Hedge Fund Outlook

Scale, speed, and adaptability: the edge in today’s markets

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.

Fiscal dominance and policy divergence: market drivers ahead

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.

Equity volatility and AI adoption: opportunities across markets

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.

Regulatory shifts fuel a new wave of event-driven opportunities

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.

Allocators lean into hedge funds as alpha engines

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.

¹ Hedge Fund Research. “Global hedge fund industry surges through 2Q volatility.” July 18, 2025. https://www.hfr.com/media/market-commentary/global-hedge-fund-industry-surges-through-2q-volatility/

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Risk warnings

Capital at risk. The value of investments and the income from them can fall as well as rise and are not guaranteed. Investors may not get back the amount originally invested.

Past performance is not a reliable indicator of current or future results and should not be the sole factor of consideration when selecting a product or strategy.

Changes in the rates of exchange between currencies may cause the value of investments to diminish or increase. Fluctuation may be particularly marked in the case of a higher volatility fund and the value of an investment may fall suddenly and substantially. Levels and basis of taxation may change from time to time and depend on personal individual circumstances.

Investments in Hedge Funds involve a high degree of risk and are only suitable for investors who fully understand and are willing to assume the risks involved. The regulatory environment for hedge funds is evolving and changes therein may adversely affect the ability of hedge funds to obtain leverage they might otherwise obtain or to pursue their investment strategies.

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