By Nell Mackenzie
LONDON, April 15 (Reuters) - BlackRock's hedge fund team is urging investors to spread their exposure across multiple hedge fund strategies, as AI-related and geopolitical disruption increases the speed of market swings, creating winners and losers at different times.
Investors should demand clarity on what is truly driving hedge fund returns and where correlated risk might be growing in their portfolios, BlackRock said in its Spring Hedge Fund Outlook on Wednesday.
It is the world's
largest asset manager with roughly $14 trillion under management.
"Overlapping exposures and the use of leverage across platforms warrant close monitoring, particularly in segments where crowding can amplify both volatility and unwind risk," BlackRock said in its report, noting the growth of multi-strategy hedge fund platforms.
Global hedge funds last month faced their worst monthly drawdowns in more than four years, according to several top Wall Street prime brokerages, as volatility triggered by the Iran war battered stocks and bond markets.
Several strategies suffered in the first quarter after a blockbuster 2025. Funds responded to the volatility by pulling back, selling equities for a fourth straight month and at the fastest pace in 13 years, according to Goldman Sachs research.
Investors should stress test how their hedge fund investments behave against their wider portfolio, BlackRock said in its report.
They should take profits on riskier holdings and find a hedge fund that makes idiosyncratic returns irrespective of whether markets are up or down, it added.
Asset classes that used to work as safe havens, such as long-dated bonds and gold, have not worked this year as previously, said BlackRock.
Since the start of the war, government bond yields have shot up as the oil price surge boosted inflation worries while gold, which has surged in recent years, was tapped to make up for investor losses elsewhere, analysts say.
"As differentiation across markets increases, the opportunity set for hedge funds expands with it," said Michael Pyle, deputy head of the Portfolio Management Group at BlackRock.
(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe/Keith Weir)
