Hedge funds see first unexpected inflow in 3 years, returns jump 5.5%
IndustryMacro
Hedge funds raised more capital than expected at the start of the year, the first such inflow in three years, following their strongest first-half performance since 2010. Bank of America estimates that hedge funds are poised to become the most popular asset class for the remainder of 2026, driven by growth in artificial intelligence that is boosting performance. A survey of 321 asset allocators by Bank of America's Global Markets Capital Strategy division found that hedge funds returned 5.5% from the start of the year through July, even as a selloff in AI stocks in July weighed on some funds' returns. The most favored sectors remained technology, media and telecommunications, healthcare, and energy. Meanwhile, 60% of investors said they would choose to invest with new fund managers rather than more experienced ones, which Vanessa Bogaardt, head of Global Capital Strategy Group and Consulting Services, Prime Financing at Bank of America, described as behavior not normally seen in the past. For the remainder of 2026, investors hold the most positive view of funds using stock-picking strategies. The survey covered investors managing a combined total of about 1 trillion dollars in hedge fund investments. However, confidence in private credit funds declined, amid concerns about valuation opacity, redemption pressure at some funds that are not publicly traded, and risks from investments in the software industry, which is undergoing a transformation driven by artificial intelligence.
