Similar to last year, 2026 started with a spike in volatility and has seen a strong rebound in equity prices in the most recent quarter ending June 30th. Hedge funds generally followed a similar pattern, with the strongest second-quarter returns coming from strategies with equity exposure to technology and AI.
There have been numerous articles over the past year noting the increased interest in and flows toward hedge funds. We are not surprised about investors increasing their allocation targets and/or asset flows, as we have heard directly from many of our U.S. investors where this is the case. We do believe that investor interest in hedge funds will continue for the foreseeable future.
The tailwinds for hedge funds have remained and, in some cases, increased in 2026 thus far. In volatile market environments, investors seek to invest with managers who can navigate volatility and capitalize on dispersion among equities. Equity valuations remain elevated, so investors generally are not looking to increase their beta exposure but do want to have enough risk exposure to meet their long-term return goals. Long and short equity strategies with lower net exposure and credit strategies tend to be the beneficiaries. Some investors have expressed concern about inflation and often look to hedge fund strategies, specifically global macro, for protection in an inflationary environment.
Turning to Europe, the same holds true. Investors continue to increase allocations to hedge funds, as reflected in the record inflows recorded in the first half of the year. Lower-net strategies remain preferred within equities, while commodities continue to pique interest. Investors are seeking managers across the commodities spectrum, with metals, energy and power attracting particular attention.
Moving East, our Asia-based allocator conversations across the quarter centered around more established managers within the equity space, EM High Yield, and again a search for commodity managers. MENA conversations followed a similar theme within fixed income, with EM High Yield strategies, both those with a regional or global focus, remaining popular with family offices and institutional investors alike.
As evidenced above, investors remain bullish on their current and future plans to invest in hedge funds. Drawing on the conversations that StoneX’s Global Capital Introduction team had over the quarter, low net L/S equity remains the top search across the board, and whilst it may not warrant the same proportion of investor capital, commodities is becoming a disproportionate source of interest, a theme we believe will continue into the second half of 2026.
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