Hedge fund investors entered 2025 with a constructive allocation outlook, but their preferences remained selective. Bank of America survey results reported by Reuters found that half of global investors planned to allocate more money to hedge funds in 2025, while 7% planned to leave the sector. At the same time, digital assets, tokenisation, fees, liquidity, and manager scale were reshaping how investors assessed opportunity and risk.
Contents
- Allocation outlook and investor demand
- How investors access hedge fund and crypto exposure
- Crypto exposure among traditional hedge funds
- What investors want from managers
- Tokenisation and the next decade
- Strategy preferences, concentration, and concerns
Allocation outlook and investor demand
The 2025 allocation picture was positive, although not universal. Half of the global investors surveyed by Bank of America planned to allocate more money to hedge funds in 2025. Another 37% wanted no change in their hedge fund allocations. Only 7% said they would ditch hedge fund holdings and take their money back, down from 12% in 2023. Reuters reported these findings on January 24, 2025, based on the Bank of America survey.
Performance remained central to the decision to redeem. Among unhappy respondents, 73% cited underperformance as the reason for redeeming hedge fund money. The result shows that a positive sector-wide allocation outlook did not eliminate pressure on managers to demonstrate results.
Investor demand was also visible in portfolio construction. In a Reuters report dated September 24, 2024, almost half of the Bank of America survey investors planned both to increase their hedge fund allocations and to increase the number of hedge funds in their portfolios. Roughly 6% planned to take money out of the sector. The survey included 160 hedge fund investors and tracked roughly US$680 billion in assets.
The same survey highlighted the scale of investor decision-making. Two-fifths of respondents agreed to hurdle rates before fees were applied. That arrangement makes the manager’s fee economics more closely dependent on performance above a specified threshold, although the supplied report does not provide the specific hurdle levels.
How investors access hedge fund and crypto exposure
The AIMA/PwC 7th Annual Global Crypto Hedge Fund Report 2025 measured several routes into digital-asset exposure. Among respondents, 59% allocated to hedge funds through hedge fund managers. Direct allocation to crypto assets was reported by 29%, while 24% allocated through venture capital funds and 18% through funds of funds.
These figures describe channels reported by respondents and are not mutually exclusive portfolio shares. An investor could therefore use more than one route. The pattern nevertheless shows the importance of specialist managers: hedge fund managers were the most frequently reported channel, ahead of direct crypto ownership and other fund structures.
Future allocation intentions were mixed. Forty-one percent said they would increase crypto exposure if operational and legal risks were reduced. Seventy percent were undecided on whether they would begin investing in crypto within the next three years, while 20% said they were unlikely to begin. Ten percent planned to begin investing within the next 12 months.
Among respondents with no current crypto exposure, 40% said they lacked conviction in crypto as an investment asset. Another 40% said they were more open to investing in crypto than before. Half of traditional hedge funds with no current crypto exposure continued to cite regulatory or tax uncertainty and investment mandates as barriers to investing.
Crypto exposure among traditional hedge funds
Traditional hedge fund participation in crypto increased between 2024 and 2025. The AIMA/PwC report said 55% of traditional hedge funds had exposure to crypto assets in 2025, up from 47% in 2024. The report described this as a 17% year-on-year increase in crypto exposure among traditional hedge funds.
Average allocation rose more modestly. Traditional hedge funds allocated an average of 7% of assets under management to crypto in 2025, compared with 6% in 2024. The distribution of exposure was uneven:
| Crypto share of AUM | Traditional hedge funds in 2025 |
|---|---|
| Less than 2% | 52% |
| Between 2% and 10% | 29% |
| More than 10% | 19% |
The size of the manager made little difference to the broad incidence of exposure. Fifty-three percent of smaller hedge funds with under US$1 billion in AUM had crypto exposure in 2025, compared with 57% of larger hedge funds. These figures indicate that crypto participation was present across the manager spectrum, while the allocation bands show that most exposure remained below 2% of AUM.
The surveyed traditional hedge funds had a geographically varied profile. Thirty-nine percent were based in North America, 32% in EMEA, 21% in APAC, and 8% elsewhere. By strategy, 43% were multi-strategy firms, 26% equity strategies, 14% credit strategies, 6% macro strategies, 6% managed-futures strategies, 3% relative-value strategies, and 3% other strategies.
What investors want from managers
Investor negotiations in 2025 focused on both economics and access. Around 60% of hedge fund investors won fee discounts, according to the Reuters report published January 24, 2025. In the same reporting, 22% won more favorable liquidity terms, up from 17% in the prior year.
The figures suggest that investors were not assessing fees in isolation. Liquidity terms determine how readily capital can be redeemed or otherwise accessed, so improvements in both fees and liquidity can affect the practical value of an allocation. The supplied reporting does not specify whether the fee discounts were uniform or tied to particular fund sizes, strategies, or commitment levels.
The AIMA/Barclays paper, The Extra Mile, was based on a survey of major hedge fund investors and managers with a combined US$2.2 trillion in assets. It said institutional investors were increasingly pursuing more direct engagement with underlying hedge funds rather than relying only on a fixed product model. This finding points to a relationship-driven allocation process in which institutions seek greater interaction with the underlying manager.
Regulation was another influence on digital-asset allocation. Forty-seven percent of institutional investors said the evolving US regulatory environment was encouraging them to increase digital-asset allocations. Among respondents already invested, 57% cited greater willingness to invest as a response to the changing US regulatory environment, 29% cited growing investor interest, 14% cited improved access to banking services, and 14% cited expanding US operations.
Crypto-focused managers reported related strategic responses. Forty-seven percent said rising investor demand was a strategy-change response to the new US regulatory environment. Twenty-four percent cited clearer regulatory guidance as a reason for greater investment, 22% were scaling their US operations, and 16% were benefiting from improved banking access.
Tokenisation and the next decade
Tokenisation was already an active area for a significant minority of hedge funds. Thirty-three percent of hedge funds were actively pursuing or exploring tokenisation initiatives, while 52% of all respondents expressed some level of interest in tokenised fund structures.
Manager size and strategy affected enthusiasm. Smaller managers under US$1 billion in AUM were more likely to explore tokenisation, at 37%, versus 24% for larger managers. Macro strategy managers showed the highest enthusiasm, at 67%.
Respondents did not agree on a single future structure. Fifty-five percent expected tokenised and traditional fund structures to develop in parallel over the next decade. Fifteen percent expected tokenised fund structures to become the industry standard, 13% believed tokenisation would remain niche or specialised, and 11% predicted traditional structures would remain dominant indefinitely.
These are expectations rather than realized market outcomes. They describe respondent views about the next decade and should not be read as a forecast with a specified probability or time path.
Strategy preferences, concentration, and concerns
The investor surveys also captured changing preferences across hedge fund strategies. Credit hedge funds became the third most popular strategy in 2023, up from sixth in 2022. Multi-strategy hedge funds moved from the second-most-asked-after strategy in 2022 to fifth in 2023. These rankings reflect the Bank of America note reported by Reuters on January 30, 2024.
Performance helped frame that demand. Hedge funds trading long and short positions in the stock market posted a 12.2% return in 2023, according to the same Bank of America note. This is a historical performance figure for 2023, not a projection for later periods.
Investor concerns included crowded trades. More than a fifth of big investors pointed to crowded trades as a top concern in 2023 year-end sentiment, while more than half of the 2023 year-end respondents placed crowding concerns among their top three worries. The supplied reporting does not quantify the exact share represented by “more than a fifth” or “more than half.”
Industry assets were increasingly concentrated among the largest managers. By the end of the second quarter of 2024, hedge funds with more than US$5 billion in assets controlled 73% of industry assets, up from 65% in 2018. Mid-sized hedge funds between US$1 billion and US$5 billion lost 6% of industry money share from 2018 to the second quarter of 2024, according to Reuters reporting published September 24, 2024.
The concentration figures matter for investors comparing manager access and portfolio diversification. A larger share of industry assets was held by the biggest firms in the measured period, while mid-sized funds lost share. They do not, by themselves, establish that larger funds delivered better returns or that concentration will continue.