By Arasu Kannagi Basil and Anirban Sen
NEW YORK, Sept 15 (Reuters) - Hedge fund managers have raised more capital than planned at the start of the year for the first time in three years, according to an internal report compiled by Bank of America and reviewed by Reuters.
Hedge funds are likely to emerge as the most popular asset class for the rest of 2026, according to the report, as investors allocate more capital to the biggest money managers after the artificial intelligence boom lifted first-half
performance.
Allocator demand has been the highest for equity and multi-manager platforms within hedge funds this year, while technology, media and telecommunications, healthcare and energy continue to be the most popular sectors, according to a survey of 321 asset allocators by Bank of America's global markets capital strategy group. The survey is due to be sent to the bank's clients this week.
Pension funds, investment vehicles that invest in a diverse portfolio of hedge funds, and private banks are planning to invest more dollars in hedge funds this year, the survey added.
“We are seeing strong interest (from allocators) in managers that invest globally," said Vanessa Bogaardt, Bank of America's global head of capital strategy group and consulting services, prime financing, in an interview with Reuters.
Bogaardt said limited partners, or hedge fund investors, are planning to allocate more capital to hedge funds, with 60% of them picking new fund managers over more experienced managers. "It's not something we've seen necessarily always in the past," she added.
The rise in allocations towards hedge funds comes as the industry recorded its best first-half performance since 2010, Bank of America said.
Hedge funds were up 5.5% this year through July, according to the survey, even as the selloff in AI stocks in July dented returns. Several of the world's most prominent hedge funds were rocked by drawdowns due to their exposure to the AI trade, Reuters has reported.
Sentiment is expected to be the highest for stock-picking funds through the remainder of 2026, according to investors overseeing roughly $1 trillion of invested capital in hedge funds who were surveyed for the report.
Investors, however, are less bullish towards private credit funds, Bank of America said. Private credit has come under sharper scrutiny this year as concerns have grown over opaque valuations, redemption pressure at some non-traded funds, and overall exposure to the software industry that has been disrupted by AI.
During the most recent quarter, Wall Street's biggest banks reaped handsome gains from their prime brokerage units, as they earned bumper fees from lending to the world's most prominent multi-strategy hedge funds that rode market volatility to produce big returns during the first half of the year.
(Reporting by Anirban Sen in New York and Arasu Kannagi Basil in Bengaluru; Editing by Jamie Freed)
