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Hedge funds are increasingly valued for their flexibility, diversification and ability to navigate structurally higher volatility in today’s macro regime, said panelists at the London AIM Summit on Monday.
“I’m seeing something I haven’t seen in 15 years. It’s a big move back into the hedge funds,” said Mathias Piardon, founder & CEO, 1L Capital.
New macro regime
Investors are operating in a fundamentally different macroeconomic environment as traditional safe-haven assets lose reliability and geopolitical fragmentation reshapes markets; creating opportunity for nimble hedge funds and more interest in their diversifying properties.
Panelists noted that the long-standing negative correlation between equities and bonds – which underpinned traditional portfolio construction for decades – has weakened in recent years.
Faisal Javaid, head of investment risk in the external alpha group at Man Group, said assets such as US Treasuries, the dollar and gold have not consistently acted as safe havens during recent market shocks, including the Iran conflict and inflation-driven volatility.
Inflationary impulse
The discussion highlighted how inflation appears to be the key driver behind the shift. Panelists pointed to research suggesting that when inflation rises above certain levels, the historical relationship between bonds and equities can flip positive, undermining the traditional 60/40 portfolio model.
Javaid was joined by Piardon, Luca Rubinelli, CIO & co-founder, Folios Invest; Igor Yelnik, CIO & CEO, Alphidence Capital; and Ted Parkhill, CEO & Founder, Incline Investment Management, in a conversation moderated by Nell Mackenzie of Thomson Reuters.
Several speakers argued that many institutional investors remain poorly prepared for this regime change because current generations of portfolio managers have only experienced the post-2000 period of falling inflation and negative stock-bond correlations.
Gold also came under scrutiny. Yelnik argued that gold had become “financialised” like a commodity in the past two decades. Making it easier, during liquidity crises, for investors to sell their holdings, meaning it may not provide the portfolio protection many expect during acute market stress.
Instead, he said investors should focus on building resilient portfolios capable of surviving a wide range of plausible geopolitical and economic scenarios.
Hedge funds regain favour
Several speakers said the new environment is prompting allocators to increase hedge fund exposure after years of favouring private equity and private credit.
Man Group’s Javaid noted that institutional investors are increasingly seeking “true non-correlation” and more liquid strategies capable of adapting quickly to changing market conditions.
Commodity trading advisers and trend-following strategies were highlighted as beneficiaries of the volatile backdrop.
Ted Parkhill, CEO and founder, Incline Investment Management, explained how trend-followers profited from being short global bonds, long the US dollar and positioned for commodity dislocations during the inflation shock and Russia’s invasion of Ukraine.
He said many managers had benefited from moves in agricultural and commodity markets that traditional investors often overlook.
The panel also explored whether markets are entering a modern version of the inflationary 1970s. Parkhill argued that the current regime shares similarities with that era, including fiscal dominance, rising debt burdens and inflationary pressures.
However, he noted that market cycles appear to be shortening significantly due to technological change and faster information flows, compressing what were once decade-long investment cycles into periods lasting only a few years.
Geopolitical fragmentation reshaping investing
Geopolitics emerged as another defining theme. Panelists said the global economy is becoming increasingly fragmented as tensions between major powers intensify.
Unlike the Cold War era, today’s geopolitical rivals remain deeply economically intertwined, creating new forms of risk around sanctions, asset freezes and restricted market access.
The discussion concluded with panelists summarising the new regime in single words including “uncertainty”, “fragmentation”, “liquidity”, “robustness” and “non-correlation” – reflecting a broad consensus that investors can no longer rely on the assumptions that shaped portfolios over the last two decades.