After a challenging decade, hedge funds are experiencing a resurgence in popularity, posting strong global inflows and their best returns in more than 15 years in 2025.
For family offices and ultra-high-net-worth investors, the diversification benefits and uncorrelated returns of hedge funds may be appealing in a more volatile market. At the same time, however, experts say that the ability to carry out deep investment and operational due diligence on this complex asset class is crucial before interested investors make a move.
Investor interest grows
After spending most of the 2010s in what researchers at the time called a “lost decade,” with performance affected by a strong equity market, tighter regulation and competition from mutual funds, hedge funds are now facing more supportive conditions, similar to those that drove returns in the early 2000s, says Barclays Investment Bank.
Recently, hedge funds have been buoyed by low stock-to-stock correlations, high dispersion and volatility. The HFRI Fund Weighted Composite Index gaining an average of 12.5 per cent last year—its best performance since 2009.
Investors took note. In 2025, global hedge funds recorded $115.8 billion in net inflows—the most since 2007—along with performance-based gains of $527 billion, according to Hedge Fund Research.
As Canadian Family Offices’ 2025 report on the multi-family office landscape in Canada found, 20 per cent of multi-family offices reported that they increased allocation to hedge funds in the previous six months, compared with only five per cent who decreased exposure.
“In the past, call it three or four years, hedge funds have really increased in usage just as the trends suggest,” says Alexander Jansen, investment strategist with BMO Family Office in Toronto, as increased volatility, dispersion and higher interest rates have made the asset class more attractive.
Hedge funds are good if you can get access to the best ones.
Arthur Salzer, Northland Wealth Management
“As there’s more talk and you can see the return benefits or the diversification benefits of hedge funds given the market environment we’re in, we’re seeing more people move into the space,” adds Jansen, who has been using hedge funds for the past 15 years.
Indeed, Arthur Salzer, founder, CEO and co-chief investment officer of Northland Wealth Management, a multi-family office in Oakville, Ont., says many of the headwinds hedge funds have faced for the last decade and a half have turned into wind in their sails, as interest rates increased and equity valuations have gone up.
“In a zero interest rate environment, it can be very challenging for hedge funds to earn a return, especially compared to being long-only, whether that’s in bonds or whether that’s in equities,” says Salzer, who has been investing in hedge funds for more than 25 years.
“Today, the environment’s a little different, and you can short positions now, you can earn interest on the short, but you can also go long,” he says.
What investors are looking for
While hedge funds may have the reputation for delivering superior returns in certain cases, many investors are now looking to the asset class as a diversifier in an uncertain market.
The AIMA-Hedgeweek H1 2026 Allocator Survey, based on responses from more than 100 global institutional investors, found that within six months, allocators had reframed what they want from hedge funds. Diversification (78 per cent) and uncorrelated returns (68 per cent) were growing priorities, the survey found, while respondents with expectations of higher returns declined from 56 per cent to 29 per cent.
“This represents explicit recognition that hedge funds’ primary institutional value lies in portfolio stabilisation at a time of volatility rather than outsized return generation by taking massive risks,” noted the report.
Jansen agrees, noting that the space is acting as the ballast to the portfolio alongside traditional fixed income.
“The clients that we’re working with are looking at the lower-risk end of the space, looking at lower drawdowns, looking at just consistent rates of return over time to complement their bonds and getting that differentiated return source,” he says, adding that the average client allocates five to 15 per cent of their portfolio to hedge funds.
We think hedge funds can play a very crucial role in being another source of returns that are uncorrelated.
Wayne Kozun, Forthlane Partners
Indeed, with stocks and bonds moving back to being positively correlated, hedge funds play an important role, says Wayne Kozun, co-chief investment officer with Forthlane Partners in Toronto, who has had experience with hedge funds since the 1990s.
“You had a year in 2022 when both stocks and bonds were down double digits. And having hedge funds in our portfolio, along with real assets, allowed us to eke out a slight positive return that year,” says Kozun.
“Given the expected environment going forward of a positive correlation between stocks and bonds, we think hedge funds can play a very crucial role in being another source of returns that are uncorrelated.”
Where families are investing
One area that Northland prefers, says Salzer, is credit hedge funds. For example, those that use relative-value trading strategies, deploying leverage to short an underlying government bond while going long a corporate bond, can provide a good return when spreads narrow or stay the same.
Over the last three to five years, Salzer adds, returns from credit hedge funds have been two to four per cent per year better than traditional fixed income.
Kozun, meanwhile, favours exposure to various strategies to provide diversification within the overall hedge portfolio, including managers that trade in volatility arbitrage, convertible bond arbitrage, insurance-linked securities and equity long-short.
More recently, his firm has also been looking at managers that can provide exposure to real assets and commodities, such as precious metals, mining and energy.
“We think there are some interesting long-short opportunities within that space, so we’re starting to deploy to some managers within that category,” Kozun says.
‘They’re not meant for everybody’
Despite the surge of interest in the asset class of late, according to the CFO survey, some 36 per cent of multi-family offices do not hold hedge funds at all.
While some family offices may choose to remain in more traditional asset classes, there are a few factors specific to the hedge fund space that may also limit investment opportunities.
The first issue, says Salzer, is access. For example, the top quartile of hedge funds is almost unattainable for most investors.
“Hedge funds are good if you can get access to the best ones. Typically, the minimums start at about $10 million to get in the door to do it directly, sometimes larger. So, that’s the real challenge—they’re not meant for everybody.”
There are some exceptions, he says. For example, in the Canadian credit space, structures are in place that may be attractive for regular, accredited investors to hold in their RRSPs or RRIFs.
Another challenge is complexity. As Kozun explains, it can be more difficult for some family offices to gain exposure to hedge funds without the dedicated personnel to carry out the required investment and operational due diligence, including understanding the manager’s edge in the market and evaluating return on risk.
Indeed, investing in hedge funds, says Salzer, requires a lot of legwork in terms of relationship-building and meeting with management teams, research on return structures to understand their fees, and the ability to normalize and compare these funds to other investments.
“You really need somebody that can do that research,” he adds.
Helen Burnett-Nichols is a Hamilton, Ont.-based business and financial writer. For more than 20 years, she has covered investment, legal, wealth management, entrepreneurship, benefits and pensions, financial planning and personal finance topics for national and industry-focused publications. Prior to embarking on a freelance career, Helen held editorial roles in both Toronto and London, England.
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