Sovereign wealth funds play a role in supporting countries’ private sectors during a crisis such as the coronavirus pandemic, according to the head of a wealth fund in Turkey.
“I believe that (in) the post-Covid environment, we will see more activity from government funds,” Zafer Sonmez, the fund’s chief executive, told CNBC’s Hadley Humble on Thursday ahead of the Turkish central bank’s decision to cut interest rates.
The economy of 82 million, like most of the world, was hit with a hammer by the coronavirus pandemic. For Sonmez, this is an opportunity for his fund ̵
“In terms of debt, the equity response must come from sovereign wealth funds,” Sonmez said, noting that the ratio of government debt to Turkey’s GDP is a “relatively low figure” – about 32.5%, meaning that there is a possibility of an additional effect,
Ankara / Turkey-May 6, 2020: Statue of Ataturk with white and blue sky and Ulus region
“In my opinion, in the next three to five years, state actors and state funds will play an important role in the capital of the game.” The Turkish Wealth Fund (TWF) has approximately $ 33 billion in assets, considered small compared to the funds of hippos such as Norway, China, Abu Dhabi or Kuwait. Prior to the pandemic hit, it had the ambitious goal of doubling that to $ 100 billion by 2023.
This trend is already alive and well in the Gulf countries of the Middle East, where some of the world’s largest wealth funds are investing billions in local investment, along with increasingly adventurous foreign purchases. Amid the double shock of the pandemic and low oil prices affecting the region, the International Monetary Fund has called on state leaders to use their wealth to boost growth.
“Sovereign wealth funds can play a role, regional institutions can play a role,” Jihad Azur, director of the Middle East and Central Asia, told an online conference in late April. For Sonmez, this is overdue in Turkey.
“When we look at Turkey, this kind of platform was missing in the economy. And we are a newly created fund,” Sonmez said. “This is new for Turkey, but we will be more active, we will compensate for these variable periods to help as a provider of solutions for the sovereign’s equity.”
Turkey has the highest number of coronavirus cases in the Middle East, surpassing Iran by nearly 150,000 in mid-April. But its economy was already under pressure before the coronavirus hit, with two years of a steadily weakening currency, a high fiscal deficit and unemployment at more than 14%.
The country’s government unveiled a $ 15.4 billion stimulus plan in late March to help businesses be hit hard by the pandemic, especially those in the tourism sector, which is expected to leave losses this year. TWF injected £ 21bn ($ 3bn) into three state-owned banks earlier this month to bolster its capital position and mitigate the effects of the pandemic.
In late April, the country’s parliament approved a bill that would allow TWF to buy or become a partner in distressed companies affected by the coronavirus outbreak. Sonmez said this would prevent capital flight from companies and enable TWF to acquire controlling stakes in strategic companies. It also exempts the fund from certain provisions on private sector investment.
“So if we share control, we get some approval from parliament to cut the law on capital markets and Turkish commercial law to become shareholders in companies facing equity problems, facing cash flow problems.” he explained. “That’s why what we’ve designed is to position Turkey’s Wealth Fund as a key and key part of Covid’s equity response strategy strategy.”