Half of the global investors surveyed by Bank of America’s prime brokerage department plan to increase their hedge fund investments in 2025, while 37% intend to maintain their current allocations, according to a report by Reuters citing the bank’s latest report.
The survey, which gathered responses from 256 firms managing over $1tn in hedge fund assets, showed a 2% increase in those seeking to allocate more capital to hedge funds compared to the beginning of 2024.
Meanwhile, the proportion of investors planning to redeem their hedge fund holdings dropped to 7%, down from 12% in 2023, signalling growing confidence in the sector.
Among the dissatisfied investors, 73% cited underperformance as the primary reason for seeking to pull back their investments. Other grievances included changes in hedge fund strategies, portfolio consolidation, and concerns about crowded trades – where multiple funds hold the same positions, increasing the risk of market disruptions if they all exit simultaneously.
Investors also expressed worries about hedge funds growing too large to execute trades efficiently without significantly influencing the market. Concerns about “style drift,” meanwhile, where hedge funds deviate from their stated investment strategy, remained consistent with last year.
Smaller hedge funds managing under $500m in assets were 20% less likely to lose investors, highlighting a preference among some allocators for nimbler, more specialised funds. Family offices, pension plans, and endowments were identified as the most likely to fully withdraw their investments rather than make partial redemptions.
In 2025, investors showed greater interest in hedge funds focused on stock and bond trading, while demand for trend-following strategies and systematic funds that capitalise on macroeconomic events declined.
Investors also gained more leverage in fee negotiations. Approximately 60% of those surveyed reported successfully securing fee discounts, compared to roughly half in the previous year. Additionally, 22% of respondents achieved more favourable liquidity terms, up from 17% last year, allowing them greater flexibility in buying or selling hedge fund positions with reduced delays.
