Hedge fund investors intend to boost allocations to the largest money managers in 2026, encouraged by a strong year for multi-strategy funds. This trend reflects a move towards consolidating holdings within a smaller group of top-performing multi-managers, according to a Bank of America report due for release later this week. The survey included 280 asset allocators from Bank of America’s global markets capital strategy group. Bank of America is a global investment bank and financial services company providing a range of services to individuals, small- and middle-market businesses, and large corporations. Its offerings include banking, investment management, and other financial and risk management products and services.
In 2025, allocator portfolios comprised an average of 18 hedge funds, down from a median of 20 funds the previous year. However, average allocations per fund increased from $42 million to $50 million over the same period. Vanessa Bogaardt, global head of capital introduction, prime financing at Bank of America, noted that 2025 marked a turning point with positive sentiment and allocation shifts, driven by strong performance in recent years.
Approximately 62% of surveyed hedge fund investors negotiated increased capacity rights for allocations last year, a significant rise from 17% in 2024. Looking ahead to 2026, roughly 51% of fund investors plan to increase allocations to hedge funds, prioritising them over other alternative asset managers. According to Bogaardt, allocators are focusing on securing capacity rights with their high-conviction managers, indicating a broader trend of expanding hedge fund portfolios and allocating more capital to these funds.
Wall Street’s major banks experienced growth in their prime brokerage units during the most recent quarter, benefiting from fees earned through lending to large multi-strategy funds. These funds capitalised on market volatility to generate robust returns. The hedge fund industry’s assets reached a record high of approximately $5 trillion at the end of the third quarter of last year, fueled by strong performance and healthy inflows totalling around $71 billion. For the year, hedge funds generated average returns of 11.7%, with directional equity long and short funds leading the way at 18%, followed by discretionary macro funds at 15.4% respectively.
