Against the backdrop of an improving macroeconomic environment and ongoing industry trends, the outlook for alternative investment managers in 2025 is brightening, according to Fitch Ratings.
In a new research note, the rating agency said that alt managers are enjoying solid growth momentum heading into the year ahead, thanks to an improving macro environment coupled with an ongoing shift of capital from the traditional banking system to the shadow banks, and “tailwinds supporting the further penetration of the private wealth channel…”
Given the stronger conditions, and a recent review of the sector — which found alt managers generally producing “durable earnings” and enjoying “solid credit fundamentals,” while growing and diversifying their platforms — Fitch upgraded its rating outlook for the alt manager sector to “neutral” from “deteriorating” for 2025, it noted.
However, the rating agency also cautioned that downside risks to the outlook remain.
“Fitch highlights an increasingly competitive landscape and continued geopolitical risk as somewhat counterbalancing factors,” it said.
Additionally, it noted that business development companies face a “more guarded outlook” in 2025. Fitch has maintained a “deteriorating” outlook for that sector, noting that declining interest rates are expected to shrink margins and pressure earnings in the sector.
And, it cautioned that alt manager-affiliated insurers face risks too, amid intensifying competition and growing complexity.
“Increasing allocations to private credit and alternative assets among [alt manager-affiliated] insurers, increasingly complex business plans, heightened opacity around offshore structures and a rise in third party capital structures like sidecars could also lead to increased risks for the sector,” it said.