Soldier of fortune (pg. 2)

No institution is more mistrustful of Erdogan than the Turkish armed forces. One Friday night last April, the military, describing itself as "the determined defenders of secularism," issued a thinly veiled coup threat during a standoff over the choice of Turkey's new President. Erdogan called a snap election, which his Justice and Development Party won easily.

There's more than a touch of irony in the fact that OYAK's fortunes - and by extension, the nest eggs of its military members - have been built under that very same government. As Turkey's biggest cement producer, for example, OYAK has profited handsomely from soaring demand for building materials stoked by Erdogan's pro-market policies. Tensions between government and the military don't appear to have affected the fund, which beat out five other bidders in a televised auction for Erdemir in 2005. Indeed, Ulusoy and his colleagues at OYAK are adamant that they are professional managers with no agenda other than to earn great returns for fund members. "We are businesspeople," insists Aydin Muderrisoglu, OYAK's business development chief. "We don't take orders from the military."

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OYAK's board is housed in a two-story building just behind a Renault dealership in downtown Ankara. Chairman Yildirim Turker is a retired army man, a former three-star general who served as chief of personnel at General Staff Command Headquarters. A huge black-and-white photograph of Ataturk dominates the wall behind his desk. He proudly displays military trophies, a silver statue of the legendary Turkish hero-soldier Mehmetcik brandishing a gun - and three plaques from Western banks celebrating financing for the Erdemir purchase. Turker, who's dressed in a dark-gray suit, makes no secret of his pleasure at OYAK's recent performance. "Ulusoy and his team are top-notch professionals," he says.

It hasn't always been a lovefest between board and fund manager. The fund was established in 1961, a year after the first of three military coups in the post-Ataturk period. Its performance has wavered, especially during Turkey's numerous bouts with high inflation. When the generals are unhappy, they can make life very complicated for OYAK's money managers. OYAK is overseen through an elaborate governance structure: A general assembly consisting of representatives of all military branches nominates and oversees OYAK's board, which in turn monitors the fund. In 1987 the assembly fought with the board over the accuracy of its financial reports, and the dispute even ended up in court. Internal discussions about performance have been frequent and heated.

Ulusoy has silenced the critics since taking charge in 2000 by delivering returns that are two, three, and, in 2004, more than four times the inflation rate. Another board member, Necdet Serin, formerly the rector of Ankara University, says that assembly sessions now end with a novelty - a vote of thanks for management. OYAK's international partners seem to share the board's confidence. Ulusoy "has a strong strategic vision," says Jean Raymond Abat, who runs the Mediterranean region for French insurer AXA, which has a joint venture with OYAK that is growing 20% to 30% annually. "It is a great team."

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Ulusoy grew up in a military family. His father, who died when he was 10, was an ophthalmic surgeon for the armed forces. After graduating from one of Turkey's top schools, Ulusoy earned a doctorate in economics in the U.S. and went on to work as an investment banker. He was hired at the age of 35 by Prime Minister Turgut Ozal, who was reform-minded, to run a big, state-owned agricultural bank. He was one of several bright youngsters known as "Ozal's princes" who were given top jobs. After Ozal's death in 1993, Ulusoy fell out with successor Tansu Ciller and went to work for the Koc family. Wooed by OYAK's board, Ulusoy agreed to take the CEO job on one condition: "You can tell me what you want, but don't interfere," he told the generals.

Ulusoy anticipated that tough times were looming. The board had just signed off on the acquisition of a bankrupt state-owned steel factory, called Isdemir, which used obsolete Soviet technology and employed 18,000 workers, or about three times as many as were needed; he immediately made the board reverse the decision. Then, using all of the fund's cash that he could lay his hands on, he bet that the Turkish lira, which was pegged to the dollar, would come unglued. It was a smart call: The lira soon tumbled. The profits from that bet help to explain why OYAK's performance in 2000 and 2001 was strong even as the Turkish economy overall reeled.

During the crisis Ulusoy acquired a collection of six state-owned banks on the verge of collapse, for a token $35,000. (The government sought a single lira; Ulusoy told officials he should pay the same amount as the value of his car. He then cherry-picked the best assets and left the worst nonperforming loans with the government.) He merged the banks with OYAK's own bank and injected about $700 million in fresh capital. Last year he sold the entire operation to ING of the Netherlands for $2.7 billion.

The move raised some eyebrows in Turkey, where it was criticized as unpatriotic. But Ulusoy said he concluded that banking was too volatile a business for a pension fund. It took some explaining to the board, but it eventually signed off. "Ulusoy told us that running a bank is like piloting a warplane. If you alter the steering even a little bit, you end up in a completely different position," recalls chairman Turker.

Even as it makes money, OYAK is helping to modernize Turkey. At the Isdemir steel plant, which OYAK ended up owning through its purchase of Erdemir, the old Soviet blast furnaces are being replaced by new, state-of-the-art ones. Energy consumption is way down, production and procurement have been rationalized, and the plant, which now has just 6,200 workers, reported its first operating profit ever in 2006. A half-hour drive from the plant is the gleaming new coal-fired power plant that OYAK owns together with the German utility Steag.

"This power plant could be installed anywhere in Europe. It meets all the standards," says general manager Norbert Melcher. Meeting Western standards could be Ulusoy's motto. And by laying OYAK's operations open for the world to see, he hopes the West will accept its money without hesitation.  

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