Key Takeaways
- • Neuberger Berman argues that rising volatility, positive equity-bond correlations, global policy divergence and higher nominal cash rates make a well-constructed hedge fund allocation well suited to the current macroeconomic regime.
- • Hypothetical backtests (January 2007 to July 2026, USD, gross of fees) show that adding a 20% allocation to either a Global Macro or CTA strategy would have reduced annualized portfolio volatility by more than 1.4% while sacrificing only 0.1% to 0.2% in annual return.
- • A Goldman Sachs Prime Insights allocator survey (as of January 16, 2026) found nearly half of institutional allocators intended to increase hedge fund exposure, with global hedge fund assets near a record $5 trillion after 16 consecutive quarters of growth.
- • Neuberger recommends grouping hedge fund strategies into three risk-function tiers (Uncorrelated Alpha, Controlled Beta, Convexity) rather than by strategy label, and sizing positions by marginal contribution to risk.
- • Neuberger stresses that no model can predict when uncorrelated strategies will converge in a severe disruption, so daily management, liquidity laddering and stress testing are essential.
Summary
Neuberger Berman contends that asset allocators are increasingly turning to hedge funds for strategic diversification as volatility, correlations, market concentration and geopolitical risk have risen. The firm argues that a properly constructed hedge fund allocation can generate alpha, reduce drawdown risk and improve overall portfolio efficiency, and emphasizes that the case rests on uncorrelated or minimally correlated return streams rather than on outperforming public equities.
The article contrasts the 1990-2008 period, which favored global macro and managed-futures strategies amid wide cross-asset dispersion and high volatility, with the 2010s, when near-zero rates and negative equity-bond correlations rewarded traditional 60/40 portfolios. Neuberger cites four structural drivers for the current regime: Treasury and swaption volatility above 2010-2021 norms, AI-driven dispersion that has pushed single-stock-to-index volatility ratios to 20-year highs, positive equity-bond correlations that dilute 60/40 diversification, and policy divergence among the Federal Reserve, BoE, ECB and BoJ. It also notes that higher nominal cash rates benefit "cash plus alpha" structures that use cash as derivatives collateral.
According to the firm's backtest, a 20% allocation to either a Global Macro or CTA strategy within an index-based multi-asset portfolio would have decreased annualized volatility by more than 1.4% at a cost of only 0.1% to 0.2% in annual return. The analysis uses the MSCI All Country World Index, the Bloomberg Global Aggregate Total Return Index, the HFRI Macro Index and the BarclayHedge SF Trend Index.
On portfolio construction, Neuberger recommends a role-based approach that groups strategies into Uncorrelated Alpha, Controlled Beta and Convexity tiers, and advises sizing positions by absolute and marginal contribution to risk, a liquidity ladder reflecting differing lockups, notice periods and redemption terms, and rigorous stress testing. The firm cautions that strategies can converge in severe dislocations, citing the 1987 crash, the 1998 LTCM collapse, the 2001 dot-com meltdown and the 2008 financial crisis, and therefore calls for ongoing oversight. Manager selection, it adds, should combine quantitative factor decomposition with qualitative assessment of the team, process and operations.
The article contrasts the 1990-2008 period, which favored global macro and managed-futures strategies amid wide cross-asset dispersion and high volatility, with the 2010s, when near-zero rates and negative equity-bond correlations rewarded traditional 60/40 portfolios. Neuberger cites four structural drivers for the current regime: Treasury and swaption volatility above 2010-2021 norms, AI-driven dispersion that has pushed single-stock-to-index volatility ratios to 20-year highs, positive equity-bond correlations that dilute 60/40 diversification, and policy divergence among the Federal Reserve, BoE, ECB and BoJ. It also notes that higher nominal cash rates benefit "cash plus alpha" structures that use cash as derivatives collateral.
According to the firm's backtest, a 20% allocation to either a Global Macro or CTA strategy within an index-based multi-asset portfolio would have decreased annualized volatility by more than 1.4% at a cost of only 0.1% to 0.2% in annual return. The analysis uses the MSCI All Country World Index, the Bloomberg Global Aggregate Total Return Index, the HFRI Macro Index and the BarclayHedge SF Trend Index.
On portfolio construction, Neuberger recommends a role-based approach that groups strategies into Uncorrelated Alpha, Controlled Beta and Convexity tiers, and advises sizing positions by absolute and marginal contribution to risk, a liquidity ladder reflecting differing lockups, notice periods and redemption terms, and rigorous stress testing. The firm cautions that strategies can converge in severe dislocations, citing the 1987 crash, the 1998 LTCM collapse, the 2001 dot-com meltdown and the 2008 financial crisis, and therefore calls for ongoing oversight. Manager selection, it adds, should combine quantitative factor decomposition with qualitative assessment of the team, process and operations.
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