36 | 2023 Investment Outlook | December 12, 2022 What We are Watching ƒ General partners (GPs) must implement best-in-class operations and capture synergies and scale through strategies such as buy-and build. ƒ Fundraising may slow, but dry powder remains at record levels of $3.6 trillion, which should sustain high transaction volumes. Amid continued competition for quality assets, deal origination at attractive value-at-entry levels is not a given, and GPs must remain selective and disciplined to create value. ƒ Earnings become increasingly important as a source of value creation due to multiple compression and rising debt costs. Investors continue to increase their allocations to alternatives to meet their long-term investment objectives. ƒ Partnering with founders in the midmarket—particularly those seeking support from financial investors for the first time—and reducing operational vulnerabilities may make businesses less sensitive to economic headwinds. “Amid continued competition for quality assets, deal origination at attractive value-at-entry levels is not a given, and GPs must remain selective and disciplined to create value.” 1 “The Future of Alternatives 2025,” Prequin, August 2020. Risk Considerations: Historical performance information is not indicative of future results. Alternative investments are speculative and include a high degree of risk. Investors could lose all, or a substantial amount, of their investment. Alternative instruments are suitable only for long-term investors willing to forgo liquidity and put capital at risk for an indefinite period of time. Alternative investments are typically highly illiquid—there is no secondary market for private funds, and there may be restrictions on redemptions or the assignment or other transfer of investments in private funds. Alternative investments often utilize leverage and other speculative practices that may increase volatility and risk of loss. Financial intermediaries are required to satisfy themselves that the information in this document is suitable for any person to whom they provide this document in view of that person’s circumstances and purpose. Morgan Stanley Investment Management (MSIM), its affiliates and its and their respective directors, officers, members, partners, employees, agents, advisors, representatives, heirs and successors shall have no liability whatsoever with respect to any person’s or entity’s receipt, use of or reliance upon this document or any information contained herein. If such a person considers an investment, she/he should always ensure that she/he has satisfied herself/himself that she/he has been properly advised by that financial intermediary about the suitability of an investment.