Private to Public:One voice for Ankara

At the fourth annual Private Equity International Turkey Forum in September, the Big Debate showpiece focused on a topical issue: “This house believes the time has come for Turkey to have a private equity and venture capital association.”

Memet Yazici, managing partner of Istanbul-based private equity firm TRPE Capital, took it upon himself to argue against the motion – and scored a resounding victory. “As a private equity investor, I want to be private; I don’t want to associate with my competitors. I need an association like a hole in my head,” was one of his winning lines.

As soon as he stepped off the podium, Yazici immediately started reminding delegates he had been joking. PEI’s Big Debate format is private equity theatre, a humorous approach to exploring a serious issue, where contestants aim to defeat their opponents by saying things they may or may not actually mean. In Istanbul, Yazici didn’t mean any of them, and the audience knew it: they declared him the winner because his delivery made them laugh. It was form over substance all the way.

For the avoidance of doubt: Yazici is very much in favour of a Turkish industry association being created. And he is not alone in seeing the need.

Over the past 10 years, local private equity has come from nowhere to grow into a sizeable and increasingly well-capitalised community of fund managers. The two pioneering firms, Turkven and Actera, now manage billion-euro funds, and a rising number of next-generation managers are travelling in their wake and picking up speed.

With growing financial might come greater influence and a higher profile within the Turkish economy.  According to insiders, the government in Ankara is increasingly interested in private equity, and has repeatedly invited some of the local firms to partake in consultative conversations. It has also been visited by Turkish GPs, who have travelled to the nation’s capital to spend time with, and help inform the agenda of, top-tier law-makers and regulators.

Some industry players having the government’s ear is obviously a good thing. But critics warn that unilateral engagement with Ankara will do little to promote the interests of the industry as a whole. “As we grow, we need to speak with one voice,” insists one expert source.

However, he also says that despite there being broad support for this view in the industry, the issue is sensitive and, unsurprisingly perhaps, political.

With about a dozen domestic firms established, and another 20 or so international groups also actively investing, Turkish private equity is a small market where the incumbents know each other well and compete fiercely. To many of them, the prospect of an industry association, say, aggregating performance data in the name of greater transparency is at once appealing (because LPs demand it) and off-putting (because having to disclose the information in the first place is seen as a threat to confidentiality – and what happens if the aggregator leaks?).

A couple of previous attempts to establish a Turkish VCA did not get off the ground. People with knowledge of these efforts blame the firms’ competitive instincts for the failures.

And yet, if the industry is to enjoy the success it rightly feels so well positioned to achieve, then there is no alternative to getting organised. Thus far the government has taken a benign view of private equity, but this cannot be taken for granted. Adverse changes in Turkish tax law, or a regulatory onslaught following a high-profile environmental disaster in a private equity-backed enterprise, are far from implausible scenarios. The industry needs to build the capability of defending itself against any fall-out from such events before they actually happen.

The local managers must take the lead in forming a body which can be effective in representing them; international managers and other members of Turkey’s expanding PE-ecosystem will then follow suit. The financial investment required for this seems small. The bigger leap for the GPs will be to overcome their innate reluctance to get close to one another. Given what’s at stake – the emergence of a robust and internationally competitive private equity industry – it is a leap worth making.   

Amongst our Istanbul delegates, the consensus seemed to be that this is right, and that the creation of a TVCA was therefore a question of when, not if. For any would-be founder-directors of this organisation out there, here are two words of advice. Number one, be Turkish, otherwise you might struggle to find your way round those corridors of power that await you. Number two, don’t be affiliated with a Turkish private equity firm in any way – your future members will be competitively wary of you if you are. n