AI rally lifts hedge funds to 7% H1 returns: Goldman

Goldman Sachs reported that global hedge funds returned an average 7% in the first half of 2026, above the long-term first-half average of 4.1%. The bank said this is the sixth consecutive half-year with returns above the 10-year average and was exceeded only in the volatile markets of 2020 and 2021.

Goldman attributed much of the performance to reallocations along the AI supply chain. Managers shifted exposure over recent years from semiconductor manufacturers to power infrastructure and data centres, and over the past 12 months increased allocations to memory chip companies as investor interest in AI exposed new segments of the market.

A July survey of 341 hedge fund allocators overseeing more than $1.5 trillion found almost half intend to increase hedge fund allocations in the second half of 2026, while about 3% expect to reduce exposure. The bank reported net demand reached a record high and that appetite for hedge funds now outpaces demand for other alternative asset classes. The survey also showed allocators rotating back to North America after a move away from US-focused strategies following tariff announcements in April 2025; international strategies still account for the largest share of planned allocation cuts.

Institutional investors reported average hedge fund portfolio returns of 7.3% in H1, while private wealth investors, including family offices and private banks, recorded average gains of 8.8%. For the first time in five years, every major hedge fund strategy recorded positive net inflows in the first six months. Quantitative strategies continued to attract strong investor interest and multi-strategy funds logged their largest inflows in five years.

Performance varied by strategy. Equity long-short managers averaged 12.9% in H1 2026, supported by elevated single-stock volatility and lower correlations that aided stock selection. Technology, media and telecom specialists and consumer-focused funds posted returns nearly double those from the same period a year earlier.

Some strategies struggled. Discretionary macro managers faced headwinds from heightened interest-rate volatility linked to the conflict involving Iran, leaving many funds still recovering prior losses. Quantitative macro strategies also encountered difficulties when rapidly changing economic conditions reduced the effectiveness of some systematic models.

Sentiment toward private credit weakened. About 22% of hedge fund investors said they plan to reduce exposure to private credit, and nearly 40% of private banks surveyed expect to cut allocations after losses in parts of the private lending market.

Goldman noted that over the past five years hedge funds outperformed a conventional 60/40 equity and bond portfolio by roughly 250 basis points per year.