HONG KONG: Hedge funds are drawing in new fans and a rush of capital from Asia, as pensions, family offices and other investors look to alternative managers to help them navigate volatile debt markets and wobbly equities.
Private bankers and asset allocators told Reuters that Asian investors are increasingly seeking asset diversification compared to their usual allocations to equities and bonds.
The trend is the latest pressure point for traditional long-only managers, whose performances have come under scrutiny due to volatility in markets. It also raises questions on investors' default risk-management strategy of the 60/40 allocation to stocks and fixed income.
Global hedge fund assets grew by a record for any quarter in the second quarter of 2026 when they rose US$409 billion to US$5.6 trillion, according to data from Hedge Fund Research (HFR).
At UBP, the share of hedge-fund-only mandates among its Asia-based discretionary portfolio management clients has more than tripled since end-2024, the Swiss private bank said, without providing any numbers.
"US Treasuries and government bonds have become a less reliable diversifier over the last few years," said Paras Gupta, head of discretionary portfolio management Asia at UBP, adding that this has widened the role hedge funds can play in portfolios.
Hedge fund performance has also held up relatively well, coinciding with a long rough patch in bond markets that has turned a safe asset supposed to hold its value into a loser in portfolios.
A global hedge fund index tracked by HFR gained 12.4% in 2025, a third consecutive positive year and the best performance since 2009. The index is up another 7% year-to-date.
Since the end of 2024, global stocks as measured by the MSCI world index have gained about 36% while the FTSE world government bond total return index has fallen 7%.
"We do want to bring in more on the alternative asset classes," said Rani Piputri, senior director of public investment at Danantara Investment Management, which is part of Indonesia's sovereign wealth fund and is aiming for a 5% hedge fund exposure.
"Because we want to have a stable return with minimum drawdown."
New investors, New drivers
Niall O’Sullivan, global chief investment officer at strategic adviser Marsh, said some institutional investors that did not use hedge funds before now want a roughly 10% exposure, especially to multi-strategy funds with low correlation to broader markets.
Interest has come from wealth managers, family offices and big investors including Japan's defined-benefit pensions where bonds' poor performance as a diversifier has been a particular concern, said Adeline Tan, head of investments at Marsh Asia.
Investors also think the extreme bifurcation — whether splitting markets between AI winners and losers or driven by geopolitical rifts — creates opportunities for long-short hedge funds to profit from price differences.
"Within tech, you have semiconductors outperforming software ... (the) US is outperforming the rest of the world," said Daryl Ho, senior investment strategist at DBS Bank.
Albert Yang, head of Alternative Investments for Asia at J.P. Morgan Private Bank, said hedge funds are increasingly being used as a long-term allocation to manage volatility, citing growing concerns about concentration risk in AI.
To be sure, performance and the flow of investment within the hedge fund industry are widely dispersed. Yang said the shift toward hedge fund exposure was not replacing traditional portfolios, but complementing them with new strategies and resilience.
Multi-strategy, macro and quantitative managers that are nimble and can generate returns independent of equity market direction have been among the biggest beneficiaries.
Acadian Asset Management, a US$233 billion systematic fund that collects data on tens of thousands of companies and runs strategies that aim to modestly but consistently outperform equity indexes, has seen its assets in Asia quadruple in four years.
"It's been 20 years since we think we've seen this level of interest," said Kelly Young, Acadian's chief executive officer.