There is a burgeoning private credit market in Turkey, with funds increasingly looking to take advantage of the lack of access to traditional funding and the potential for higher returns.
Despite the size of the economy, making it the seventh largest in Europe, Turkey is largely untapped by private credit funds. But that is increasingly changing.
In February, Gramercy Funds Management was reported to have plans to reach $1bn (£745m) in private credit deals in the country over the next two years. The US-based firm already deployed around $500m in more than 15 deals in Turkey since 2018.
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Last year, Janus Henderson acquired the private markets division from Abu Dhabi-based NBK Wealth, expanding into emerging markets private capital investing. The private credit team within that business has had a presence in Turkey for nearly two decades, but there are new developments that make it particularly attractive now, according to principal Erdem Kilic.
Also in 2024, Kirkoswald Private Credit announced its first senior secured loan made to Turkish textiles exporter firm Altinyildiz. It was the first offshore private credit loan the company took out in more than its 70-year history.
“In the past, when you sat across from a business owner, they would compare you to a bank and think they can get a cheaper loan from the bank,” Kilic said. “Now, people’s perspective on financial products has changed and their sophistication has increased. They understand private equity, private credit…now it’s an option.”
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There are also macroeconomic factors driving the interest in private credit. The economic situation in the country has been challenging, making it difficult to find financing for smaller businesses. Back in 2023, banks in Turkey restricted access to loans and postponed decisions on extending corporate loans following new regulations. In addition, there were limitations placed on how much a bank could grow its loan book. Meanwhile, soaring interest rates, currently 42.5 per cent, have meant that private credit funds no longer look expensive compared to banks.
But investing in a country with political and economic uncertainty comes with additional risk.
Kilic says that for anyone who is not experienced lending in emerging markets, it would be very difficult to do it now.
“Businesses like ours are used to economic downturns and different cycles,” he said. “I have invested in Egypt, the Middle East, Sub-Saharan Africa, Turkey. These are economies that constantly change, there are wars, something political happens, there are demonstrations on the streets. Our job, in fact our art, is to find something in this chaos and deliver a return.”
In Turkey, Kilic is particularly interested in industrial companies and manufacturing.
With the US tariffs changing how businesses think about global trade, companies that produce in Europe and sell to the US are increasingly looking to move to Turkey and open factories there. On the other hand, Chinese businesses have been slowly making similar moves and have manufacturing capabilities in Turkey.
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“We really like the companies that use this place for manufacturing and export to Europe or the US,” he said.
In contrast, he is staying away from sectors like tourism, construction, real estate and energy, because they are very politicised areas, he says.
Emerging markets overall can offer higher returns to investors. RBC BlueBay’s Emerging Markets Illiquid Credit fund, which has investments in Turkey, reported that at the end of 2024 its projected net IRR on fully exited positions was 17.4 per cent.
