Stock-Picking and Multi-Manager Hedge Funds Lead Investor Demand, BofA Survey Finds

Hedge funds have raised more capital than initially planned for the first time in three years, driven by strong first-half performance and a surge of interest in the wake of the artificial intelligence boom. A new Bank of America report suggests hedge funds are poised to become the most sought-after asset class for the remainder of 2026.

Survey Highlights Strong Allocator Demand

A survey of 321 asset allocators by Bank of America’s global markets capital strategy group found that investor demand is highest for equity-focused and multi-manager platforms. The report, which was reviewed by Reuters, is based on responses from investors overseeing approximately $1 trillion in hedge fund capital.

According to the survey, the most popular sectors for investment continue to be:

• Technology, media, and telecommunications (TMT)
• Healthcare
• Energy

The renewed interest comes as the industry posted its best first-half performance since 2010. Hedge funds returned an average of 5.5% through July, even after a selloff in AI-related stocks dented some gains that month, Bank of America said.

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Shifting Investor Preferences

The report indicates that pension funds, funds of funds, and private banks are planning to increase their dollar allocations to hedge funds this year. In a notable shift, investors are also showing increased confidence in emerging talent.

"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, in an interview with Reuters. She added that 60% of limited partners, or hedge fund investors, are opting to allocate capital to new fund managers over more established ones, a trend she described as not always seen in the past.

Contrasting Outlook for Private Credit

While sentiment for stock-picking funds is high, investors are expressing less enthusiasm for private credit, according to Bank of America. The private credit sector has faced increased scrutiny this year amid concerns over opaque valuations, redemption pressures at certain funds, and exposure to a software industry being reshaped by artificial intelligence.