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Germany Forum: Reworking the image of Eastern Europe

Central and European markets offer private debt funds a number of opportunities to lend to small and medium-sized enterprises (SME) as the banks that dominate the region continue to scale back their operations.  

Speaking at the PDI Germany Forum today, 23 June, Franz Hoerhager, founding partner of Mezzanine Management, a firm that invests in SME corporate debt in Central and Eastern Europe, said that investors should start to look at the region as part of a diversified portfolio.

Hoerhager spoke of how the region is dominated by Western banks, but a number of them are withdrawing funding to SMEs as they increase their focus on their bigger clients in the West.

Accepting that the region is not as attractive to investors as the West, Hoerhager said that he has found handsome returns. He reported 15 percent IRR in mezzzanine loans in Poland and the Baltics and 18 to 20 percent in the south east, in regions such as Bulgaria and Romania.

He concluded that the region does not offer the €100 million deal sizes that the “big elephants” look for. While deals are in abundance, they are much smaller. Mezzanine Management, Hoerhager confirmed, has almost fully invested its third fund.