Outlook Remains Positive for Hedge Funds: BNP Paribas

After a strong 2025, the outlook remains positive for hedge funds according to the 2026 Hedge Fund Outlook, published by BNP Paribas, with Macro strategies expected to deliver the highest returns.

For the report, Between December 2025 and January 2026 BNP Paribas’ Capital Introduction Group surveyed 246 allocators who invest or advise on $1.1 trillion in hedge fund assets. It found that funds returned on average 641 bps over cash in 2025 (10.53%), and 466 bps annualised over cash in the last 5 years (7.96%). Alpha generation also continues year-on-year, with hedge funds delivering +2.13 % of alpha versus MSCI World in 2025 and +3.02% (5-year annualised).

Correlation versus the MSCI World has crept upward over the years, to 0.92 1-year correlation versus 0.80 for 3-year and 0.76 for 5-year. Beta to the MSCI World has also increased, 0.24 over the past 12 months, versus 0.15 over the past 5 years. The report says that low volatility persists, in 2025 hedge fund volatility was ~4 times lower at 2.43 % vs. MSCI World’s 9.25 % while 5-year volatility was ~5 times lower at 2.76% vs. 14.39 %.

The good performance in 2025 helped generate net inflows of $25 billion from responding allocators (55 % of respondents added on a net basis), while the outlook for 2026 remains positive with 64 % planning to increase exposure on a net basis. This translates to an estimated $24 billion of additional net inflows from this group of allocators.

Private banks lead the charge amongst allocators, with 90% of this group adding $8 billion of net inflows in 2025 and 94% expect to add a further $7.6 billion of net inflows in 2026.

Perhaps as a result of the policy gyrations in the US, the report finds that Europe and Asia are the “allocation hotspots”, with 30% of allocators adding exposure to Europe in 2025 whilst 34% plan to do so in 2026 making it the most widely allocated to region in both years. Meanwhile, 24% added to Asia Pacific in 2025, rising to 30% in 2026, with a focus on equity long/short and multi strategy. The China turnaround continues with 9% of allocators investing in China focused hedge funds in 2025 and a further 14% planning to in 2026 (up from a 42% net reduction in 2023), the report notes.

Stating that 2026 is “macro’s moment”, the report says 21% of allocators expect discretionary macro to deliver the highest returns among hedge fund strategies this year, it was up 10.81% in 2025. One in four allocators plan to increase their allocation to the strategy in 2026 and BNP says allocators note a shortage of single CIO, vintage-style macro managers with track records across market cycles.

Despite systematic strategies generally under-performing discretionary for the past two years, quant strategies are still popular. The report finds that quant equity delivered a 11.31% 5-year annualised return (11.20% in 2025) and that over a third of allocators added to it in 2025, and another 30% plan to add in 2026. Equally, quant multi strategy returned 12.76% on a 5-year annualised basis in line with MSCI World (11.49 % in 2025), and 24% of allocators plan to increase exposure in 2026.

Despite alternative risk premia achieving a 9.13% 5-year annualised return (12.11% in 2025), only 3% of allocators expect to add to it next year.

“Hedge fund sentiment is hitting new peaks,” Marlin Naidoo, global head of capital introduction at BNP Paribas, states. “Amidst high equity valuations and a shifting private equity landscape, hedge funds are proving their value as a vital source of stable, diversifying returns.”