BNP Prime Brokerage Report: Hedge Funds Have Produced Strong Alpha Over The Past Five Years

Hedge Funds Hit Their Stride

London, New York, Hong Kong – January 30, 2026 – BNP Paribas, a leader in banking and financial services and its Prime Services business, published today its annual 2026 Hedge Fund Outlook.

BNP Paribas' Capital Introduction Group surveyed 246 allocators in December 2025 and January 2026 who invest or advise on $1.1 trillion in hedge fund assets. This represents over one fifth 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.

Marlin Naidoo, Global Head of Capital Introduction at BNP Paribas, said: "Hedge fund sentiment is hitting new peaks. Amidst high equity valuations and a shifting private equity landscape, hedge funds are proving their value as a vital source of stable, diversifying returns"

Ashley Wilson, Global Head of Prime Services at BNP Paribas, added: "After back-to-back years of equity market strength and consistent alpha delivery, Asia-Pacific and China hedge fund managers have re-entered the global allocator spotlight in 2026."

Key findings – BNP Paribas Hedge Fund Outlook

Hedge Funds Deliver on Allocator Targets: Cash +400-600bps

• Hedge 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 continues year on year, with hedge funds delivering +2.13 % of alpha versus MSCI World in 2025 and +3.02% (5-year annualised).

Correlation is Rising – Yet Diversification Remains

• 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.
• 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 %.
• Tactical trading strategies, such as quant equity, quant multi strategy and discretionary macro deliver returns while keeping correlation, beta and volatility low.

Hedge Fund Allocations Trend Higher

• 2025 saw net inflows of $25 bn from responding allocators (55 % of respondents added on a net basis).
• The outlook for 2026 remains positive: 64 % plan to increase exposure on a net basis, translating to an estimated $24 bn of additional net inflows from this group of allocators.
• Private banks lead the charge amongst allocators, with 90% of this group adding $8bn of net inflows in 2025 and 94% expect to add a further $7.6bn of net inflows in 2026.

Europe & Asia Are Allocation Hotspots

• 30 % of allocators added exposure to Europe in 2025 whilst 34 % plan to do so in 2026 making it the most widely allocated to region in both years. Key strategies are equity long/short, event driven and credit.
• 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).

Macros Moment

• 21% of allocators expect discretionary macro to deliver the highest returns among hedge fund strategies this year (up 10.81% in 2025).
• One in four allocators plan to increase their allocation to the strategy in 2026.
• Allocators note a shortage of single CIO, vintage-style macro managers with track records across market cycles.

Quant in Demand though Alternative Risk Premia Remains Under-Utilized

• Quant Equity delivered a 11.31 % 5-year annualised return (11.20 % in 2025). Over a third of allocators added to it in 2025, and another 30% plan to add in 2026.
• Quant Multi Strategy returned 12.76% on a 5-year annualised basis in line with MSCI World. (11.49 % in 2025). 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.

Optimising the Portfolio: SMAs, Portable Alpha & Active Extension

• SMAs continued to see growth in 2025 with treasury efficiency being the most cited reason allocators use them. Capital allocated via SMAs increased by 61 % ($42 bn in 2025 vs. $26 bn in 2023). 9 % of hedge fund managers already allocate to peers through external SMAs, whilst a further 18 % plan to launch such structures in 2026 and beyond.
• A third of investors intend to grow their Portable Alpha allocation in 2026. 73% of exposure sits inside the long only equity bucket.
• Active Extension products (130/30, 150/50) are now held by 34 % of allocators (up from 20 % two years ago). A further 19 % will increase allocation whilst 18 % are considering allocation for the first time.
• Two thirds of managers not yet offering portable alpha or active extension products, say they would launch a new offering to capture this demand.

About BNP Paribas

Leader in banking and financial services in Europe, BNP Paribas operates in 64 countries and has nearly 178,000 employees, including more than 144,000 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. Based on its strong diversified and integrated model, the Group helps all its clients (individuals, community associations, entrepreneurs, SMEs, corporates and institutional clients) to realise their projects through solutions spanning financing, investment, savings and protection insurance. In Europe, BNP Paribas has four domestic markets: Belgium, France, Italy and Luxembourg. The Group is rolling out its integrated commercial & personal banking model across several Mediterranean countries, Türkiye, and Eastern Europe. As a key player in international banking, the Group has leading platforms and business lines in Europe, a strong presence in the Americas as well as a solid and fast-growing business in Asia-Pacific. BNP Paribas has implemented a Corporate Social Responsibility approach in all its activities, enabling it to contribute to the construction of a sustainable future, while ensuring the Group's performance and stability.