Investors consolidating holdings in fewer multi-managers for better returns
Allocations per fund increased from $42M to $50M in 2025, BofA says
Hedge fund industry assets hit $5 trillion in Q3 2025, driven by strong performance
By Anirban Sen
NEW YORK, Jan 15 (Reuters) - Following a buoyant year for multi-strategy funds, hedge fund investors aim to allocate more capital towards the biggest money managers in 2026, according to an internal report compiled by Bank of America that was seen by Reuters.
Hedge fund investors are also increasingly consolidating their holdings within a smaller group of multi-managers, as they look to double down on funds with market-leading returns, according to the survey of 280 asset allocators from Bank of America’s global markets capital strategy group. The survey is due to be released later this week.
Portfolios of allocators comprised an average of about 18 hedge funds in 2025, compared to a median of 20 funds during the previous year. Allocations on average per fund rose to $50 million from $42 million during the same period.
“2025 marks a little bit of a turning point where sentiment and allocations have shifted positively, which signals an industry tailwind fueled by healthy performance over recent years,” said Vanessa Bogaardt, global head of capital introduction, prime financing at Bank of America.
About 62% of the hedge fund investors polled by the bank negotiated increased capacity rights for allocations last year, up from 17% in 2024. Roughly 51% of fund investors plan to increase allocations to hedge funds in 2026, ahead of other alternative asset managers.
“We’ve seen allocators focus a lot on securing capacity rights with their high-conviction managers… We are still seeing more allocators planning to expand their hedge fund portfolio in 2026, which means not only are they planning to allocate, they are planning to allocate more to hedge funds,” added Bogaardt.
During the most recent quarter, Wall Street’s largest banks witnessed healthy growth from their prime brokerage units, as they earned handsome fees from lending to large multi-strat funds which navigated volatility in financial markets to produce robust returns.
Hedge fund industry assets touched record highs of about $5 trillion at the end of the third quarter of last year, according to the report from Bank of America, which is yet to publish the full-year figures. The asset growth was primarily fueled by strong performance and healthy inflows totaling about $71 billion.
For the year, hedge funds on average generated returns of 11.7%, according to the allocators surveyed by the bank. Directional equity long and short funds were the best performers in the industry with returns of 18% on average, followed by discretionary macro funds that produced returns of 15.4%, Bank of America said.

- Hedge fund investors are increasingly consolidating their holdings with top multi-managers for better returns, as indicated by a Bank of America report.  
- Average allocations per fund rose from $42 million to $50 million, contributing to hedge fund assets reaching $5 trillion by Q3 2025, fueled by strong performance and inflows.  
- Approximately 51% of fund investors plan to increase hedge fund allocations in 2026, reflecting a positive shift in sentiment and stronger industry confidence.

Asset allocators likely to direct more capital to multi-strategy hedge funds in 2026, BofA says