While the investment climate for alternative investment managers faces a growing array of challenges, the outlook for the sector remains stable, says Fitch Ratings.
In a new report, the rating agency said that it’s expecting alt managers to face a “challenging” environment in 2026, “marked by stretched valuations, abundant capital, sticky inflation, U.S. trade policy uncertainty and geopolitical risks.”
At the same time, risks to the business models of some firms are rising too, it suggested.
“The expansion of evergreen retail products is expected to increase fee volatility. In addition, the greater complexity and opacity of private credit investments offered to U.S. life insurers could prompt unfavourable regulatory capital treatment, potentially curbing allocations,” it said.
Yet, despite the headwinds, Fitch said that it expects the industry’s credit conditions to remain stable in the coming year, led by a healthier climate for merger and acquisition activity that, it expects, will boost deal volumes and facilitate private equity exits, freeing up capital.
“Deal activity is set to increase amid improving financing stability, clearer price discovery and more constructive buyer-seller dynamics,” said Dafina Dunmore, senior director at Fitch, in the report.
“Activity is also likely to be driven by managers aiming to return capital to investors after extended holding periods,” she added — although, she cautioned, “valuation dispersion across sectors and geopolitical/macroeconomic headwinds could disrupt momentum.”
Increased opportunities for private credit — such as asset-based finance and infrastructure investing — are also underpinning expectations for the sector’s growth, it noted.
Additionally, the long-term outlook for alt managers’ growth remains strong too, Fitch said, “supported by insurance capital and expanding penetration of private wealth and retail channels.”
With the sector, strategic M&A among alt managers is also likely to be on the table this year, it said, “as alt IMs seek to expand into adjacent strategies, diversify fees, extend distribution and retail access, and broaden geographic reach.”