Hedge funds are a top draw in Asia as investors look beyond bonds

In the second quarter of 2026, global hedge fund assets surged to a record US$5.6 trillion, marking the highest quarterly increase ever recorded, according to data from Hedge Fund Research (HFR). The rapid growth in Asia is driven by a growing appetite for alternative investments among pensions, family offices, and other investors seeking diversification from volatile debt markets and erratic equities.

Private bankers and asset allocators point to a trend of increased demand for asset diversification in Asia compared to traditional allocations in equities and bonds. This shift poses challenges for long-only managers, whose performance has been questioned due to market volatility. It also raises concerns about investors' risk management strategies for the commonly held 60/40 allocation to stocks and fixed income.

UBP, a Swiss private bank, reported that the share of hedge-fund-only mandates among its Asia-based discretionary portfolio management clients has tripled since the end of 2024. Paras Gupta, head of discretionary portfolio management in Asia at UBP, believes hedge funds have become more crucial in portfolios as US Treasuries and government bonds have become less effective diversifiers.

Hedge fund performance has also remained strong amid a prolonged period of poor bond market performance, which has turned a once-safe asset into a portfolio loser. Global hedge fund index, tracked by HFR, gained 12.4% in 2025, a third consecutive year of positive growth, and is up another 7% year-to-date. In contrast, the MSCI world index gained about 36% since the end of 2024, while the FTSE world government bond total return index fell 7%.

Strategic advisers like Marsh are seeing more institutional investors, including family offices and big investors, allocate a roughly 10% exposure to hedge funds, particularly multi-strategy funds with low correlations to broader markets. Investors are attracted to the potential of hedge funds to profit from price differentials in a bifurcated market, characterized by extreme splits between AI winners and losers, or driven by geopolitical tensions.

Hedge funds are increasingly being viewed as a long-term allocation to manage volatility, especially in the face of growing concerns about concentration risk in AI. Acadian Asset Management, a systematic fund with US$233 billion in assets, has seen its Asia exposure quadruple in four years, highlighting the growing confidence in hedge funds as a resilient and complementary component of traditional portfolios.