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 an unprecedented US$5.6 trillion, marking a record quarter in history, according to Hedge Fund Research data. Asia is witnessing a surge in interest in hedge funds, with pension funds, family offices, and other investors seeking alternative managers to navigate volatile debt markets and shaky equities.

Private bankers and asset allocators report that Asian investors are increasingly pursuing asset diversification beyond traditional equity and bond allocations. This trend poses a challenge for conventional long-only managers, whose performance has been criticized due to market volatility and the limited effectiveness of the 60/40 stock and bond allocation as a diversifier.

Paras Gupta, head of discretionary portfolio management in Asia at UBP, notes that US Treasuries and government bonds have become less reliable diversifiers, expanding the role that hedge funds can play in investment portfolios. Hedge fund performance has also held up well, with a global hedge fund index gaining 12.4% in 2025, marking the best performance since 2009 and a third consecutive positive year.

The MSCI World Index, tracking global stocks, gained 36% year-to-date, while the FTSE World Government Bond Total Return Index fell by 7%. Investment managers from Danantara Investment Management, a part of Indonesia's sovereign wealth fund, aim for a 5% hedge fund exposure, emphasizing the need for stable returns and minimal drawdown.

Niall O’Sullivan, global chief investment officer at Marsh, reveals that some institutional investors previously unacquainted with hedge funds are now seeking a roughly 10% exposure, especially to multi-strategy funds with low correlation to broader markets. Concerns about the extreme market bifurcation, driven by AI winners and losers or geopolitical rifts, have led investors to believe that long-short hedge funds can capitalize on price differences.

In tech, semiconductors have outperformed software, with the US outperforming other regions. Albert Yang, head of Alternative Investments for Asia at J.P. Morgan Private Bank, suggests that hedge funds are increasingly used as a long-term allocation to manage volatility, driven by growing worries about concentration risk in AI. Despite the varying performance and investment flow within the hedge fund industry, Yang emphasizes that the shift toward hedge fund exposure is complementing traditional portfolios, providing new strategies and resilience.

Acadian Asset Management, a US$233 billion systematic fund, has seen its Asia assets quadruple in four years, highlighting the surge in interest in alternative asset classes.