Sep 22, 2026 · 17 min
Turkey’s fund scandal exposes a deeper institutional fault line
Turkish dismay
The alleged manipulation shows how weak oversight and political insulation can damage market confidence even when authorities contain the immediate crisis.
- 1Turkish funds allegedly inflated valuations by trading among themselves, drawing retail investors seeking protection from severe inflation.
- 2Regulators eventually contained the collapse, but their delayed response raised questions about political responsibility and institutional credibility.
- 3Foreign investors care less about Turkey’s stock market than reserves, currency stability, and the durability of its carry trade.
Don't miss
Rathbone explains how regulatory tightening caused the alleged scheme to collapse and forced authorities to organize the affected funds’ liquidation.
The brief
John Paul Rathbone joins Rob Armstrong to examine an alleged pump-and-dump scheme in Turkey, where extraordinary returns attracted retail investors amid severe inflation.
Terra and Pusala allegedly coordinated purchases of one another’s shares and other illiquid companies, inflating reported values and creating the appearance of spectacular performance.
Warnings from MSCI and implausible returns drew comparisons with Bernie Madoff, while state-aligned media helped promote funds and managers authorities had failed to confront.
Tighter rules in August disrupted the scheme; the central bank then eased collateral pressure, introduced stop-losses, and organized liquidation as the funds unraveled.
The hosts argue that foreign investors focus on Turkey’s reserves and currency stability rather than its stock market, before Rathbone goes long swimming and Armstrong shorts the U.S. 10-year Treasury.
What was said on this episode
22 statements · 10 positive · 10 negative · 2 neutral
Terra and Pusala coordinated purchases to inflate share prices and reported net asset values.
“they start their magic, which basically involves buying each other's shares and coordinating to buy the shares of other small liquid companies. And we get concentrated buying. Share price zooms up. Their own net asset value increases.”
Listen at 1:58
The funds reported approximately 43,000% returns over three years.
“And we're talking like 43,000% returns over three years.”
Listen at 2:22
The funds reported returns of approximately 43,000% over three years.
“we're talking like 43,000% returns over three years.”
Listen at 2:22
Turkey’s inflation rate was approximately 30% and this was viewed as a success.
“we're talking, it's down to 30% at the moment, and that's viewed as a triumph.”
Listen at 3:25
Turkey’s inflation rate is currently about 30%.
“it's down to 30% at the moment, and that's viewed as a triumph.”
Listen at 3:26
Parts of Turkey’s press promoted the funds and scandal as positive.
“You've got certain members of the press here, which is largely state-controlled, saying it's fantastic.”
Listen at 5:06
Pusilla faced a redemption request of approximately $6 billion in one day.
“there was... I think it was a request for $6 billion of redemption from one of these funds, the Pusilla funds, in one day.”
Listen at 6:38
The worst of Turkey’s fund crisis appeared to have passed.
“And the worst of the crisis seems to be storaged.”
Listen at 7:38
131 funds remain, with a combined notional value of $18 billion.
“you've still got 131 funds with a notional value of $18 billion in them”
Listen at 7:42
Investors may recover roughly 20 cents per dollar from remaining assets.
“And the number that's being floated around is 20 cents on the dollar. Who knows? But it won't be big.”
Listen at 8:00
Investors may recover roughly 20 cents per dollar from remaining assets.
“the number that's being floated around is 20 cents on the dollar. Who knows? But it won't be big.”
Listen at 8:00
Turkish authorities recognized the problem before containing it.
“my working hypothesis on this and it's. pure speculation is that the authorities recognized there was a problem”
Listen at 9:14
Turkey currently has high inflation, weak rule-of-law application, and state-co-opted institutions.
“here you're seeing extremely high inflation, dubious application of the rule of law, handicapping, if not prosecution of... opposition politicians, and a sense of institutions being co-opted by the state.”
Listen at 10:55
Many Turks perceive society as rigged and dependent on personal connections.
“there is a really distinct feeling across all people, all sector society, that everything is rigged and everything depends on who you know rather than a blind application of the rule of law.”
Listen at 12:04
Turkey’s debt and foreign-exchange markets are smooth and highly regulated.
“In the equity market, I would say, debt markets and the foreign exchange market, everything is super smooth, very regulated.”
Listen at 12:22
A Turkish lira deposit could yield about 12% above 30% inflation.
“If inflation, say, is 30%, and say you're on a lira deposit, say you're getting 42%, so that's a 12% return”
Listen at 13:06
The Turkish lira carry trade is safe while reserves remain high.
“And while reserve levels are high, that trade will be safe.”
Listen at 13:32
The Turkish lira carry trade remains safe while reserves are high.
“while reserve levels are high, that trade will be safe.”
Listen at 13:33
Turkey avoids uncontrolled devaluation because the exchange rate anchors inflation.
“Turkey doesn't want an uncontrolled devaluation because the exchange rate is an inflation anchor.”
Listen at 13:37
Turkey’s exchange rate is the country’s most closely watched economic indicator.
“that exchange rate is the most closely watched figure in all of Turkey.”
Listen at 14:38
President Erdogan will remain politically insulated from the scandal.
“So I think he'll remain immune.”
Listen at 15:17
The U.S. 10-year Treasury yield will be at least 5% in six months.
“everything tells me that six months from today, the 10-year bond will be at or above 5%.”
Listen at 16:59
Statements are attributed to the speaker as said on the episode and reflect their view at the time, not PodLume's. They are not advice.