Global hedge funds return 7% in first half as AI boom fuels outperformance

Hedge funds are on pace to surpass their 2025 returns after an artificial intelligence-driven rally propelled first-half gains to 7%, more than double the 10-year average.

Global hedge funds returned 7% on average in the first six months of 2026, well above the 10-year average of 4.1%, as an artificial intelligence boom drove risk assets higher, according to a Goldman Sachs client note seen by Reuters.

"The first half of 2026 was notably strong for risk assets — an equity market rally helped to offset softer fixed income performance, propelling a 60/40 passive portfolio to a return of 5.7% — but in spite of this, hedge funds continued their run of outperformance," Goldman Sachs said in the note.

The 7% first-half return has been exceeded only twice in the past decade, during the pandemic-era years of 2020 and 2021 when extreme volatility boosted fund manager performance. It marks the sixth consecutive half-year period in which hedge fund returns exceeded their long-term average. Institutional investors surveyed by Goldman reported average hedge fund portfolio returns of 7.3% in the first half, while private capital investors, including family offices and private banks, reported returns of 8.8%.

The sustained outperformance is drawing fresh capital into the industry at a record pace. In a July survey of 341 hedge fund allocators overseeing more than $1.5 trillion in hedge fund investments, nearly half said they planned to increase their exposure in the second half of 2026, while only 3% expected to reduce it. Goldman said net demand for hedge funds reached a new record, well ahead of other asset classes across the alternative investments industry.

Every major strategy draws fresh capital

For the first time in five years, every major hedge fund strategy brought in new money during the first half. Quantitative, or computer-driven, funds continued to attract strong inflows, while multi-strategy funds posted their strongest capital-raising levels in five years. The broadening of demand across strategies suggests the AI-driven rally is lifting performance across investment styles rather than benefiting a narrow subset of managers.

Hedge funds have outperformed a traditional 60/40 portfolio — a benchmark allocating 60% to stocks and 40% to bonds — by roughly 250 basis points annually over the past five years, Goldman said. That reflects what the bank described as a more favorable environment for generating alpha, or returns above a market benchmark.

AI boom drives alpha generation

The artificial intelligence boom that began with the launch of ChatGPT in late 2022 has been a primary engine of hedge fund returns. The Goldman note attributed the strong first-half performance to an equity market rally fueled by AI-related stocks, which helped offset weaker fixed income returns. The concentration of AI-driven gains in a handful of mega-cap technology stocks has created stock-picking opportunities for hedge funds able to identify winners and avoid laggards.

The last time hedge funds saw a comparable period of sustained outperformance was during the COVID-19 pandemic, when market dislocations created wide dispersion between winners and losers — a fertile environment for active managers. The current cycle shares that characteristic, with the AI theme creating sharp divergence across sectors and individual stocks.

This article is for informational purposes only and does not constitute investment advice.