How Turkey's Central Bank Rate Regime Makes Almost Every Equity Fund a Bad Bet

The arithmetic is brutal and it is simple. A Turkish investor can, as of February 2026, park money in a licensed money market fund on TEFAS and earn an annualised net return of approximately 40–42%, with daily liquidity, near-zero credit risk, and management fees under 0.5%. This is the risk-free alternative. It is the number that every equity fund manager in Turkey must beat, not in gross terms, but after deducting their own management fee, performance fee, transaction costs, and custodian charges, to justify asking an investor to accept the volatility, drawdown risk, and illiquidity that comes with equities. Fonkuşu modelled the required gross return for the median Turkish equity fund to deliver a net return exceeding the money market alternative. The answer: approximately 48% annualised. Over the past 12 months, only 7 of the 112 equity funds on TEFAS achieved that figure.

The implications cascade through the entire industry. An equity fund charging a 2.5% management fee and a 10% performance fee above a benchmark needs to generate roughly 50% gross returns just to break even against a money market fund that charges 0.3%. This is not a comment on the skill of Turkish equity managers, some of whom are genuinely talented stock pickers. It is a comment on the mathematical impossibility of justifying equity risk in a 45% rate environment when your cost structure was designed for a 10% rate environment. The fee schedules of most Turkish equity funds were set when the TCMB policy rate was in single digits. They have not been revised. The rate environment has changed by a factor of five. The fees have not moved at all.

The rational response for a retail investor in this environment is straightforward: sell every equity fund, move to money market, and wait for rates to come down. And indeed, TEFAS flow data shows exactly this pattern: net outflows from equity funds of 12.4 billion TL over the past six months, with nearly all of it flowing into money market and short-duration bond funds. The equity fund managers, facing an existential threat to their business model, have responded not by cutting fees but by launching new products with even higher risk profiles (leveraged funds, thematic funds, crypto-adjacent funds) in the hope that the promise of outsized returns will overcome the mathematical headwind. It is a strategy born of desperation, and the investors who buy into it are the ones who will pay the price.