Hedge Fund Outlook

As Raffaele Savi, Global Head of BlackRock Systematic points out, markets no longer follow smooth cycles — they swing through reversals, shifting narratives, and repeated resets. Tariffs, AI rallies, and policy divergence have made volatility the baseline. Hedge funds thrive here, leveraging scale in data, compute, and market access to reposition dynamically and seek alpha across asset classes. Resilience comes not from static allocations but from adaptability — a systematic, cross-asset approach that turns volatility into opportunity.

Tom Becker, Senior Portfolio Manager in the Global Tactical Asset Allocation Team, highlights how fiscal dominance, sticky inflation, and divergent policy paths have defined the 2025 landscape. U.S. capex growth boosts activity but strains deficits, Germany shifts toward larger spending, and Japan exits decades of debt deflation. Sticky inflation — reinforced by structural pressures like rising electricity costs — is reshaping behavior, while diverging global policy creates relative value opportunities. Becker underscores an active macro approach: short German Bunds, long-dated U.S. Treasuries, constructive on Japanese equities and Yen, and selective exposures across Europe and currencies.

Dan Whitestone, Head of the Emerging Companies within the Fundamental Equities team, points out that beneath resilient headline equity returns lies immense volatility, from tariffs and inflation swings to shifting rates and geopolitics. This turbulence is creating rich, stock-specific opportunities across the market cap spectrum. AI adoption is broadening from hyperscalers to mid-cap software and enterprise data infrastructure, generating new earnings streams and growth potential. With sentiment swinging between leaders and laggards, both long and short opportunities abound. Whitestone underscores that disruption and innovation are expanding the equity opportunity set globally.

Mark McKenna, Global Head of Event Driven, notes that regulatory normalization under new Federal Trade Commission (“FTC”) and Department of Justice (“DOJ”) leadership has accelerated U.S. deal clearance and eased antitrust constraints, fueling a wave of M&A. Strategic imperatives, from AI infrastructure investment to supply chain resiliency, are driving further consolidation across financials, biotech, technology, and energy. IPO volumes are rebounding, unlocking optionality for sponsors and capital market participants. Together, these forces are creating one of the strongest environments for event-driven investing in more than a decade, spanning consolidation, credit, and equity special situations.

Adam Ryan, CIO of Multi-Alternatives and Albert Matriotti, Co-CIO for Hedge Fund Solutions, emphasize that persistent uncertainty is expanding the hedge fund opportunity set. Dispersion, liquidity provision, and corporate activity continue to drive returns, with allocators increasingly funding exposures from cash, equity, and bond sleeves while using SMAs and overlays for efficiency. Performance has been strongest in long/short equity, relative-value, and event-driven strategies, while systematic approaches have faced mixed results amid reversals. The authors stress the importance of diversification and discipline — constructive on managers with durable, process-driven edges that deliver consistent alpha.