Almost exactly a year ago, Warsaw-based fund manager CVI achieved a first close on what it claims was the first institutional direct lending fund ever to focus on Central Europe. Today, CVI has the biggest direct lending team in the region, with more than 30 professionals already on board, and partner Marcin Leja says business is good.

Number of funds focused on CEE to close since 2017

Total amount targeted by CEE-focused funds in market

“The single most important issue for this region is the further retrenchment of bank financing, especially in Poland,” says Leja. “The banks have been hit because when interest rates went up the government decided they needed to subsidise mortgage holders and introduce credit vacations, so every mortgage holder can forego payments for four quarters at a cost to the banks. That hit to bank balance sheets immediately hit credit appetite.

“That hit has created much more room for alternative finance and we already see a clear pipeline, which is much more than we can invest in. That is good because it means we can be selective in the deals we do, and we are not chasing deals, but at the same time if we had more money we could invest it.”

He says a growing number of global managers are now looking to do deals in Poland, but it is the outcome of the war in Ukraine that will determine the scale of the investment opportunity for private debt. “We had a huge influx of Ukrainian refugees that created an additional two or three million inhabitants in Poland. Some of those people will return to their homeland once the conflict is over, but the number of people in Poland was going down so the influx creates more consumers and more workers.”

In addition to Poland, Leja says Romania and the Baltics are the two markets that are most attractive to debt funds: “They are less developed in terms of capital markets and so the sources of financing available to local companies are even more limited than they are elsewhere.”