In August 2021, Warsaw-based fund manager CVI achieved a first close on what it claims is the first institutional direct lending fund ever to focus on Central Europe. So far, CVI has raised €80 million, with a final target of €300 million that it hopes to hit by the end of the first quarter of next year.
Partner Marcin Leja says the fund will focus on sponsorless direct lending: “The opportunity remains the same as it has been for many years,” he says. “As most of the companies in the region are small and medium in size, and the number of private equity transactions remains limited, the opportunity lies in direct lending, sponsorless transactions for SMEs.
“Within this strategy, the demand is for senior, stretched senior and sometimes junior products, with the main aim being growth financing. The key thing is that there has been no yield compression in CEE, so you can still get 10 percent yield for senior secured type risk, which you will not find anywhere else in Europe.”
Number of Central and Eastern Europe-based funds in market
Total amount targeted by funds in market
He says banks have shifted their attention towards large-caps with lower risk, while pan-European players that are interested in the market are also looking for bigger tickets and so pose little competition to the likes of CVI. Poland is arguably the most attractive market, while the Baltics are interesting because many of the Scandinavian banks that were a feature of that market have retrenched in recent years.
Sector-wise, real estate and healthcare are attractive, as is manufacturing: “The onshoring of production by European producers as a result of the shockwaves caused by covid-19 has seen a lot coming to CEE, causing growth across the pipeline of suppliers,” says Leja.
At Arcmont, CEO Anthony Fobel says: “Subject to getting comfortable with their legal regimes, we think certain EU member countries in Eastern Europe offer some really interesting opportunities going forward.”