Military timing softens crisis blow
Reeta Paakkinen spoke to Caner Öner, senior adviser at Oyak, the €5.6bn Turkish military pension fund
The Turkish Armed Forces Pension Fund Oyak is looking for new acquisition opportunities in 2010. The €5.6bn fund, which currently manages a mixed portfolio of 53 companies and financial instruments, completed its most recent large-scale acquisition in 2006, when it bought the Erdemir steel group.
During 2007 and the first half of 2008, Oyak divested from its three core financial services companies - Oyak Bank, Oyak Emeklilik private pension company and AXA Oyak Sigorta insurance company - which it sold to ING and AXA, respectively.
Caner Öner, a senior adviser for Oyak, says that the fund functions on the principles of a private equity house. Oyak's portfolio is currently made up of financial instruments (50%) including equities and bonds, and stakes in well diversified subsidiary companies (50%) such as Renault, energy firm Isken, food company Tukas and construction firm Oyak Insaat. Established in 1961, Oyak is currently the oldest private pension fund in Turkey.
"Our aim is to invest in companies which complement our existing holdings and yield the kind of returns that satisfy our 241,000 members," Öner says.
With 2008 returns at 26.3%, members could have a realistic expectation of buying a house and a car with their retirement lump. "2008 was a very good year for us, a turning point in our history. Our returns were approximately 2.5 times the inflation rate. This year it looks like returns will not be as high, but will at least exceed the expected interest rate of 6-7%," Öner says.
The timing of the sales of Oyak's financial services companies enabled the fund to "enter the crisis with a large amount of cash in hand", as Öner puts it. "We saw some problems emerging in the banking sector already before the crisis kicked off and decided to divest. Increasing volatility and the upcoming compliance requirements for Basel II and international accounting rules meant our holdings in the financial sector were no longer a pension fund-kind of investment," he says.
Prior to the recession there were also good offers for Turkish banks as many foreign players were interested in entering the local market. "All the sales of our financial services firms were timely and very profitable for us. We were lucky to have acted in time," Öner explains.
Oyak is now looking to invest the cash from the financial services companies in a business that would complement its strengths in automotive, steel, energy, cement and logistics sectors. "These are the sectors with most growth potential at the moment, so anything related to them will be our priority. However, we are not looking for green field or start-up projects as these do not fit our strategy. We are not interested in tourism or construction, media or retail related industries either, but will consider any business that may turn out to be a good investment," Öner says.
The new investment could be a western European company. "We are analysing several opportunities at the moment, but are looking towards the West more than the East because industries in the West are more mature," Öner adds.
The final decision on the new acquisition is likely to be made in 2010 when the global economic landscape becomes more settled. "We have been receiving offers and are evaluating different proposals. However, there is still more way to go in terms of prices," Öner says.
Overall, Oyak's holdings fared relatively well in the eye of the storm because of the diversification of its portfolio. While some of the fund's subsidiary companies - for example, the steel sector - were hit by the global trends in terms of prices and demand, others like energy maintained earlier business volumes. "Steel prices came down almost 50%, depending on the product, and demand has yet to recover. The automotive sector was hit in terms of sales. But in terms of production flow there were no major problems, as exports remained at an acceptable level," Öner says. "Overall, the impact of the crisis was not very deep because of the diversification of our portfolio but individually some companies were affected."
Turkey's privatisation authority is likely to announce tenders for several targets in 2010, including the national lottery, electricity distribution companies, several highways and the two bridges connecting Europe and Asia in Istanbul. Öner says Oyak is observing the process but has not made any decisions on participation yet. "When these privatisations will be announced we will look at them as well, depending on market environment," he says, adding: "Markets have started looking brighter. Most believe that we have already seen the worst."