Hedge funds on track for another stellar year on AI boom
FILE PHOTO: The Wall Street entrance to the New York Stock Exchange (NYSE) is seen in New York City, U.S., November 15, 2022. REUTERS/Brendan McDermid/File Photo
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NEW YORK, July 28 : Global hedge funds are on track for another blockbuster year, as they look to surpass their returns from 2025 after an artificial intelligence boom buoyed first-half performance for money managers across most investment strategies, according to a Goldman Sachs note sent to clients that was seen by Reuters.
During the first six months of this year, hedge funds returned an average of 7 per cent, well above the 10-year average of 4.1 per cent, according to the Goldman report. Those returns have been exceeded only twice, during the COVID years of 2020 and 2021 when market volatility boosted returns for fund managers. It marks the sixth consecutive half-year period in which hedge fund returns exceeded their long-term average.
“The first half of 2026 was notably strong for risk assets – an equity market rally helped to offset softer fixed income performance, propelling a 60/40 passive portfolio to a return of 5.7 per cent – but in spite of this, hedge funds continued their run of outperformance,” Goldman said.
Demand from allocators, or investors who back hedge funds, has also surged during this year, amid a broadening flow of capital into the industry.
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In a July survey of 341 hedge fund allocators overseeing more than $1.5 trillion invested in hedge funds, Goldman found nearly half of those investors planned to increase their hedge fund exposure in the second half of 2026, while only 3 per cent expected to reduce it. The bank said net demand for hedge funds reached a new record and remained well ahead of other asset classes across the alternative investments industry.
Institutional investors that were surveyed by Goldman reported average hedge fund portfolio returns of 7.3 per cent in the first half, while private capital investors, including family offices and private banks, reported returns of 8.8 per cent.
Every major hedge fund strategy brought in fresh capital during the first half – a first in five years. Quantitative, or computer-driven, funds continued to attract strong new money, while multi-strategy funds posted their strongest inflow levels in five years.
The asset management industry also continued to outperform a traditional “60/40” portfolio – a widely used benchmark that allocates 60 per cent to stocks and 40 per cent to bonds. Goldman said hedge funds have outperformed such portfolios by roughly 250 basis points, or 2.5 per centage points annually, over the past five years, reflecting what it described as a more favorable environment for generating “alpha,” or returns above a market benchmark.
Among strategies, equity long/short funds delivered blockbuster returns, generating gains of 17.7 per cent on average during the first half. Goldman said those managers benefited from unusually strong stock-picking opportunities as large differences emerged between individual stock performances.
Stock-trading hedge funds finished June with double-digit returns for the year, aided by their ability to successfully navigate already crowded trades.
Source: Reuters
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