This revival stems from a fundamental shift in market conditions. Certain market environments are more conducive to alpha generation; specifically, when stock-to-stock correlations are low, while dispersion and volatility are high. Where the 2010s were characterised by unfavourable conditions across all three drivers, the 2020s have seen these same forces turn supportive again, much like in the 2000s. Thus, since 2020, hedge funds have delivered over 300 basis points of annualised alpha2.
Critically, industry growth has not outstripped the breadth, depth, and scale of the investable universe. Since 2015, hedge fund AUM has grown by ~70%3, while global equity and bond market capitalisation has expanded ~150% and private equity and credit have each grown their assets by ~250%4. This indicates that the market is not oversaturated,…
