Private banks in Asia are increasing client allocations to hedge funds, as market volatility and geopolitical uncertainty drive demand for alternative strategies that offer downside protection and uncorrelated returns, according to a report by CityWire.
Lombard Odier clients, for example, have boosted their hedge fund exposure by 20% over the past year, with balanced portfolios now allocating an average of 10% to hedge funds, up from 8% a year earlier, according to Farès Jaafar, head of hedge funds at Lombard Odier. The bank has been favouring merger arbitrage, discretionary macro, and long-short equity strategies this year, citing robust performance in environments of persistent dispersion and active dealmaking.
Rival banks are seeing similar trends, with Union Bancaire Privée moving overweight hedge funds in August last year to increase portfolio defensiveness, a position it has maintained. Indosuez Wealth Management meanwhile, has also reported rising client interest after several years of subdued demand.
Much of the increased allocation has been drawn from cash deposits, as clients seek higher returns amid falling interest rates, while maintaining a degree of protection. Market-neutral strategies, in particular, have been highlighted for their ability to reduce portfolio volatility while remaining largely uncorrelated to broader equity and fixed-income markets.
The uptick in private bank allocations reflects broader global inflows into hedge funds, with $37.3bn invested in the first half of 2025, the strongest six-month inflow since 2015, according to HFR data. Hedge fund performance has been robust overall, with Citco reporting 77% of vehicles delivering positive returns and a weighted average gain of 11% for the first half of the year, despite early-year turbulence triggered by geopolitical events.
