Hedge funds on track for another stellar year on AI boom

• Equity long/short hedge funds delivered exceptional gains of 17.7% on average, benefiting from strong stock-picking opportunities amid wide performance differences between individual stocks
• Every major hedge fund strategy attracted fresh capital in the first half for the first time in five years, with multi-strategy funds posting their strongest inflows in five years
• Nearly half of 341 hedge fund allocators surveyed (overseeing over $1.5 trillion) plan to increase exposure in the second half of 2026, while only 3% expect to reduce allocations

Hedge Funds Post Strong 2026 First-Half Performance on AI Boom

Global hedge funds delivered robust returns in the first half of 2026, averaging 7% according to a Goldman Sachs report—significantly above the 10-year average of 4.1%. This marks the sixth consecutive half-year period of above-average performance, with returns exceeded only during the volatile COVID years of 2020-2021.

Key Performance Drivers

The artificial intelligence boom fueled gains across most investment strategies. Equity long/short funds led the pack with blockbuster returns of 17.7%, benefiting from strong stock-picking opportunities amid wide performance divergences between individual stocks. Hedge funds outperformed traditional 60/40 portfolios by approximately 250 basis points (2.5 percentage points) annually over the past five years.

Investor Demand Surges

Capital inflows reached record levels, with a Goldman survey of 341 allocators overseeing more than $1.5 trillion finding that nearly half planned to increase hedge fund exposure in the second half of 2026, while only 3% expected reductions. Every major hedge fund strategy attracted fresh capital during the first half—the first time in five years this has occurred.

Quantitative (computer-driven) funds continued drawing strong inflows, while multi-strategy funds posted their strongest inflow levels in five years. Institutional investors reported average returns of 7.3%, while private capital investors, including family offices and private banks, reported 8.8% returns.

Market Context

The strong performance came despite softer fixed income results, with risk assets rallying during the period. Goldman characterized the environment as favorable for generating "alpha" (returns above market benchmarks), reflecting hedge funds' continued ability to outperform passive investment strategies.