OYAK established by law (number 205) in 1961 as a private corporate entity, is subject to private law and is financially and administratively autonomous. It can be seen as a second tier private pension fund, primarily for the officers (commissioned and non-commissioned) of the Turkish Armed Forces, all of whom are permanent members (Reserve Officers are defined as ‘temporary members’). It provides pension, death and disability benefits, as well as housing and personal loans for its members. All of OYAK’s members are also members of the Turkish state pension scheme – OYAK can be seen as a system to provide benefits to its members to supplement their state benefits.
The company operates a revenue sharing system and, as such, it is not a ‘defined benefit’ scheme, for which the precise level of benefits can be calculated in advance. Instead, returns generated by OYAK are shared among all eligible members – nearly 260,000 at end of 2010.
In addition, OYAK acts as an investment holding company, generating returns for its members through investments in financial instruments and its equity participations in more than 60 companies – including subsidiaries, joint ventures and affiliates in the iron and steel, cement, automotive, energy, logistics and other sectors.
As a pension fund, OYAK’s primary objective is to preserve its members’ assets and to maintain its actuarial balance, together with the maximisation of member returns. Its investment strategies are designed accordingly.
Focus on profitability and cash generation
OYAK’s investment strategy is to enhance the profitability and cash generation of the group and to strengthen its position in key sectors, whilst maximising opportunities to further diversify holdings through measured participation in privatisation initiatives or purchases of majority interests in companies operating in the industries and sectors on which it has decided to focus. It does not invest in equities that are not likely to distribute dividends regularly or that are not likely to distribute dividends in the relatively short term. Investments generating insufficient profit or which no longer fit the investment criteria of the group are sold if there is an opportunity to recognise a profit.
OYAK’s investment strategy is risk averse and centres on preserving its members’ reserves. OYAK invests its assets in fixed income instruments and in equity participations in order to generate income and capital gains and to provide real returns above the rate of inflation. In order to safeguard its assets, OYAK has sought to diversify its financial investments and has pursued an investment allocation strategy that takes into account market risk and seeks to hedge its exposure to market volatility.
Equity investment strategies
OYAK controls and actively manages all of its subsidiaries, and exercises shareholder rights to the greatest extent possible in those partnerships and affiliates when it does not own a controlling interest.
OYAK seeks to maintain a majority of the share capital of its subsidiaries, and to ensure they follow its investment strategies and management principles. To that end, either OYAK’s CEO or an executive vice president act as chairman of any subsidiary in which OYAK owns the majority of outstanding shares.
Following various acquisitions and disposals during the last 50 years, OYAK’s strategy is to invest its members’ funds primarily in industrial sectors such as automative, logistics, iron and steel, cement and concrete, and energy, together with any businesses that may complement these core sectors – but not necessarily within Turkey. Currently most of the group’s investments are located in Turkey, but it is seeking opportunities to further diversify its holdings geographically.
Clear corporate governance framework
OYAK has a well defined corporate management structure, which encourages a high level of corporate responsibility, accountability and governance. Because OYAK is primarily a pension fund, its statutory objective is the preservation of members’ assets and the maintenance of its actuarial balance. OYAK selects its investments according to prudent financial management principles. It has four levels of corporate management structure: a representative assembly, a general assembly, a board of directors and a general directorate.
OYAK’s corporate governance framework is designed to provide clear lines of accountability between the management of OYAK and its members. OYAK’s representative assembly, with around 75 members, meets every three years and is responsible for the election of 20 of the 40 members of the general assembly. The general assembly holds regular annual sessions, which are akin to shareholder meetings but last two weeks. For strategic investment decisions, the board of directors may also convene extraordinary meetings of the general assembly.
The board of directors consists of seven members plus the CEO. Three members are elected by the general assembly from a list of candidates, and four other members – who must be graduates specialised and experienced in the fields of finance, law, banking or insurance – are selected by an election committee established specifically for this purpose. As a result, the members of OYAK represented at all levels of management are able to exert a significant amount of influence over the investment decisions of OYAK and the group.
Skilled management team
The OYAK Group has, throughout its history, benefited from the knowledge and experience of its senior management teams. These industry professionals have significant experience in the group’s areas of investment, including iron and steel, cement and concrete, and automotive. Senior executives of OYAK sit on the boards of directors of its subsidiaries, joint ventures and affiliates, ensuring consistency and compliance with the group’s overall strategy.
Brand, reputation, transparency
OYAK imposes on itself, and throughout its subsidiaries, high standards of transparency and accountability. The protection of its members’ rights is paramount in its operations. OYAK’s financial management principles emphasise its corporate accountability towards the concerns and interests of not only its members but also of the wider Turkish community.
OYAK’s annual report is voluntarily made public in order to demonstrate its commitment to corporate transparency. The group’s accounts are audited by international accounting firms and are reviewed by its internal auditors who also sit in on board meetings. For further transparency and accountability, and to elicit their comments, the minutes of OYAK’s annual general assembly meetings are mailed to all of OYAK’s members.
Ratings by Moody’s and S&P
OYAK was the first corporate group to be rated by both Moody’s and S&P in Turkey. Until recently both of OYAK’s ratings were above the sovereign, until Turkey’s rating was increased. Currently OYAK is rated Ba2 by Moody’s (equal to sovereign) and BB+ by Standard & Poor’s (one notch above sovereign). The recognition by the international ratings agencies of OYAK’s stability has enabled the OYAK Group to obtain stable medium and long term financing. OYAK is very active in international loan syndications as well as in private deals.
Proven record of successful investments
OYAK’s return on members’ assets was 2.2 times the CPI for the year ended 31 December 2009, with a rate of return (based on profit for the year) of 14.2 percent. In 2008 the rate was 26.3 percent, 2.6 times CPI, while for 2010 the it is expected to be around double CPI. OYAK has a consistently strong record of achieving annual returns for its members above inflation, despite a sometimes harsh and hyper inflationary economic environment.
Partnerships with major foreign and domestic corporate groups
The OYAK Group has partnerships in different forms with several major international corporations, including two ongoing partnership agreements with Renault Group of France for the manufacture and export of sale of automobiles in Turkey and a partnership with German company Evonik STEAG GmbH in one of Turkey’s largest power generation projects Iskenderun Enerji (Isken). In addition, the group is working on increasing its equity holdings outside of Turkey to diversify its geographical spread.
From pension fund to strategic investor
In its 50 years of history OYAK has come a long way from being solely a pension fund providing services and returns to its members, to become one of the largest and most profitable conglomerates in the country. It is recognised not only as a pension fund but also as a strategic investor, and its proven track record of consistent profitability, steady growth in assets, strong liquidity and strict adherence to corporate governance principles gives OYAK the domestic and international reputation and recognition it deserves.
