BlackRock Global Liquid Alternatives Fund (Aust): https://www.blackrock.com/au/products/332726/
This product is likely to be appropriate for a consumer:
• seeking capital growth
• using the product for a minor allocation of their portfolio or less
• with a minimum investment timeframe of 5 years
• with a medium to high risk/return profile, and
• who is unlikely to need access to their capital for up to two weeks from a request
This product is for advised consumers only.
Alternative investing strategies are capturing the spotlight as investors search for a port in the storm amid this year’s volatile markets. Here, we consider why Australian investors are increasingly looking to hedge funds as a highly complementary building block for portfolios in the new regime.
Key takeaways
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01
Investors are rethinking portfolio construction - turning to liquid alternatives, such as hedge funds, for stability, liquidity, and uncorrelated return potential.
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02
Owing to their more all-weather performance profile, we see particularly strong demand for multi-strategy hedge fund offerings.
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03
We expect hedge funds to become a core building block of modern Australian portfolios – driving investors towards more complete portfolios that can better navigate the choppy waters ahead.
A new regime requires a thoughtful approach
The post-pandemic environment of higher interest rates, higher inflation and elevated macroeconomic uncertainty have driven one of the best performance periods for hedge funds in recent decades.1
At the same time, equity valuations have continued to rise, raising questions about the sustainability of future returns. And while fixed income yields are meaningfully more attractive today, policy-driven volatility has eroded their traditional role as reliable diversifiers.
Traditional 70/30 Portfolios are unlikely to meet investor objectives
BlackRock Investment Institute. Expected returns for the 70/30 portfolio is calculated using BlackRock’s 10-Year Capital Market assumptions, with appropriate weights applied to the MSCI World-ex Australia (Aud), MSCI Australia index (Aud), and Barclays Global Agg index (Aud) indices. Historical return data (5-year) is as of March 2025 and utilizes the realized returns for the MSCI World (Aud) and Barclays Global Agg (Aud) indices. Past performance is not a reliable indicator of current or future results. We cannot guarantee the accuracy of results provided. Index returns are for illustrative purposes only. Forecasts may not come to pass.
Worse yet, equities and bonds have historically exhibited an inverse relationship, providing a natural hedge within diversified portfolios. However, this dynamic has been disrupted in the new regime. During recent tariff-driven market turbulence for example, both US equities and long-duration Treasuries experienced simultaneous declines.
With the average adviser allocating approximately 96% of client portfolios to equities and fixed income combined, this presents a critical challenge to portfolio construction.2
These developments have prompted investors to rethink traditional portfolio frameworks, such as the 60/40 or 70/30 models. As a result, demand for new sources of diversification has grown, with liquid alternatives - particularly hedge funds - seeing a resurgence in interest due to their ability to both protect capital and play offence in times of market turbulence.
The hedge fund landscape in 2025
Globally, BlackRock recorded around US$3 billion in net inflows across its hedge fund platform during the first half of 2025. Combined with strong investment performance, this has brought total assets under management on the platform to more than US$80 billion, reflecting the growing client demand for hedge fund strategies.
Australia makes up a sizeable portion of BlackRock’s hedge fund business, with approximately US$8 billion managed on behalf of local clients, Our Multi Strategy, Systematic and Global Macro strategies have seen particularly strong recent interest from Australian investors.
Growing demand for both liquid and diversifying hedge fund offerings has propelled interest in BlackRock’s Global Liquid Alternatives Fund, which has seen $125 million in net inflows from Australian investors this year, boosting AUM by more than 160%.3
Enthusiasm for liquid alternative strategies has also carried across to listed products. iShares alternatives ETFs have seen a steady rise in inflows over the past three months since tariff volatility hit – and are so far the most popular ETF asset class in July globally, seeing over US$9 billion in flows for the month to date.4
A closer look at hedge fund strategies
Hedge funds are a broad term that can include several strategies designed to perform in a variety market conditions, including:
- Equity long-short - Taking both long and short positions in stocks in order to profit from both upward and downward swings in stock prices.
- Global macro - Trading both within and across asset classes based on macroeconomic trends.
- Systematic - The use of quantitative models, algorithms and statistical analysis to execute rule-based trades across asset classes.
- Credit - Exploit mispricings in credit markets through long and short positions, while also capturing yield and managing downside risk.
- Event-driven - Profit from various corporate events and strategic changes, including mergers, acquisitions, liquidations and restructurings, amongst others. Managers often play active roles in order to drive value.
- Multi-strategy - A professionally managed selection of several of the above strategies in a single, well diversified portfolio.
Given the complexity associated with sourcing and selecting high quality hedge funds across strategies, we find that clients are increasingly looking to partner with seasoned hedge fund teams that can provide turn-key access to the asset class.
As a result, we continue to see strong demand for well-diversified multi strategy offerings that often deliver more consistent performance outcomes across the economic cycle. These offerings typically provide a range of benefits to investors, including manager selection, capital allocation and risk management expertise.
Multiple benefits for investor portfolios
We believe that there are a number of valuable benefits to investing in hedge funds. These include:
- Diversification – a differentiated source of returns to indices and typical long-only managers, hedge funds can act as a complement to existing strategies by reducing portfolio volatility and drawdowns across a whole portfolio.5
- Source of active returns – with the correlation of world equity markets at decade lows6, dispersion of returns is rising and the opportunity for active managers is richer. Hedge funds have historically outperformed in these conditions.7
- Access to unique strategies – hedge funds typically offer access to more niche strategies that aren’t easily available to all investors, helping to broaden the opportunity set for potential returns.
- Liquidity – owing to their public markets focus, hedge funds typically offer more attractive liquidity terms relative to other alternatives asset classes.8
Hedge funds can provide ballast when traditional asset classes suffer
1. 5 year AUD asset return and volatility expectations
2. Average return of alternative mutual funds during S&P negative quarters (past 5 years)
1. BlackRock, Morningstar as of 6/30/2025. Past performance does not guarantee future results. BlackRock defines beta of 0.20 or less as “low” because less than one tenth of the movement of the fund can be attributed to the U.S. stock market. Alternatives represented by the Global Broad Category Group (US Alternatives Funds), the Long-Short Equity Morningstar category, and the Equity Hedged category. Distributions were reinvested. Index performance is for illustrative purposes only. It is not possible to invest in an unmanaged index.
2. BlackRock Investment Institute, February 2025. Data as of 31 December 2024.Notes: Return assumptions are total nominal returns. Our CMAs generate market, or beta, geometric return expectations. Asset return expectations are gross of fees. We use long-term volatility assumptions. We break down each asset class into factor exposures and analyse those factors' historical volatilities and correlations over the past 20 years. We combine the historical volatilities with the current factor makeup of each asset class to arrive at our forward-looking assumptions. This approach takes into account how asset classes evolve over time. Example: Some fixed income indices are of shorter or longer duration than they were in the past. Our forward-looking assumptions reflect these changes, whereas a volatility calculation based only on historical monthly index returns would fail to capture the shifts. Expected return estimates are subject to uncertainty and error. Expected returns for each asset class can be conditional on economic scenarios; in the event a particular scenario comes to pass, actual returns could be significantly higher or lower than forecasted. Australian dollar return expectations for all asset classes are shown in unhedged terms, with the exception of global corporate bonds, hedge funds, global aggregate bonds and global government bonds.
Funding hedge fund allocations
As modern portfolios evolve to add more diversifying elements beyond the 70-30 portfolio of bonds and equities, we are seeing investors implement hedge funds in new and different ways, including:
- As part of a broader alternatives allocation - Hedge funds are being integrated alongside private equity, private credit, real estate and infrastructure investments - providing access to public market alpha sources, while also improving investor liquidity across their alternatives bucket.
- As a partial replacement for equities or fixed Income - To help reduce portfolio drawdowns, smooth volatility, and enhance alpha outcomes, hedge funds are increasingly used as substitutes for active and passive equity and fixed income exposures.
Source of funding for investors planning to increase hedge fund allocations
Goldman Sachs Capital Introduction Annual Allocator Survey. As of 16 January 2025.
The way investors access hedge funds is also evolving, with managed account platforms emerging as a valuable avenue, offering enhanced transparency, flexibility, and operational efficiency.
Whichever way investors choose to access and fund the asset class, we believe that the increased interest in hedge funds highlights that investors are alive to the need to ‘diversify their diversifiers’ as they look build resilient portfolios that can stand the test of time.
Authors
Katie Petering
Head of Multi-Asset Strategy & Solutions, BlackRock
