Hedge fund managers began 2026 having attracted more fresh capital than they had expected to raise - the first such outcome in three years, according to an internal Bank of America report. The bank's research and a contemporaneous survey of asset allocators point to hedge funds emerging as the favored asset class for the remainder of 2026, with larger managers and multi-manager platforms seeing outsized interest.
The survey of 321 asset allocators, compiled by Bank of America’s global markets capital strategy group and scheduled for distribution to the bank’s clients this week, shows the strongest allocator demand this year has been for equity strategies and multi-manager offerings. Respondents identified technology, media and telecommunications, healthcare and energy as the most in-demand sectors.
Institutional participants such as pension funds, funds-of-funds and private banks signaled plans to increase allocations to hedge funds this year, the survey found. Vanessa Bogaardt, Bank of America’s global head of capital strategy group and consulting services, prime financing, said the bank is seeing solid interest in managers that invest globally. Bogaardt added that limited partners are planning to commit more capital to hedge funds overall, and that roughly 60% of them are choosing to allocate to new fund managers rather than to more seasoned teams. "It’s not something we’ve seen necessarily always in the past," she added.
Bank of America’s report cites the hedge fund industry’s best first-half performance since 2010 as a key factor behind the inflows. Through July, hedge funds returned 5.5% year-to-date, even after a July selloff in AI-related stocks trimmed gains. The report notes that some of the largest hedge funds experienced drawdowns because of their exposure to the AI trade.
Investors overseeing approximately $1 trillion of capital invested in hedge funds told the bank that sentiment is likely to favor stock-picking funds for the balance of 2026. That preference for active equity managers is reflected in the heightened allocations to equity-focused and multi-manager platforms observed in the survey.
In contrast, private credit strategies are attracting less enthusiasm from allocators, according to Bank of America. The report highlights several areas of investor concern in private credit: opaque valuation practices, redemption pressure in some non-traded credit vehicles, and exposure to segments of the software industry that have been disrupted by advances in artificial intelligence.
The broader market environment has also benefited Wall Street’s prime brokerage businesses. During the most recent quarter, the largest banks generated notable revenue from prime brokerage services by lending to major multi-strategy hedge funds. These funds, in turn, capitalized on market volatility in the first half to produce strong returns and relied on prime financing to leverage their positions.
While the internal report and survey indicate a clear reallocation of capital toward hedge funds and particular sectors, the bank’s findings also underscore areas where investor confidence is uneven. Allocators are demonstrating a preference for funds that can provide global exposure and active stock selection, yet they remain cautious about segments of the private credit market that may carry valuation and liquidity risks.
What the findings show
- Hedge fund managers raised more capital than planned at the start of the year for the first time in three years.
- Allocators favor equity and multi-manager hedge fund platforms; technology, media and telecommunications, healthcare and energy are the most popular sectors.
- Hedge funds returned 5.5% through July, marking the strongest first-half performance since 2010 despite a July selloff in AI-related stocks.
Data and methodology
The conclusions cited above are based on an internal Bank of America report and a survey of 321 asset allocators conducted by the bank’s global markets capital strategy group. The survey was due to be circulated to Bank of America clients during the week of the report.