Key Takeaways
- • J.P. Morgan Asset Management raised its 10-to-15-year return forecast for diversified hedge funds to 6.7% from 5.3%, a 140-basis-point increase, in its 2027 Long-Term Capital Market Assumptions, according to HedgeCo.Net.
- • Hedgeweek reported the hedge fund upgrade was the largest upgrade to any alternative asset class in the report, which the firm attributed to higher alpha estimates and higher interest rates.
- • J.P. Morgan projects a 7.0% annual return for a U.S. dollar 60/40 portfolio and 7.5% for a portfolio with 30% in diversified alternatives, which the firm says improves the Sharpe ratio by 21%.
- • The hedge fund forecast rests largely on alpha rather than market beta, so it depends on manager selection, and the assumptions are passive and exclude fees and implementation costs.
- • Private equity was trimmed slightly to 9.8%, global core infrastructure rose to 7.1% from 6.5%, and U.S. core real estate eased to 8.1% while European core real estate rose to 7.1%.
Summary
J.P. Morgan Asset Management has raised its 10-to-15-year return forecast for diversified hedge funds to 6.7% from 5.3%, a 140-basis-point increase, in its 2027 Long-Term Capital Market Assumptions, according to HedgeCo.Net. The firm attributed the upgrade to higher alpha estimates and higher interest rates. Hedgeweek reported that the revision was the largest upgrade to any alternative asset class in the report.
The 31st edition of the assumptions covers more than 200 assets in more than 20 base currencies and places alternatives at the center of portfolio construction. J.P. Morgan projects a 7.0% annual return for a U.S. dollar 60/40 stock-bond portfolio but said higher stock-bond correlations call for more diversification. The firm said a portfolio with 30% in diversified alternatives lifts the projected return to 7.5% and improves the Sharpe ratio by 21% compared with a simple 60/40 mix.
Forecasts moved in different directions across private markets. The private equity assumption slipped slightly to 9.8%, with returns tied to repeatable operational value creation, including AI use in portfolio companies. Global core infrastructure rose to 7.1% from 6.5%, helped by expected gains in transportation assets as manufacturing reshores. U.S. core real estate eased slightly to 8.1%, while European core real estate rose to 7.1%. The report also introduced a return range for bitcoin for the first time but did not include it as an allocation.
Grace Peters, global co-head of investment strategy for J.P. Morgan Private Bank, said that "with dispersion wider than it has been in years, investors anchored to a disciplined strategic asset allocation will find this a more compelling environment than the headlines suggest." John Bilton, global head of strategic research for multi-asset solutions, said the outlook combines higher global bond yields with alternatives and real assets for differentiated returns and inflation resilience.
For hedge fund allocators, the key detail is the source of the upgrade. Because the higher forecast rests largely on alpha rather than market beta, as Hedgeweek noted, it depends on manager selection. The report stresses that its assumptions are passive and do not reflect fees or implementation costs. The revision nonetheless gives consultants and CIOs a new long-run reference point for hedge funds as they plan for 2027.
The 31st edition of the assumptions covers more than 200 assets in more than 20 base currencies and places alternatives at the center of portfolio construction. J.P. Morgan projects a 7.0% annual return for a U.S. dollar 60/40 stock-bond portfolio but said higher stock-bond correlations call for more diversification. The firm said a portfolio with 30% in diversified alternatives lifts the projected return to 7.5% and improves the Sharpe ratio by 21% compared with a simple 60/40 mix.
Forecasts moved in different directions across private markets. The private equity assumption slipped slightly to 9.8%, with returns tied to repeatable operational value creation, including AI use in portfolio companies. Global core infrastructure rose to 7.1% from 6.5%, helped by expected gains in transportation assets as manufacturing reshores. U.S. core real estate eased slightly to 8.1%, while European core real estate rose to 7.1%. The report also introduced a return range for bitcoin for the first time but did not include it as an allocation.
Grace Peters, global co-head of investment strategy for J.P. Morgan Private Bank, said that "with dispersion wider than it has been in years, investors anchored to a disciplined strategic asset allocation will find this a more compelling environment than the headlines suggest." John Bilton, global head of strategic research for multi-asset solutions, said the outlook combines higher global bond yields with alternatives and real assets for differentiated returns and inflation resilience.
For hedge fund allocators, the key detail is the source of the upgrade. Because the higher forecast rests largely on alpha rather than market beta, as Hedgeweek noted, it depends on manager selection. The report stresses that its assumptions are passive and do not reflect fees or implementation costs. The revision nonetheless gives consultants and CIOs a new long-run reference point for hedge funds as they plan for 2027.
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