54.2% rate of return in 2007
In 2007 OYAK again posted strikingly successful results while continuing to fulfill its corporate mission and create added value for its members. OYAK last year booked an actuarial profit of TRY 2,652 million (about USD 2 billion) on its members’ savings. The value of the assets reached TRY 7,738 million.
Our annual rate of return on the assets we manage, the measure of our success for our members, was 54.2% last year. This represents a rate of return of 6.5 times the rise in the consumer price and 9.2 times the rise in the producer price indexes.
Our 2007 financial results again demonstrated OYAK’s ability to secure real returns on its investments. Those results are owed to correctly designed and strictly adhered-to corporate strategies, corporate foresight, strong management, and skillful timing.
We believe that with its excellent performance, superior services, and outstanding assets, OYAK is regarded as a successful model around the world as much as in Turkey.
OYAK’s success model
To understand the point that OYAK has reached in 2007 and interpret its view of the future, we should consider its transformation during the last seven years.
By the end of 2000, Turkey was engulfed by the most serious economic crisis in its history. As OYAK’s new management team we had foreseen this and built up our liquidity accordingly. We postponed some planned investments and we focused on risk management, instead. Not only did we protect the value of the institution’s assets, always our membership’s greatest concern, but we also maintained growth as well in spite of the odds.
In the immediate aftermath, OYAK assumed an aggressive rather than defensive stance. In 2001 we courageously expanded our presence in the financial services industry, at the time a scene of radical restructuring and tremendous opportunities. OYAK acquired privatized Sümerbank, which was composed of six failed banks, and merged it into OYAK Bank, a move regarded as a milestone in terms of scale and speed of completion.
The ensuing transformation of OYAK Bank and the new bank that emerged later came to be seen as another OYAK success story. An extensive branch network, a significant customer base, and a superior balance sheet quality were created in a short period of time.
In the following years, OYAK continued to accurately read the economic conjuncture and took advantage of new business opportunities. One such was İSKEN, the power plant producing about 6% of the Turkish electricity output.
The importance that OYAK gives to transparency plays a key role in its success. Although not legally required to do so, OYAK publicly discloses its audited annual financial results and the results of all its corporate activities. This reinforces its national and international reputation for openness, transparency and trustworthiness. During
2004 OYAK became the first and only non-bank Turkish corporate group to apply for internationally recognized credit ratings from, both, Moody’s and Standard&Poor’s. With such a move came OYAK’s first credit syndications as it successfully joined the world’s leading players.
Due largely to its robust assets and structure, in July 2006 and in March 2007, OYAK was assigned a credit rating one degree higher than the sovereign rating by Moody’s and Standard&Poor’s, respectively, and became only conglomerate in Turkey to have been awarded such an outstanding credit rating.
In 2006 we acquired ERDEMİR, the eighth biggest iron&steel maker in the European Union and the biggest investment ever undertaken by OYAK. In the following two years, the companies of the ERDEMİR Group have increased tremendously in value and achieved near-perfect levels of productivity and effectiveness.
ERDEMİR reveals not only the new scale of OYAK’s investment strategy but also its new, international direction. Adding assets whose national and international dimensions are exceptional is also a clear sign of OYAK’s intention to make even greater contributions towards increasing the Turkish economy’s added value and output, both domestically and internationally.
A decade of surplus liquidity and strong global growth led to lending practices whose sustainability was questionable. Increasingly more credit was made available to those who lacked genuine credit-worthiness. The first signals of unsustainability appeared in the US housing sector in 2006 and markets everywhere were severely shaken when the crisis exploded in full force towards the end of 2007. The collapse in the American mortgage market caused severe and unanticipated distress in financial markets, with the world’s biggest banks posting record-breaking losses last year.
Keeping its eye always on national and international economic conditions and shaping its strategies accordingly, OYAK decided as early as 2005 to pull out of the business of financial services. The first step was the sale of OYAK Bank to ING Group, one of the world’s biggest financial institutions. The second step was taken at the beginning of 2008 with an agreement to sell OYAK’s stake in AXA OYAK insurance companies to the AXA Group.
The true value of OYAK Bank
The sale of OYAK Bank is important both as a strategic success and in terms of the liquid financial potential that it generated for OYAK. Expressed in US dollars, the earnings from the OYAK Bank sale correspond to nearly all of the gains secured by OYAK during the years of 1961 – 1999.
We purchased OYAK Bank for USD 36,000. In just five years’ time we transformed it into an asset worth USD 2.7 billion. By selling it, we increased our members’ assets by more than 50% in a single stroke.
During our five-year tenure, OYAK Bank was restructured and distinguished itself through its commitment to best practices in lending and risk management. That too was again a natural outcome of OYAK’s inherent values and corporate management approach.
A unique model
The foregoing points to an important OYAK attribute: OYAK is a pension fund; but in a very real sense, it is also a private equity fund and this makes its business model unique in the world.
OYAK’s success lies as much in the internal dynamics of this model as in our competencies. What distinguishes OYAK essentially from other pension funds is that
OYAK becomes directly involved in the management of the firms in which it invests.
This makes it possible to understand, manage, and develop both these businesses and the risks that they entail.
The 2007 financial market crisis posed problems for private equity funds everywhere. Thanks to the strengths of its model, OYAK spotted the approach of that crisis well in advance. It restructured its portfolio appropriately and positioned itself so as to weather the crisis in the best possible way. When economic crisis hit Turkey in 2001, OYAK had all the cash it needed. OYAK today is similarly well positioned to ride out the global volatilities that are likely to continue in 2008 to 2010.
We believe that the model generating OYAK’s success in these changing times we live through will be recognized as an effective approach and be adopted by other pension funds as well.
Charting a new course
As it embarked upon 2008, OYAK had reached a new and exciting stage of its strategy.
As one of the strongest players in a national economy that had become quite integrated into the global economy, OYAK had set its course for the world at large and is gearing up for major investments.
Aware of the huge responsibilities imposed by the assets entrusted to its management,
OYAK keeps a close watch on both national and international investment opportunities.
Opportunities that generate still more assets will make OYAK’s name heard even more strongly around the world and add new pages to the story of its success.
As we approach our 50th year, our goal is to make OYAK a world-class investor in every respect. We live in a country that is exceptionally favored by global private and institutional investors. For national entities like us, this implies intense competition. The only way to be strong, to compete, and to survive under such conditions is to equip ourselves with the same means available to our competitors and to play according to the global rules. The national duties incumbent upon national companies require them to be open to competition from everywhere in the world. Global markets mean global opportunities and as we continue to create added value in the years ahead we have no choice but to exploit those opportunities to the maximum.
Within the framework of its mission, OYAK will continue to exercise care and prudence as it undertakes investments that will create value for its membership. When viewed from the perspective of past performance, 2007 was an excellent year. When viewed through the door parted open by our strategic vision, the future looks bright and exciting.
In closing I offer my appreciation to those whose support helped make 2007 an exceptional year for OYAK, to our Board of Directors for the wisdom and skill that served as our guide, and to all our members for their continued interest and loyalty. My sincerest thanks are due also to our employees and management team for the dedicated efforts that transform goals into reality and to our business partners, customers, all OYAK friends, and everyone who truly loves this country of ours.
Coşkun ULUSOY, Ph.D.
Chief Executive Officer