Hedge funds delivered an average return of 10.12% in 2024, with volatility five times lower than that of the MSCI World index — which climbed 19.22% — and generated 2.62% of alpha compared to none in 2023, according to the 2025 Hedge Fund Outlook report from BNP Paribas.
The report, based on a survey of 229 allocators managing or advising on approximately $1.4tn in hedge fund assets, provides an in-depth look at market sentiment and strategic shifts within the industry as investors increasingly chase alpha.
Over a three-year horizon, average hedge fund returns stood at 6.14%, closely tracking the MSCI World’s 6.88% return, but with significantly lower volatility and a beta of just 0.12, according to the report.
Ashley Wilson, Global Head of Prime Services at BNP Paribas, highlighted the growing role of separately managed accounts (SMAs) in driving asset growth. “The rise in allocations to separately managed accounts, driven by multi-managers and institutional allocators, will continue to be a key driver in asset growth this year,” Wilson said. “Multi-managers aim to generate platform alpha, while institutional allocators prioritise greater transparency and capital efficiency.”
Marlin Naidoo, Global Head of Capital Introduction at BNP Paribas, pointed to the improved performance of hedge fund strategies. “Hedge fund alpha increased in 2024, prompting more allocators to deploy capital across both fundamental and quantitative strategies for the year ahead,” he noted, underscoring a shift toward strategies that deliver tangible value despite their cost.
The report also reveals significant shifts in geographic allocation. The Asia Pacific region emerges as the most attractive market for 2025, with more than a quarter of respondents planning net additions — a stark contrast to just 2% in the previous year. Japan remains a key focus, with 20% of investors expecting net inflows, while a rebound is anticipated in China after years of capital outflows.
Sector preferences are also evolving. Equity long/short funds, particularly those focused on the Americas, have topped performance charts for a second consecutive year, displacing credit as the most sought-after strategy. Interest in event-driven strategies, meanwhile, more than doubled, with a quarter of investors looking to increase allocations compared to 11% in 2024. Additionally, portable alpha and active extension strategies are gaining traction, with a significant portion of investors planning to boost their current exposures or venture into these areas for the first time.
The survey findings also shed light on the growing influence of SMAs in hedge fund portfolios. Currently used by 26% of respondents, SMAs now account for 36% — or $185bn — of hedge fund assets. Meanwhile, private banks and wealth management firms, though traditionally representing a smaller slice of hedge fund allocations at an average of 4%, are set to expand their positions. These firms plan to add $14bn to their hedge fund exposure in 2025, up from $12bn in 2024, and intend to increase the number of new managers on their rosters.
