By Anirban Sen
NEW YORK, July 28 (Reuters) – Global hedge funds are on track for another blockbuster year, as they look to surpass their returns from 2025 after an artificial intelligence boom buoyed first-half performance for money managers across most investment strategies, according to a Goldman Sachs note sent to clients that was seen by Reuters.
During the first six months of this year, hedge funds returned an average of 7%, well above the 10-year average of 4.1%, according to the Goldman report. Those returns have been exceeded only twice, during the COVID years of 2020 and 2021, when market volatility boosted returns for fund managers. It marks the sixth consecutive half-year period in which hedge fund returns exceeded their long-term average.
“Hedge funds broadly have successfully pivoted through the AI complex in the last few years, adeptly shifting exposures through the ‘picks and shovels’ of the AI boom, moving from semis, to power & data centers, and in the last 12 months decisively towards memory stocks,” Goldman wrote.
Demand from allocators, or investors who back hedge funds, has also surged during this year, amid a broadening flow of capital into the industry.
In a July survey of 341 hedge fund allocators overseeing more than $1.5 trillion invested in hedge funds, Goldman found nearly half of those investors planned to increase their hedge fund exposure in the second half of 2026, while only 3% expected to reduce it. The bank said net demand for hedge funds reached a new record and remained well ahead of other asset classes across the alternative investments industry.
“The focus on ex-US strategies that became strongly evident following the ‘Liberation Day’ moment of April 2025 seems to have slowed down, with allocators gradually returning towards North America-focused funds. That said, it still remains with the greatest proportion of allocators looking to decrease exposure,” Goldman wrote.
Liberation Day is the name President Donald Trump gave to the day when he detailed sweeping global tariffs.
Institutional investors that were surveyed by Goldman reported average hedge fund portfolio returns of 7.3% in the first half, while private capital investors, including family offices and private banks, reported returns of 8.8%.
Every major hedge fund strategy brought in fresh capital during the first half – a first in five years. Quantitative, or computer-driven, funds continued to attract strong new money, while multi-strategy funds posted their strongest inflow levels in five years.
Allocations toward the private credit industry have continued to decline, as investors worry about the future health of the industry on the back of recent losses at lenders. Roughly 22% of hedge fund investors are planning to reduce their exposure to private credit, with almost 40% of private banks planning to cut allocations towards the industry, Goldman said.
The asset management industry also continued to outperform a traditional “60/40” portfolio – a widely used benchmark that allocates 60% to stocks and 40% to bonds. Goldman said hedge funds have outperformed such portfolios by roughly 250 basis points, or 2.5 percentage points annually, over the past five years, reflecting what it described as a more favorable environment for generating “alpha,” or returns above a market benchmark.
STOCKPICKERS LEAD THE PACK
Among strategies, equity long/short funds delivered healthy returns, generating gains of 12.9% on average during the first half. Goldman said those managers benefited from unusually strong stock-picking opportunities as large differences emerged between individual stock performances.
“Equity L/S funds have already surpassed the high-water mark of record alpha in 2025 by the end of the first half of 2026, supported by high single-stock volatility and low correlation,” Goldman wrote. “Underlying equity market conditions appear to be incredibly supportive, with very high single-stock volatility and low realized correlation.”
Technology, media and telecom-focused funds, as well as consumer funds, were among the beneficiaries of the AI trade that helped them nearly double their returns from the year-ago period.
Stock-trading hedge funds finished June with double-digit returns for the year, helped by their ability to successfully navigate already crowded trades, Reuters reported previously.
An outlier to the overall outperformance has been hedge funds with a discretionary macro strategy, as they have been hampered by losses from interest rate volatility around the Iran war, with many managers yet to recoup losses. Fund managers with a quantitative strategy have also grappled with a challenging macroeconomic environment that has weighed on their returns, Goldman said.
(Reporting by Anirban Sen in New York; Editing by Will Dunham)