Global Market: Asian investors pour money into hedge funds as bond markets falter

Hedge funds are attracting fresh capital from Asian investors seeking to diversify their portfolios amid volatile debt markets, uncertain equity performance and growing concerns about traditional investment strategies.

Pension funds, family offices, private banks and other institutional investors are increasingly turning to alternative asset managers to reduce portfolio volatility and generate returns less dependent on the direction of stock and bond markets.

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This shift challenges traditional long-only investment managers, whose performance has faced greater scrutiny during periods of market turbulence. It also raises questions about the effectiveness of the conventional 60/40 portfolio strategy, which allocates 60% of investments to equities and 40% to fixed income.

Global hedge fund assets increased by a record $409 billion in the second quarter of 2026 to reach $5.6 trillion, according to data from Hedge Fund Research (HFR).

Swiss private bank UBP said the share of hedge-fund-only mandates among its Asia-based discretionary portfolio management clients had more than tripled since the end of 2024, although it did not disclose the underlying figures.

Paras Gupta, head of discretionary portfolio management for Asia at UBP, said US Treasuries and other government bonds had become less reliable as portfolio diversifiers in recent years, increasing the potential role of hedge funds in investment strategies.

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Hedge fund returns have remained relatively resilient during a prolonged period of weakness in bond markets, Reuters reported, undermining the assumption that fixed income will consistently provide protection when other assets come under pressure.

A global hedge fund index tracked by HFR gained 12.4% in 2025, marking its third consecutive annual increase and its strongest performance since 2009. The index has risen a further 7% year to date.

By comparison, global equities, measured by the MSCI World Index, have gained around 36% since the end of 2024, while the FTSE World Government Bond Index's total return measure has declined 7%, according to the figures cited by Reuters.

Indonesia's sovereign investment platform Danantara Investment Management is also looking to expand its exposure to hedge funds, with a target allocation of 5% of its portfolio.

Rani Piputri, senior director of public investment at Danantara Investment Management, said the objective was to achieve more stable returns while limiting losses during market downturns.

Institutional investors reassess portfolio strategies

The growing appetite for hedge funds extends beyond investors who already have experience with alternative investments.

Niall O'Sullivan, global chief investment officer at strategic adviser Marsh, said some institutional investors that had previously avoided hedge funds were now considering allocations of around 10%, particularly to multi-strategy funds with low correlations to broader financial markets.

Interest has increased among wealth managers, family offices and large institutional investors, including defined-benefit pension funds in Japan, where the weakening diversification benefits of bonds have become a particular concern, Adeline Tan, head of investments at Marsh Asia, told Reuters.

Investors are also looking to capitalise on increasingly uneven market performance, driven by developments in artificial intelligence, geopolitical divisions and diverging regional economic prospects.

These conditions can create opportunities for long-short hedge funds, which seek to profit from differences in the performance of individual securities by taking both long and short positions.

Daryl Ho, senior investment strategist at DBS Bank, highlighted the divergence between semiconductor and software stocks, as well as the outperformance of US markets relative to other regions, as examples of market disparities that could create investment opportunities.

Albert Yang, head of alternative investments for Asia at J.P. Morgan Private Bank, said investors were increasingly viewing hedge funds as a long-term portfolio allocation to help manage volatility. Concerns about concentrated exposure to artificial intelligence-related stocks have also contributed to growing interest in alternative strategies.

However, hedge fund performance varies significantly across managers and investment approaches. The expansion of allocations to the sector does not necessarily mean investors are abandoning traditional equities and bonds.

Yang said hedge funds were increasingly used to complement conventional portfolios by adding strategies and improving resilience across different market conditions.

Multi-strategy and quantitative funds gain ground

Multi-strategy, macroeconomic and quantitative hedge fund managers have been among the main beneficiaries of the shift, particularly those that can adapt quickly to changing conditions and generate returns less dependent on equity market movements.

Quantitative managers use data-driven models to identify investment opportunities, while macro funds seek to profit from changes in economic conditions, interest rates, currencies and other broad market trends. Multi-strategy funds combine different approaches in an effort to diversify sources of returns.

Acadian Asset Management, a systematic investment manager overseeing $233 billion in assets, has recorded a fourfold increase in its Asian assets over the past four years, Reuters reported.

The firm analyses data on tens of thousands of companies and runs strategies designed to deliver modest but consistent outperformance relative to equity benchmarks.

Acadian Chief Executive Officer Kelly Young said the firm was seeing its strongest level of investor interest in about two decades.

The growing demand for hedge funds reflects a broader reassessment of portfolio diversification as investors confront more volatile bond markets, concentrated equity gains and an increasingly fragmented global investment landscape. For Asian investors, alternative strategies are emerging as a potential complement to traditional asset allocations as they seek more resilient returns across market cycles.

(Disclaimer: This article is based on inputs from agencies. These do not represent the views of The Economic Times.)