Alternative fund managers gearing up to seize acquisition opportunities

By Newsdesk

January 09 2024
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In a notable shift from previous trends, alternative fund managers are demonstrating a growing appetite for risk, encouraged by the prospect of falling inflation and interest rates, as well as the lure of attractive acquisition deals.

Alternative fund managers gearing up to seize acquisition opportunities

This change in sentiment has been highlighted in Ocorian's recent research, signalling a bullish outlook among senior executives and investors.

The survey, which includes responses from fund managers in private equity, venture capital, and real estate sectors, revealed that almost 57% anticipate an increase in their organisation's investment risk tolerance within the coming year. This figure strikes a stark contrast to the mere 25% who foresee a decline in their risk appetite.

A critical driver behind this surge in risk eagerness is the anticipation of better pricing on deals, with 20% of respondents marking this as a primary motivator. Additionally, 16% are hopeful due to predictions of lower inflation, while 15% are eyeing opportunities to make distressed acquisitions.

Despite this upbeat outlook, the research underscores significant concerns that temper the industry's optimism. About 26% of those who foresee a reduction in risk appetite cited political uncertainty as a major worry, with inflation and high acquisition costs also weighing on the minds of 27% and 22% of respondents, respectively.

To counterbalance these risks, companies are not shying away from bolstering their risk mitigation strategies. A notable 56% have already expanded their risk management teams, and 53% have invested in cutting-edge technology. Employee retention strategies are also in the spotlight, with 45% having developed their Employee Incentive Schemes (EIS) over the past year to retain crucial personnel.

REASON FOR INVESTMENT RISK APPETITE RISING	NUMBER OF RESPONDENTS SELECTING AMONG THEIR TOP THREE	REASON FOR INVESTMENT RISK APPETITE FALLING	NUMBER OF RESPONDENTS SELECTING AMONG THEIR TOP THREE
Pricing around deals is more attractive	20%	Inflation remaining high	27%
Inflation will start to fall	16%	Political risk	26%
More opportunities to make distressed acquisitions	15%	Deal pricing remains too high	22%
Interest rates will start to fall	14%	Threat of a recession	21%
Costs have fallen	12%	Interest rates and cost of debt	16%
AI and technology are reducing levels of risk	10%	Rising costs – salaries, materials	13%

Looking ahead, nearly half of the firms remain vigilant on the risk management front - 53% plan to enhance EIS, 52% aim to grow their risk management teams, and 50% intend to allocate more resources to new technology.

Paul Spendiff, Ocorian's Head of Business Development – Fund Services, expressed, “Investment risk appetite is clearly increasing with senior executives and major investors expecting a shift in global macroeconomic conditions as well as more opportunities for acquisitions at more attractive prices."

He further elaborated on how this confidence coexists with a concerted emphasis on risk handling, noting that there has been substantial investment in technology and staff specialising in risk management. As the industry navigates these complex challenges, Ocorian is setting itself apart by responding to the growing demands for its services. Spendiff also cautions that potential hurdles for the year include global political unrest, escalating tensions in regions such as the Middle East and Ukraine, and the looming risk of recession in key economies.

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