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Geopolitical tensions, a potential resurgence of inflation, and market volatility are still key risks, particularly for traditional IMs, whose fees are closely tied to net asset values. Alternative IMs are somewhat shielded by their fee and fund structures. We expect the competitive landscape to intensify, with larger, more diversified firms likely to benefit from investor consolidation. Canadian pension funds should remain resilient due to their captive inflows, long-term investments and strong asset over-collateralisation.

The regulatory environment for traditional IMs is fairly stable. Financial regulation may loosen in the US following the elections, but alternative IMs are likely to attract scrutiny, with particular focus on valuation governance, liquidity in semi-liquid structures and tie-ups with regulated entities.

Fitch expects continued fee margin erosion for traditional IMs, driven by business mix changes and growth of lower-margin exchange-traded funds. We expect alternative IMs' fee-related EBITDA margins to keep expanding, albeit more slowly, due to strong fundraising pipelines, and accelerating deployment.

Fitch expects leverage to remain within rating expectations for IMs, barring material debt-funded M&A, which would likely be accompanied by accretive fee earnings.

Press release

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