Macro funds ride market volatility to strong July performance
BlackRock is advising investors to increase their hedge fund allocations by up to 5 percentage points, citing a shifting market landscape where hedge funds are becoming a central tool for portfolio construction and diversification.
The guidance, released by the BlackRock Investment Institute on Thursday, represents the largest recommended increase to the sector in the institute’s history, according to Reuters.
The firm suggested that investors could reallocate from developed market government bonds to hedge funds with lower risk profiles or, for those willing to take more risk, from equity holdings to higher-risk hedge fund strategies. BlackRock, which manages $76 billion in hedge fund-related assets, also facilitates investments in hedge funds on behalf of clients.
Data from PivotalPath showed that hedge funds returned 1.1% in July and were up 5.2% for the year through July 31. Over the past five years, hedge funds have produced annualized returns of roughly 8%. By comparison, the S&P 500 and Nasdaq indexes have each gained about 9–10% so far this year, while JPMorgan’s global government bond fund was up around 2% as of July 31.
The Financial Times reported that BlackRock strategists view hedge funds as an increasingly important component in portfolio construction, especially given ongoing inflation volatility, geopolitical tensions, and uncertainty in global markets. According to data provider Preqin, owned by BlackRock, institutional hedge fund allocations currently range from 4% for European pension funds to 17% for U.S. wealth managers.
Performance within the sector has been uneven but notable for macro hedge funds. The HFR Macro Discretionary Thematic Index rose 7.51% through July, driven by trades responding to global market movements. Rokos Capital Management gained 13.7% over the same period, while rival Brevan Howard reported mixed performance, with its master fund down nearly 1% to August 15 and its Alpha Strategies fund up 6%, according to the Financial Times.
Vivek Paul, global head of portfolio research at the BlackRock Investment Institute, called a 5-percentage-point increase a not insignificant amount and said macro and market-neutral strategies could work in the current environment.
The call for greater hedge fund allocation aligns with a broader reassessment of traditional portfolio structures. In a letter to investors reported by Yahoo Finance, BlackRock CEO Larry Fink said the conventional 60/40 stock-bond portfolio may no longer deliver sufficient diversification. He suggested a 50/30/20 approach, with 20% allocated to private assets such as infrastructure, real estate, and private credit — a mix already adopted by many high-income investors.
To facilitate wider access to private markets, BlackRock has acquired Global Infrastructure Partners, Preqin, and HPS Investment Partners. The firm also plans to introduce a retirement fund next year that integrates private equity and private credit, following a White House order directing regulators to expand access to alternative investments for 401(k) portfolios.
