Hedge funds are entering 2026 with strong momentum after delivering double-digit returns last year and exceeding allocator expectations, according to a new survey by Goldman Sachs of pension funds, family offices, funds of funds, and other pools of capital.
More than 90% of allocators of the 317 firms polled said their hedge fund portfolios met or exceeded expectations in 2025, while more than 80% also reported that hedge fund investments met or beat expectations over the past five years.
Hedge funds generated an average return of 11.8% in 2025, following an 11.9% gain in 2024. The asset class has now outperformed a traditional 60/40 equity-bond portfolio every year since the US Federal Reserve began raising interest rates in 2022.
According to Goldman Sachs Global Banking & Markets, the end of the quantitative easing era has materially improved the opportunity set for hedge funds. During the 2010s, returns were dampened by low volatility, tight asset correlations and suppressed interest rates, leading hedge funds to underperform a 60/40 portfolio by around 50 basis points per year through 2022. Since then, hedge funds have outperformed by nearly 190 basis points annually.
Allocator appetite for hedge funds is also strengthening. Almost half of respondents (49%) plan to increase hedge fund exposure in 2026, up from 37% a year earlier, while just 4% intend to reduce allocations. The resulting net figure of 45% planning to add exposure is the highest recorded in Goldman Sachs’ survey data going back to 2017.
Demand is particularly strong for strategies viewed as less correlated with broader markets. Quantitative hedge funds are the most sought-after strategy, with 25% of allocators planning to increase exposure, while interest in discretionary macro funds has also risen, with 21% expecting to add. Goldman Sachs noted that demand for quant strategies is currently exceeding available capacity.
Interest in quant strategies is especially pronounced among endowments, foundations and family offices, groups that have historically favoured more directional equity long-short approaches. Goldman Sachs said this shift suggests a growing preference for absolute-return strategies offering greater diversification benefits.
Beyond hedge funds, private equity remains the second most popular asset class, with 35% of allocators planning to increase exposure in 2026, compared with 32% a year earlier, though still below peak levels seen in 2021 and 2022. By contrast, enthusiasm for private credit has cooled, with 24% planning to increase allocations, down from 31% previously.
While positive sentiment has not always translated into flows in recent years, constrained by slow distributions from private market investments, hedge funds recorded an estimated $79bn of net inflows in 2025 — the first annual inflows in several years. Goldman Sachs expects flows to improve further in 2026 given current allocator sentiment.
The survey also highlighted strong performance by newly launched hedge funds, with multiple managers debuting with more than $1bn in assets during 2025, underlining what Goldman Sachs described as the continued dynamism of the global hedge fund industry.
