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Goldman Sachs Asset Management sees continued momentum in the hedge fund space, with alpha “more valuable and achievable” in contrast to lower forward-looking expectations for traditional assets.
“We believe uncorrelated hedge fund return streams, driven by manager skill and the ability to generate alpha, have become a portfolio imperative rather than an optional allocation,” GSAM executives said in a new briefing note.
Hedge funds have outperformed traditional 60/40 portfolios with significantly lower volatility over the last five years, highlighted Osman Ali, global co-head of Quantitative Investment Strategies (QIS), and Collin Bell, global head of hedge fund capital formation.
“In our view, traditional 60/40 portfolios can no longer reliably deliver the returns or risk reduction investors once counted on. Macro uncertainty, structurally higher interest rates and geopolitical fragmentation have widened performance dispersion both within and across markets, creating a richer opportunity set for alpha generation.”
The hedge fund industry attracted its highest flows in almost two decades in 2025. GSAM sees demand widening to include long-only allocators via long/short beta-1 solutions, often delivered via extension or portable alpha solutions.
Such approaches have “grown more popular in recognition that we believe long-only passive and active are proving insufficient,” according to the duo.
“For nearly two decades following the global financial crisis (GFC), quantitative easing, falling interest rates, and low volatility favoured traditional long-only portfolios while challenging hedge funds. We believe that era is over.
“Macro uncertainty, divergent central bank policy, geopolitical fragmentation, and structurally higher interest rates have contributed to wider performance dispersion both within and across markets, thereby enhancing the potential for alpha generation. Traditional long-only strategies (both passive and active) have become increasingly insufficient to meet investor objectives.
“These limitations are driven by heightened market concentration in passive indices, which may subsequently impact benchmark-aware long-only active management.”
The hedge fund industry saw $116bn in inflows in 2025, the highest since pre–GFC, with approximately 49% of allocators planning to increase their exposure, according to the US bank, above other asset classes.
“In addition to the improved market backdrop, we believe the hedge fund industry has evolved to better deliver frequent, uncorrelated alpha via improved risk, portfolio construction, business, and talent acquisition practices.
“Since the end of quantitative easing in 2022, hedge funds have outperformed a traditional 60/40 portfolio, with significantly lower volatility, reinforcing their role as a portfolio stabiliser in a more uncertain environment.”