Coming up Trumps: Allocators Add to Hedge Funds as Alpha Rises
BNP Paribas, the European Union’s leading bank and key player in international banking, and its Prime Services business published today its annual 2025 Hedge Fund Outlook.
BNP Paribas’ Capital Introduction Group surveyed 229 allocators in December 2024 and January 2025 who invest or advise on $1.4 trillion in hedge fund assets. This represents approximately a third of industry assets under management (AUM). The objective of the report is to better understand sentiment with respect to performance and asset allocation to hedge funds.
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Ashley Wilson, Global Head of Prime Services at BNP Paribas, said “The rise in allocations to separately managed accounts, driven by multi-managers and institutional allocators, will continue to be a key driver in asset growth this year. Multi-managers aim to generate platform alpha, while institutional allocators prioritise greater transparency and capital efficiency.”
Marlin Naidoo, Global Head of Capital Introduction at BNP Paribas, added: “Hedge fund alpha increased in 2024, prompting more allocators to deploy capital across both fundamental and quantitative strategies for the year ahead. This shift reflects a growing recognition that the value these strategies add to portfolios outweighs the cost of accessing alpha.”
Key findings – BNP Paribas Hedge Fund Outlook
The alpha transition
- Hedge funds returned on average 10.12% in 2024 with 5 times less volatility than the MSCI World (up 19.22%), a beta of 0.16 and generated 2.62% of Alpha versus zero in 2023.
- Three-year annualised returns for the average hedge fund are 6.14%, keeping up with the MSCI World (6.88%), with 6 times less volatility, a beta of 0.12 and 1.47% of alpha generation.
- Equity long/short focused on the Americas was the best performing strategy for a second year in a row according to responding investors. Quant equity was the best performing strategy for the industry, while CTAs were the worst. Discretionary macro and CTAs were the worst performers in respondents’ portfolios for the second year in a row.
- This transition to greater alpha generation is reflected in allocator sentiment for 2025. 61% of respondents plan to grow their hedge fund portfolio in 2025 by over $30 billion, up 38% from $22 billion in 2024.
Allocators revisit Asia
- Asia Pacific is the most sought-after region for 2025 with over a quarter of respondents looking to add to the region on a net basis after only 2% did so last year.
- Japan is expected to continue to be an area of focus with 20% of investors looking to add here on a net basis after being the second most allocated region to last year behind North America.
- The China exodus is expected to turn around, with 7% of investors looking to add on a net basis. This is in direct contrast to 2024 and 2023 when 17% and 42% of investors pulled capital, respectively.
Equity long / short and event driven make a come back
- Over a third of investors on a net basis are looking to add to equity long/short funds this year making it the most sought-after strategy in 2025 displacing credit which moved to second.
- Interest in event driven more than doubles year on year with a quarter of investors looking to add on a net basis and only 11% did so in 2024.
Portable alpha and active extension make their way into portfolios
- 64% of portable alpha investors are planning to grow their current allocation with a further 18% considering allocating to portable alpha for the first time.
- Most investors are looking to implement this within their long only equities and hedge fund portfolios with the alpha component predominantly being equity long / short however this is followed by multi strategy, quant and macro.
- 27% of investors respondents currently invest in active extension which is up from 20% last year and 14% the year before. 22% of investors already in the space are looking to grow their allocation while a further 12% are considering their first foray into active extension.
SMAs to further drive industry AUM
- 26% of respondents use SMAs for their hedge fund investments which account for 36% or $185 billion in assets. 15% of our respondents expect to increase their SMA allocations, versus 11% who expect to decrease investments in commingled structures.
- Multi manager platforms continue to grow their external SMA allocation with hedge funds becoming more receptive to investments via SMAs.
Private banks / wealth management bullish on hedge funds
- Private banks / wealth management hedge fund asset allocation is only 4% on average, the smallest of all investor groups (average 25%). They are looking to grow this in 2025 by adding $14 billion versus the $ 12 billion they added in 2024.
- They are planning to add 4 new managers to their list in 2025 versus the average respondent who is adding 2.
About BNP Paribas
BNP Paribas is the European Union’s leading bank and key player in international banking. It operates in 63 countries and has nearly 183,000 employees, including more than 145,000 in Europe. The Group has key positions in its three main fields of activity: Commercial, Personal Banking & Services for the Group’s commercial & personal banking and several specialised businesses including BNP Paribas Personal Finance and Arval; Investment & Protection Services for savings, investment and protection solutions; and Corporate & Institutional Banking, focused on corporate and institutional clients.
