Institutional investors have been turning increasingly to hedge funds as private equity dealmaking remains subdued, choosing to reallocate capital rather than re-upping their PE investments after deals close, according to a report by Reuters citing a survey by BNP Paribas.
The pivot highlights growing caution among large institutions navigating volatile public markets with investors seeking alternative strategies that are either less correlated to broader markets or positioned to profit from market swings.
“Markets have shifted from a pre-inflation environment, where everything was rising, to one where active management is regaining favour,” said Marlin Naidoo, Global Head of Capital Introduction at BNP Paribas.
BNP Paribas’ survey revealed that investors added a net $22.2bn to their portfolios last year, with nearly 20% of that reallocated from private equity to hedge funds. Additionally, investors moved capital out of traditional long-only equity and bond strategies in favour of hedge funds.
This trend comes after a period in 2022 and 2023 when investors pulled $52bn from top-performing hedge funds, largely to sustain private equity and venture capital allocations.
Global private equity and venture capital transactions totalled $35.28bn in January 2025, down $70m from January 2024, according to an S&P Global Market Intelligence report.
“This shift back to hedge funds signals a renewed appetite for active management,” Naidoo added, reflecting broader investor sentiment.
According to the survey, the outlook for hedge fund investments remains strong, with two-thirds of the 290 investors surveyed by BNP Paribas planning to increase their hedge fund allocations in 2025.
