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Western EuropeMay 1 2005

Planning for profits

OYAK’s chief executive Coskun Ulusoy explains the secret of the pension fund’s success to Michael Kuser in Istanbul.
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While waiting for the competition to report on their profits, Coskun Ulusoy, chief executive of OYAK, Turkey’s Armed Forces Pension Fund, is relaxed. He is confident of beating their numbers.

Mr Ulusoy does not mention Turkey’s two biggest industrial conglomerates by name [Koç and Sabanci], but delights in pointing out OYAK’s superior performance over the past few years. The fund earned more money than Koç, which has between 1.5 and 2 times the assets, and Sabanci, which has four times OYAK’s approximately $9bn in assets.

In 2003, OYAK earned pre-tax profits of TL661,400bn, equal to YTL661.4m ($473m), representing a 39.2% increase in the value of each member’s share. Looking at the first-half results for 2004, with full-year results due soon, Mr Ulusoy insists that OYAK would achieve a record 40% for the year. The fund also topped the previous year’s performance, when inflation was double that of 2004. Consumer price inflation in Turkey dropped to single digits last year for the first time in more than three decades.

 Levy on forces

OYAK’s funds initially come from a compulsory 10% levy on the base salary of Turkey’s 197,000 serving officers who, together with 25,000 current pensioners, make up its members. With headquarters in Ankara, the fund has equity investments concentrated in the automotive, cement, financial, food and service sectors. Many joint ventures are with well-known international names such as Renault and AXA.

The secret to Mr Ulusoy’s success is “good long-range planning”, he says. After learning the ins and outs of Turkish finance at the helm of the country’s largest bank, Ziraat Bankasi, in the early 1990s and then discovering the private sector with Koç, in 2000 he brought all he had to bear on the hitherto closed shop of OYAK.

 End of closed shop

The fund previously issued no reports, had no one audit its books, did not follow international accounting standards and so had no rating. Mr Ulusoy tackled each in turn, and last year in January the fund took out its first loan, borrowing $115m in a syndicated loan to finance part of the purchase of a coal-fired power plant in Iskenderun, in partnership with Essen-based STEAG. They followed that up with a second borrowing of $125m in November, then paid off the earlier loan in full in January 2005.

“We spent $250m on Iskenderun, a facility that generates 7%-8% of Turkey’s electric power, and have already taken back $100m,” says Mr Ulusoy. Part of OYAK’s unique status lies in its freedom to invest in and manage projects rather than just buying up some dollar-denominated instruments and getting “maybe $5m, maybe $10m” on that money.

The freedom to invest in equity is the heritage of Turkey having had no financial instruments to invest in at the time of the fund’s founding in 1961. Mr Ulusoy recounted the story of the first Turkish T-bills issued in the early 1960s and how one man was jailed for discounting the paper, an act the state found “detrimental to the value of the national currency. That shows you how far Turkey has come,” says Mr Ulusoy.

The power plant and syndicated loans are all part of the fund’s diversification and growth strategy. “All of which leads to going for a big international borrowing. We’ll most probably go for [state-owned oil refinery] Tupras and think we can increase its profits by 50% in the first year,” Mr Ulusoy adds.

Last year a Turkish court overturned the privatisation sale of Tupras to a Russian and Turkish joint venture.

 Roller coaster economy

Turkey has always been a roller coaster and that is where the art of management comes in, says Mr Ulusoy. The fund’s fantastic results last year “prove that Turkey is not a mature, stable market” and also prove that “you really have to be in on the local scene” to make the right decisions fast.

One good decision was the purchase of a tiny bank (11 branches) which, in three years, the fund has turned into one of Turkey’s top 10. OYAK Bank now has nearly 300 branches and more than 1000 ATMs, with increasing visibility on the corporate scene.

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Read more about:  Western Europe , Turkey