BlackRock’s hedge fund investment team is encouraging allocators to broaden their exposure across a wider range of hedge fund strategies, arguing that rising macro uncertainty, rapid AI-driven shifts, and geopolitical tensions are increasing the pace and dispersion of market moves, according to a report by Bloomberg.
In its latest Spring Hedge Fund Outlook published on Wednesday, the firm cautioned that investors should take a closer look at the true sources of hedge fund returns and monitor whether hidden correlations and overlapping exposures are building up across their portfolios.
The world’s largest asset manager, overseeing approximately $14tn in assets, also highlighted growing risks linked to leverage and strategy crowding, particularly within multi-manager and multi-strategy hedge fund platforms.
According to BlackRock, overlapping positions and increased use of leverage across platforms require careful scrutiny, as crowded trades can intensify volatility and accelerate unwinds when markets reverse.
The warning comes after a turbulent period for hedge funds. Industry data from several major prime brokers indicates that global hedge funds experienced their steepest monthly losses in over four years last month, as volatility linked to the conflict involving Iran unsettled both equity and fixed income markets.
Several strategies came under pressure in the first quarter, following a strong performance environment in 2025. In response to increased market swings, funds have reduced risk exposure, with equity selling continuing for a fourth consecutive month at the fastest pace seen in more than a decade, according to Goldman Sachs research.
BlackRock also advised investors to run stress tests on hedge fund allocations within the broader context of their overall portfolios, rather than evaluating them in isolation.
The firm suggested reallocating away from higher-risk positions where appropriate and prioritising managers capable of generating returns driven by idiosyncratic factors rather than broad market direction.
It further noted that traditional defensive assets have not behaved as reliably this year. Long-duration government bonds and gold, typically viewed as safe havens, have failed to provide consistent protection amid shifting macro conditions.
Rising government bond yields have been linked to inflation concerns, exacerbated by higher energy prices following the oil rally, while gold has at times been used by investors to offset losses elsewhere rather than acting purely as a stabilising asset.
As one senior BlackRock executive observed, increasing divergence across markets is simultaneously creating more opportunities for hedge fund managers who can exploit dislocations and relative value spreads.
