Hedge Fund Investors Likely to Shift Capital Toward Multi-Strategy Funds in 2026, BofA Says

Hedge fund investors are increasingly directing capital toward multi-strategy funds in 2026, according to Bank of America's recent survey. The shift marks a growing preference for consolidating holdings in fewer, higher-performing managers, as investors seek to capitalize on strong returns from these strategies. This trend reflects a broader realignment of capital in response to market dynamics and evolving performance benchmarks.

BofA's report highlights that the average number of hedge funds in investor portfolios dropped from 20 to 18 in 2025, while the average allocation per fund increased to $50 million from $42 million. This consolidation indicates a strategic move by investors to deepen positions in the most successful funds, rather than spreading capital across a larger number of managers.

The multi-strategy segment has been a standout performer over the past year, contributing to its growing appeal. Hedge fund industry assets reached $5 trillion in Q3 2025, with multi-strategy funds playing a central role in the growth. As a result, investors are prioritizing capacity rights to secure their access to top-tier managers, a practice that saw 62% of funds in the survey engaging in such negotiations in 2025.

Why Did This Shift Occur?

The shift is driven by a combination of performance, investor behavior, and institutional confidence in alternative assets. BofA's global head of capital introduction, Vanessa Bogaardt, noted that 2025 marked a turning point in hedge fund sentiment. The improved performance of multi-strategy funds has led to more favorable allocations, especially as investors seek diversification and risk-adjusted returns.

Capacity rights negotiations have also become more common as investors secure larger stakes in their preferred managers. The practice grew from 17% in 2024 to 62% in 2025, reflecting a stronger preference for concentration in the highest-conviction strategies. This trend is expected to continue in 2026, with 51% of investors planning to increase allocations to hedge funds.

How Is the Market Responding?

The demand for multi-strategy funds has coincided with increased institutional interest in alternative assets. BofA's survey found that investors view hedge funds as a more attractive option than other alternative asset classes. This preference is supported by the growing scale of industry assets and the performance-driven nature of multi-strategy strategies.

In parallel, the broader market for alternative assets is expanding. For example, financial advisors in the U.S. have increased crypto allocations in 2025, with over a third of advisors now including crypto in client portfolios. This demonstrates a wider trend of institutional adoption and investor confidence in alternative investments.

Investors are also focusing on securing long-term partnerships with top-tier managers. Roughly half of investors in BofA's survey said they plan to increase hedge fund allocations in 2026. This suggests a structural shift in how capital is being allocated across asset classes, with hedge funds gaining a more prominent role in diversified portfolios.

What Are Analysts Watching Next?

The continued performance of multi-strategy funds and the broader alternative asset landscape will be key areas of focus for investors. BofA is also monitoring potential AI-related market-moving events in 2026, including partnerships and product launches that could impact investor sentiment.

At the same time, JPMorgan analysts are tracking crypto inflows and regulatory developments, which could influence investor behavior in alternative assets. The passage of the Clarity Act and increased institutional participation in digital assets could further diversify the landscape for alternative investments.

As multi-strategy funds continue to attract capital, investors are likely to maintain their focus on performance-driven strategies while seeking long-term stability. The industry's ability to deliver consistent returns will remain a critical factor in shaping future allocations and capacity decisions.