Public Offering And Private Placement Of Foreign Investment Funds

I. Introduction

Navigating the Turkish regulatory landscape for foreign investment funds requires understanding a critical distinction: whilst Turkish residents can freely purchase foreign fund units traded abroad through local intermediaries, any active offering or marketing of these funds to Turkish residents triggers the licensing requirements or requires prior approval from the Capital Markets Board. This article is intended to explore the dual pathways available to foreign fund issuers—public offerings and private placements—providing a brief guide to this approval regime that offers offshore institutions a less costly and time-consuming alternative to establishing a financial institution and obtaining the respective license for actively offering the respective foreign fund units in the jurisdiction.

The offering, marketing, sale and purchase of foreign investment fund units issued outside the Republic of Türkiye ("Türkiye") are governed by provisions of the Law Regarding Protection of the Value of Turkish Currency (Law No. 1567)¹ (the "Law No. 1567"), the Decree No. 32 Regarding Protection of the Value of Turkish Currency² issued thereunder by the Council of Ministers (the "Decree No. 32"), the Capital Market Law (Law No. 6362)³ (the "Capital Market Law") and the Communiqué No. VII-128.4 regarding the Foreign Capital Market Instruments and Depository Receipts and Foreign Mutual Fund Shares⁴ issued by the Capital Markets Board ("CMB") (the "Communiqué No. VII-128.4") along with ancillary legislation and decrees issued by the CMB and competent authorities issued under the foregoing laws.

Pursuant to Article 15(4)(ii) of the Decree No.32, Turkish residents may freely purchase and sell funds which are traded on the financial markets outside Türkiye, with the intermediation of banks and brokerage firms duly licensed in Türkiye and transfer the amounts of such purchase through banks in Türkiye. Accordingly, no consent, permission, approval, license from or filing, registration with any Turkish regulatory authority, including the CMB is required in order for Turkish residents to purchase or sell fund units traded on the financial markets outside Türkiye provided that such purchase or sale is in compliance with the respective provisions of the Turkish currency control regime. In addition, pursuant to Articles 4, 6 and 11 of the Capital Market Law, no offer (including public offer or private placements by any means, of funds issued outside Türkiye to Turkish residents can be made without the prior approval of the CMB. Therefore, foreign entities cannot offer (by way of public offer or private placement) or market to Turkish residents foreign investment fund units to Turkish residents without the prior approval of the CMB. Foreign investment fund units are defined as securities which are issued by a foreign investment fund classified as a collective investment scheme founded abroad under Article 4(s) of the Communiqué No. VII-128.4, and certain distinctive criteria and preconditions must be fulfilled to obtain the prior approval of the CMB for offering such units by way of public offer or private placement to Turkish residents.

II. Public Offering

Public offering is defined as any kind of invitation to the public for the purchase of capital market instruments (including foreign investment fund units) and a sale conducted following this invitation. Pursuant to the Communiqué No. VII-128.4, the shares in a fund to be offered to the public in Türkiye are required to meet strict and non-exhaustive criteria and pre-conditions. These include, amongst others: (i) the purchase and sale of fund shares being effected in Turkish Lira ("TRY") or in foreign currencies whose exchange rates are announced daily by the Central Bank of the Republic of Türkiye ("Central Bank"); (ii) the obtaining of all necessary authorisations from the relevant authorities in the jurisdiction of incorporation of the fund issuer; (iii) a minimum period of three years having elapsed since the commencement of the sale of the foreign fund's shares in a foreign country; and (iv) as of the date of application, the current total of the foreign fund shares to be sold in Türkiye not being less than EUR 2.2 million or the equivalent amount in another currency whilst the net asset value of the fund not being less than EUR 101 million or equivalent amount in another currency. Moreover, at least 80% of the fund's net asset value must be invested in assets other than money market instruments, capital market instruments and transactions of issuers resident in Türkiye, and Turkish public debt instruments. Finally, it bears noting that shares intended for public offering in Türkiye must also be publicly offered in the country where the fund is established.

For foreign fund shares meeting the statutory criteria, the issuer of the fund must enter into a representation agreement with a Turkish locally licensed bank or appropriately licensed brokerage firm as the local distributor and legal representative. This agreement should be governed by Turkish law and contain the minimum required terms and conditions, and various documents listed on the website of the CMB (see here, not available in English) must be filed with the CMB by the nominated legal representative. These include, amongst others: a petition for application, application form for public offering, local public prospectus, and an investor information form wherein the structure of the fund, investment policies and risks are summarised. It is of particular importance that the CMB retains discretion to impose additional requirements beyond those specified, where necessary for investor protection or on similar grounds. Accordingly, there can be no assurance that fund shares satisfying all prescribed criteria will be granted approval by the CMB. It is therefore crucial to conduct the approval application in consultation with counsel experienced in such matters, which can facilitate a more efficient and streamlined process.

Notably, although the process involves substantial documentation and procedural requirements, many foreign investment fund units are currently being publicly offered, and these are published and disclosed on the Public Disclosure Platform, which is available on https://www.kap.org.tr/tr/YatirimFonlari/YYF.

III. Private Placement

Private placement refers to the marketing or sale of a fund to qualified or pre-defined allocated investors in Türkiye. Pursuant to Communiqué No. VII-128.4, private placements may be made solely to qualified investors, including banks, insurance companies, brokerage firms, collective investment funds and investment companies, pension investment funds, asset management companies, Turkish government institutions, the Central Bank, pensions and benevolent funds, mortgage finance institutions, portfolio management companies, and natural or legal persons holding financial assets, including cash deposits and capital market instruments, exceeding a total of TRY 1 million.

Prior approval of the CMB is required for both private placements and public offerings, the key distinction being the class of investors to whom the funds are offered. Any private placement entails the preparation of an issuance certificate and supporting documents for submission to the CMB for approval.

For private placements, funds are not required to satisfy the pre-conditions applicable to public offerings, with the exception that at least 80% of the fund's net asset value must be invested in assets other than money market instruments, capital market instruments, transactions of Turkish resident issuers, and Turkish public debt instruments. No advertisement or announcement may be made in connection with a private placement. It should be emphasised that the appointment of a Turkish representative is entirely discretionary and is not a prerequisite for conducting a private placement. Furthermore, as foreign investment fund units fall outside the scope of Communiqué No. II‑5.2 on the Sale of Capital Market Instruments⁵, the 150-person threshold applicable to aggregate pre-determined investors (excluding qualified investors) for private placements of domestic securities does not apply. In other words, no aggregate threshold is stipulated for the private placement of foreign investment fund units, and the number of pre-defined or qualified investors to whom the shares may be offered may exceed 150 without constituting a public offering.

IV. Conclusion

In light of the foregoing, the framework governing the offering of foreign investment fund units in Türkiye establishes a comprehensive approval regime administered and supervised by the CMB. Whilst Turkish residents are at liberty to acquire fund units traded on foreign financial markets through Turkish intermediaries under Decree No. 32, offshore institutions wishing to actively offer or market fund units to Turkish residents, without undergoing the full licensing process in Türkiye, may choose to obtain the CMB's prior approval for the relevant fund units whether for public offering or private placement, through the application process set out above — a route which is generally less costly and time-consuming.

It is significant to note that Türkiye maintains a currency control regime, and any cross-border investment activity should be assessed for compliance by counsel qualified in the jurisdiction, so as to avoid reputational harm and potential legal sanctions which may arise therefrom.

Footnotes

1. published in the Official Gazette dated 25 February 1930, No. 1433

2. published in the Official Gazette dated 11 August 1989, No. 20249

3. published in the Official Gazette dated 30 December 30, 2012, No. 28513

4. published in the Official Gazette dated 23 October 2013, No. 28800

5. published in the Official Gazette dated 28 June 2013, No. 28691

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.