NEW YORK, 15 January 2026 — Asset allocators are likely to increase capital allocations to multi-strategy hedge funds in 2026, favouring the largest and best-performing managers after a strong year for the sector, according to an internal report by Bank of America.
The report, based on a survey of 280 asset allocators conducted by Bank of America’s global markets capital strategy group and due to be released later this week, shows investors increasingly consolidating portfolios around a smaller group of multi-managers as they seek to reinforce exposure to funds with market-leading returns.
On average, allocator portfolios held about 18 hedge funds in 2025, down from a median of 20 funds a year earlier, while average allocations per fund rose to US$50 million from US$42 million over the same period.
“2025 marks a little bit of a turning point where sentiment and allocations have shifted positively, which signals an industry tailwind fueled by healthy performance over recent years,” said Vanessa Bogaardt, global head of capital introduction and prime financing at Bank of America.
The survey found that 62% of hedge fund investors negotiated increased capacity rights in 2025, sharply higher than 17% in 2024, reflecting competition for access to high-conviction managers. About 51% of respondents plan to increase hedge fund allocations in 2026, outpacing plans for other alternative asset classes.
“We’ve seen allocators focus a lot on securing capacity rights with their high-conviction managers,” Bogaardt said.
“We are still seeing more allocators planning to expand their hedge fund portfolio in 2026, which means not only are they planning to allocate, they are planning to allocate more to hedge funds.”
Prime brokerage growth and industry performance
During the most recent quarter, Wall Street’s largest banks recorded healthy growth in their prime brokerage businesses, benefiting from increased lending activity to large multi-strategy funds that successfully navigated market volatility to deliver strong returns.
According to the report, hedge fund industry assets reached record highs of around US$5 trillion at the end of the third quarter, driven primarily by solid performance and net inflows of approximately US$71 billion. Full-year figures have yet to be published.
For 2025, hedge funds generated average returns of 11.7%, based on the allocators surveyed. Directional equity long-short strategies led performance with average returns of 18%, followed by discretionary macro funds, which posted 15.4% returns, Bank of America said.
Source: Reuters
