GLAF at 3: Why investors are searching for smarter diversification

For much of the 2010s, low interest rates and abundant liquidity pushed many assets in the same direction. The environment since 2020 has been less uniform - inflation, rapid monetary tightening and geopolitical shocks have created greater differences between companies, sectors, countries and markets.

These conditions have been a rich hunting ground for hedge funds, which generally need differences between the returns of assets to generate alpha – whether it’s systematic equity strategies taking advantage of greater stock-level dispersion, or macro and fixed income managers finding opportunities across currencies, yield curves and countries. Globally, in the first half of this year we’ve seen the hedge fund industry deliver its best six months of returns since 2009.¹

Heightened dispersion has fuelled a rich hunting ground for hedge funds

Source: FactSet as of 31 December 2025. Annual stock dispersion is calculated by taking the average of the annual dispersion observations across each period. Annual country dispersion is calculated by taking the top performing country and subtracting the bottom performing country. The country dispersion chart shows the average difference across the defined periods. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

But this doesn’t mean generating returns automatically becomes easy for all managers. More dispersion can also mean more crowding, sharper reversals and larger differences between the strong and the weak. While there are more potential sources of alpha, there’s also a greater premium on combining them well.

This was the environment into which GLAF was launched in September 2023, and our portfolio has stood the test of time - consistently outperforming its benchmark net-of-fees, with less volatility than global bonds.² Most importantly, the fund has held its own during extreme market dislocations - such as the breakout of the Middle East war in March 2026 - while still generating strong performance when risk appetite returns, like in April this year when GLAF delivered its best monthly result yet.

GLAF has delivered significantly higher returns than other low-volatility asset classes

Annualised returns since inception*

*Source: BlackRock 30 June 2026. Based on GLAF performance gross of fees in AUD from inception date of September 2023. Global bonds represented by Bloomberg Global Aggregate (AUD Hedged) Index. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

As GLAF assets under management close in on $500 million, and hedge fund assets globally reach an all-time record of over US$5 trillion³, we see the industry’s resurgence as driven by a new wave of investors who seek more consistent performance and the ability to redeem capital when they need.

Hedge funds fell out of favour somewhat in the years following the global financial crisis – apart from the low-rate environment which made simple market-tracking strategies more attractive, many investors were also burnt by redemption restrictions during that time. BlackRock’s hedge fund platform was stress tested during the GFC and other market dislocations, and historically we have never gated any hedge funds on our platform.

The post-GFC era underlined the value of true liquidity, which is less about product labelling and more about what will be delivered by fund managers in turbulent and challenging market environments. In designing GLAF, we therefore focused only on allocating capital to daily liquid underlying hedge fund strategies.

Multi-strategy or ‘fund of hedge funds’ have also evolved in the years since the financial crisis and seen a strong resurgence, with 1 in 5 global hedge fund investors now interested in allocating to these funds⁴. A key lesson BlackRock’s hedge fund team has learned through managing multi-strategy portfolios over two decades is the difficulty in forecasting which hedge fund style will outperform or underperform over any monthly, quarterly or even annual period.

Timing individual hedge fund performance is challenging

HFRI hedge fund indices performance, 2015-2025

Source: Bloomberg data as of 31 December 2025. Past performance is not a reliable indicator of future performance. Index performance returns do not reflect any management fees, transaction costs or expenses. Indexes are unmanaged and one cannot invest directly in an index.

Rather than attempting to tactically time strategies with limited benefits, we aim to select those that are market neutral and additive within the overall portfolio, so that GLAF can be resilient when other parts of our clients’ portfolios are not working well. Over GLAF’s first three years, that has meant continually asking whether each strategy is still doing the job we expect it to do in the portfolio.

In the years since COVID in particular – marked by geopolitical uncertainty, economic shocks and the rapid expansion of the AI boom – investors have also come to view diversification differently. Equities, credit and some alternatives can all perform well together when growth is strong and liquidity is abundant — and struggle together when that environment reverses.

The role we see for GLAF is different. It seeks returns from a broad mix of security-selection, relative-value, macro and systematic opportunities that are intended to be less dependent on broad market direction. So the question many clients ask us has evolved from “How much should I allocate to alternatives?” to something more useful: “What is this allocation adding to what I already own?”

Another important change that’s taken place in the hedge fund landscape is much better access to information. While the breadth of daily liquid strategies on BlackRock’s hedge fund platform has grown considerably, a bigger menu does not automatically produce a better portfolio.

What has changed more meaningfully is the depth of insight we can bring to the allocation decision. Because GLAF’s underlying strategies are managed on BlackRock’s Aladdin platform, our risk analysts can perform detailed analysis of positions and flag concentrated risk exposures, positions or departures from intended investment styles. That allows us to understand not just a manager’s returns, but how those returns were generated and how the strategy interacts with the rest of GLAF.

That changes the allocator’s question from “Is this a good hedge fund?” to “Is this the right hedge fund for GLAF, at this allocation, given the risks we already own?” Our three-year track record for GLAF has shown that this analysis matters – since inception the fund has delivered higher returns than an equal weighted allocation to the same underlying funds⁵, demonstrating the value of selecting the right allocation at the right time.

At the same time, alpha opportunities for multi-strategy funds have also been supported by continued innovation within the underlying strategies. For example, BlackRock’s systematic teams have expanded datasets, added new alpha signals and increased their use of AI and machine-learning techniques, broadening the ways in which they can identify potential mispricing.

It’s an exciting time for the industry as the opportunities and risks that sharpen hedge fund outperformance can be pinpointed with much more accuracy, which may be helping to fuel the growth in investor interest and new strategy launches we’re seeing globally.

Looking ahead to our next three years, I believe investors will increasingly ask us as hedge fund managers not just to prove that we made money, but that the return was genuinely useful.

Headline performance will always matter, but investors will increasingly want to understand what generated it. How much came from differentiated investment decisions? How much came from market exposures they already own elsewhere? What happened when equities or bonds were under pressure? And did the allocation improve the behaviour of the overall portfolio?

For GLAF, that means we’ll remain focused on the quality of combination of our underlying managers, rather than simply adding more complexity to the fund. While the portfolio will continue to evolve as new daily liquid strategies become available, each manager will only deserve a place in GLAF if it improves the portfolio, whether through return potential, diversification, risk efficiency or capacity.

While reaching the three-year mark is an important milestone, it’s also a useful point to look forward. We don’t see the next phase for GLAF as about becoming bigger or more complicated, but continuing to demonstrate why the fund deserves a role in our clients’ portfolios, and where it’s producing value.