Insti­tu­tional investors should put more money into hedge funds to gen­er­ate poten­tially higher returns amid warn­ings of global eco­nomic uncer­tainty, infla­tion volat­il­ity and geo­pol­it­ical instabil­ity, strategists at Black­Rock have said.

The Black­Rock Invest­ment Insti­tute said yes­ter­day: “We believe investors can hold up to 5 per­cent­age points more in hedge funds today than they did before 2020.” This is the biggest alloc­a­tion increase to the sec­tor ever recom­men­ded by the insti­tute, which is part of the world’s largest asset man­ager.

There are tent­at­ive signs that the hedge fund industry has been emer­ging from a period of lacklustre per­form­ance, with many insti­tu­tional investors hav­ing pre­ferred to alloc­ate funds to private equity and private credit.

The Black­Rock strategists said they saw “hedge funds emer­ging as a key tool in port­fo­lio con­struc­tion as a res­ult”, which “jus­ti­fies boost­ing alloc­a­tions to hedge fund strategies in port­fo­lios”.

“One way to fund the increase to hedge funds would be by trim­ming developed mar­ket gov­ern­ment bonds and equit­ies . . . with no change to the private mar­ket alloc­a­tion,” they added.