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Alternatives

Higher prices, more competition making it difficult for alts managers to deploy capital

Alternative investment managers may face challenges as competition for investments opportunities, higher prices and expected higher interest rates are making it harder for them to invest the $1.8 trillion in dry powder they have accumulated, according to a report Tuesday by Moody's Investors Service.

Of the total uninvested capital, $1 trillion is in private equity. Private equity managers could acquire more than $2.2 trillion in assets, if they leverage their dry powder, based on recent acquisition multiples and leverage ratios, Moody's report states.

Market volatility in 2018 has widened credit spreads, which Moody's said is a credit negative. However, alternative investment managers extending their model to invest larger amounts of capital is a credit positive and "is likely cognizant of the risks of over-concentration," the report noted. One key concern is the perpetual fundraising cycles larger alternative investment managers with multiple strategies have had to maintain, it stated.

Separately, real estate fund managers indicated they have seen higher asset prices and stiffer competition in the past year, according to the results of a survey released by Preqin, also on Tuesday. Seventy-one percent of real estate managers surveyed stated that prices are higher, while 63% reported increased competition for assets.

Some 65% of real estate managers stated it is harder to find attractive investment opportunities than it was 12 months ago, while just 2% indicated it is easier. Even so, 56% of real estate managers reported an increase in investor demand for real estate in the past 12 months, including 12% that saw a significant increase.

The results were based on a survey of 215 real estate fund managers conducted in November.