A holding company should not be a family trust

A HOLDING company should not be the same as a family trust. That is the lesson investors in Hedef Holding might take from the recent departure of a board director. The company's announcement was unremarkable: a director has resigned, and a search for a replacement is under way. Less innocuous are the structural consequences. Hedef's board now consists of only two independent directors. Whether that satisfies the Capital Markets Board of Turkey's rules for listed firms is unclear. What is clear is that the board is otherwise dominated by three members surnamed Gökalp - the chairman, a director and another director - who have held their seats since June 2021. A resignation that narrows an already slender independent minority is not merely a personnel change. It is a governance signal.

To understand why the signal matters, some context is needed. Hedef Holding, listed as HEDEF on Borsa İstanbul, describes itself as an investment vehicle in finance, technology, energy and real estate. Its three main subsidiaries are Hedef Girisim, which provides venture capital to small and medium enterprises; Hedef Portfolio, which runs portfolio management; and Info Yatırım, a brokerage house. The company also has stakes in financial technology start-ups, including Colendi, a fintech firm that raised $65 million in 2024 from a syndicate that included Hedef, Citi Ventures and Migros, Turkey's largest retailer. The business model is that of a holding company: accumulate stakes in finance-adjacent assets and hope that public listings or strategic sales eventually realise their value. The model is sound in principle. Its success depends on competent oversight, transparent reporting and a board capable of checking management when investments underperform.

The financials do not project confidence. In 2025, Hedef's annual revenue grew by an extraordinary 1,281% to 2.62 billion Turkish lira. A figure of that magnitude is usually cause for celebration. The trouble is that holding-company revenue is often driven by accounting reclassifications or one-off mark-ups on portfolio assets rather than operating cash flow. The subsequent quarter tells a less flattering story. In the first quarter of 2026, the company reported "negative sales" of 163.69m lira - a figure that suggests reversals, write-downs or unwinding of previously recognised income - and a net loss of 246.4m lira. That loss was narrower than the 430.7m-lira loss in the same quarter a year earlier, which is a small mercy. But the direction of revenue is disquieting. The company's total trailing-twelve-month revenue stands at 2.64 billion lira, almost entirely accounted for by the 2025 surge. What remains after that one-off is quarterly losses.

Investors, so far, have not been reading the same financials as analysts. The stock has soared. Hedef's share price was 334 lira as of early August, up more than 1,300% since the start of the year. Over six months the stock has gained over 830%. The market capitalisation is roughly 326 billion lira - approximately $20 billion at current exchange rates. The company's own investor relations page lists a net asset value of 2.9 billion lira. On those numbers, the stock trades at more than 100 times net assets. It trades at 50 times forward earnings for 2025, despite reporting losses in the most recent available quarter. The free float is a mere 7.95%, which means that a small pool of tradable shares can move the price sharply. Speculation, rather than earnings power, is doing the heavy lifting.

A board with two independent directors is not the institution to rein in a speculative frenzy. The company's governance page offers the familiar language of "protecting investors" and "accurate analysis". That the search for a replacement is described as "under way" is neither comfort nor strategy. It is a placeholder.

It is tempting to dismiss the governance concern as academic. Hedef is a small-cap holding company on an emerging market. Corporate governance has always been a softer discipline in Turkey than in Europe or America. The Gökalp family, as controlling shareholders, ultimately decides what happens. Independent directors, even when present, often serve as rubber stamps. That is true. But the argument that governance does not matter because governance has always been weak is circular. The reason governance standards exist is precisely because they are not met by default. When a holding company trades at a hundred times net assets, the people who should be asking uncomfortable questions about whether portfolio mark-ups justify the valuation are not the majority of the board.

The deeper problem is one of incentives. The Gökalp directors benefit from a high market capitalisation. A higher stock price means a larger paper fortune, more leverage for future deals and, potentially, a more attractive currency for acquisitions. There is no obvious incentive on the majority of the board to subject the valuation to rigorous scrutiny. The independent directors, now reduced to two, face the opposite incentive: raising alarms could end their tenure, while silence preserves their place. The system is not broken; it is working exactly as its incentives predict.

There is a stronger opposing case, and it should be acknowledged. Hedef may well be correct that its portfolio of fintech and financial-services stakes is undervalued by the market. Colendi's funding round, backed by credible international investors, suggests that the holding company's venture arm has genuine deal-sourcing capability. Turkish equity markets are volatile and inefficient; a stock can trade at a wide disconnect from fundamentals for years before mean reversion takes hold. Some investors may be buying Hedef precisely because the free float is thin and the market is small enough to move. That is a different bet - on liquidity and speculation - and it is not inherently foolish. Speculative trading in a low-float stock is a rational strategy when the investor understands that they are trading momentum, not earnings.

Yet this reasoning only strengthens the governance critique, rather than undermining it. If the stock is being driven by momentum, thin float and speculative enthusiasm, then the board's job is not to pretend that operating results justify the valuation. It is to disclose clearly what is happening, ensure that insider trading risks are managed and, crucially, maintain the independent oversight that gives minority shareholders a fighting chance. A two-independent-director board in a company with more than a thousand percent annual share-price gains does not inspire confidence that any of these safeguards are in place.

The regulatory question is not trivial. The Capital Markets Board's corporate governance framework has been tightened over the past decade, in part in response to high-profile corporate scandals and a broader effort to bring Turkish listed firms closer to OECD standards. The fact that the company has not disclosed the regulatory status of its board in connection with the resignation is itself notable. Silence on governance is not neutral. It signals that management does not expect minority shareholders to press the issue.

For investors, the relevant risk is not that Hedef will collapse. The company has 2.9 billion lira in net assets and stakes in businesses that are, for now, still operating. The risk is that the stock's valuation is decoupled from fundamentals in a company whose board structure offers little in the way of independent discipline. When a holding company trades at 100 times net assets, the margin for error is zero. A single failed investment, a regulatory probe into portfolio accounting, or a loss of confidence in the thin float would all send the price sharply lower. The board that is supposed to guard against such outcomes has just lost another independent voice.

That bargain is breaking.