observable results are arguably more informative than reading parameter specifications. This is a reasonable position up to a point. It requires investors to trust the process without being able to verify it independently, which is a different relationship than a fully transparent rules-based strategy would produce.

Third, there is no succession arrangement in place. The firm has a sole portfolio manager and no documentation covering what would happen to fund investors if he were unable to continue. SPK filings show no deputy portfolio manager or formal continuity plan. There are indications the firm is considering hiring a business development partner who would also take on institutional responsibilities, including investor communication and continuity planning. Whether that intention produces a concrete outcome remains to be seen.

An Underappreciated Operation

Arıkan Portföy is not a name that features in the conversations Turkish fund industry participants tend to have about interesting boutiques. Partly this is the result of commercial choices that have kept the firm's profile deliberately low. Partly it is the nature of a balanced fund strategy in a market that generates most of its headlines around equity performance and fintech. Partly it is the Turkey-only mandate, which limits the universe of international investors who might recognise the track record as something worth examining.

None of that changes what the record shows. Ten years of data, eight years of outperformance, a coherent explanation for both the wins and the losses, and a founder who has never changed his process to attract assets he considered inappropriately short-term. Arıkan Portföy deserves more attention than it receives. The fact that it receives little is, to a greater degree than is comfortable to acknowledge, largely attributable to the firm's own commercial choices.