CHANGE TO THE GUIDELINES ON INVESTMENT FUNDS: PUBLIC EXEMPTION FOR HEDGE FUNDS REMOVED; FINAL COMPLIANCE DATE SET FOR JANUARY 31, 2027

CHANGE TO THE GUIDELINES ON INVESTMENT FUNDS: PUBLIC EXEMPTION FOR HEDGE FUNDS REMOVED; FINAL COMPLIANCE DATE SET FOR JANUARY 31, 2027

The Capital Markets Board (CMB) announced to the public via a press release dated October 26, 2026, that it had amended Article 4.3 of the Guidelines on Investment Funds (the “Guidelines”)—adopted as Principle Decision No. i-SPK.52.4—which governs the provisions regarding hedge funds. The amendment directly affects both the scope and the implementation timeline of the portfolio concentration limits imposed on hedge funds as part of the comprehensive revision of the Guidelines dated August 28, 2026.

1. Background: Restrictions Imposed on Hedge Funds

With the August 2026 revision, the first paragraph of Article 4.3 of the Guidelines introduced graduated investment limits—primarily the rule that the total value of capital market instruments exceeding 5% of a hedge fund’s portfolio value may not exceed 20%—as well as limits based on issuers affiliated with the manager and the proportion of shares in actual circulation. Paragraph 8 stipulated that existing excesses must be reduced by at least one-third by October 31, 2026, by at least two-thirds by November 30, 2026, and that full compliance must be achieved as of December 31, 2026.

2. Removal of the Exemption for Public Institutions and Affiliates

Subsection (a) of the second paragraph of Article 4.3 of the Guidelines excluded from the limitations set forth in the first paragraph monetary and capital market instruments issued by the Treasury, the Central Bank of the Republic of Turkey (TCMB), mortgage finance institutions, the Turkey Wealth Fund and its affiliates, as well as public institutions, their subsidiaries and affiliates, and partnerships under their controlling influence. This subparagraph has been repealed, subject to the provisions of the same scope set forth in Communique No. III-52.1 on the Principles Governing Investment Funds. Consequently, the broad public exemption granted to hedge funds at the level of the Guidelines is being terminated; only the exemptions specifically provided for in the Communique will continue to apply.

3. Repeal of the Phased Compliance Schedule

Taking into account recent market developments, the Board has updated the compliance schedule in paragraph 8. Accordingly, the interim deadlines of October 31, 2026, and November 30, 2026, will not apply; the final deadline for full compliance with portfolio and investment restrictions will be January 31, 2027.

4. Potential Impacts on the Sector

• Postponement of Mandatory Selling Pressure: Made just five days before the first interim deadline, this change reduces the price pressure that interim sales could create—particularly in shares with low liquidity—as well as the risk of volatility in fund prices.
• Increased compliance burden: As the timeline has been extended by one month and the public sector exemption has been removed, the scope of the restrictions has broadened. Hedge funds with portfolios concentrated in shares, debt instruments, and lease certificates issued by public-sector entities will need to restructure their portfolios by January 31, 2027. This situation carries the risk of sales becoming concentrated in January 2027.
• Financing of public issuers: A decline in demand from hedge funds for public-sector issuers’ securities could affect these issuers’ funding costs and investor base.
• Portfolio management companies affiliated with public banks: For funds that hold a significant concentration of instruments issued by group issuers, it is becoming increasingly important to conduct assessments in conjunction with issuer-related and group-based limitations.
• Updating internal systems: Risk management and limit control parameters, as well as the investment strategy disclosures in prospectuses and offering documents, and the documentation and approval processes under Section 4.4, should be reviewed.
• Unresolved issues: The announcement does not specify how the compliance exemption granted until maturity for debt instruments and lease certificates acquired prior to August 29, 2026, will apply to public instruments that are no longer covered by the exemption, nor does it address the status of the separate timeline for hedge funds whose names include the terms “money market” or “short-term”; it is recommended to verify this through the current text of the Guidelines.

5. Assessment

While the amendment provides some breathing room for the market in the short term, it necessitates a more comprehensive restructuring of hedge fund portfolios in the medium term. It is crucial for portfolio management companies to revise their compliance plans without delay in line with the new deadline and expanded scope.