Investors trim ‘Magnificent Seven’ bets while boosting allocations to China and broader Asia‑Pacific hedge funds
Hedge fund allocators who once piled into US assets are quietly rebalancing toward Asia and Europe, while keeping North America as their core exposure.
According to Reuters, recent reports from Goldman Sachs, JPMorgan and Morgan Stanley show demand for North America‑focused hedge fund strategies has cooled over the past year, while allocations to other regions have risen.
Goldman Sachs told clients that “one of the major market narratives in 2025 was the focus by investors on diversifying away from the US, as a result of heightened policy uncertainty and dollar weakening.”
Asia and Europe now sit at the front of the queue.
Reuters reported that Asia allocations were up 13 percent on a net basis at the start of 2025, versus 7 percent a year earlier, making the region the best performer, while planned North American allocations slowed to 7 percent, down from a 14 percent increase the prior year.
A separate BNP Paribas prime services report said Europe was the most widely sought‑after region in 2025, with 30 percent of allocators on a net basis adding hedge fund exposure there, while net additions to North America fell to 23 percent from 39 percent in 2024.
Positioning has also shifted inside US markets.
A January 23 JPMorgan note cited by Reuters said long/short funds cut their “Magnificent Seven” megacap holdings over the past three months, taking positions from historical highs back to average levels versus the last three years.
John Schlegel, JPMorgan’s head of positioning intelligence, told Reuters that allocations are now “much more balanced across regions,” with renewed willingness to invest in Europe and Japan rather than a wholesale pullback from the US.
Even so, the US still anchors portfolios.
Several managers and allocators told Reuters that North American markets continue to lead other economies “by a comfortable distance,” and some described talk of a major shift in assets to other regions as “greatly exaggerated.”
Bruno Schneller of Erlen Capital Management said the US faces “policy uncertainty, fiscal concerns, and a maturing earnings cycle,” which raises the bar for adding risk, but he argued the incentive to diversify now “feels more structural than tactical.”
Within Asia, China is staging a cautious comeback.
An annual BNP Paribas survey reported by Bloomberg found a net 14 percent of investors plan to add capital to China‑focused hedge funds in 2026, after about 9 percent did so last year, a sharp reversal from 2023 when 42 percent of allocators pulled money from China funds.
Bloomberg said the poll, overseeing a combined US$1.1tn in hedge fund assets, showed appetite for China this year is only slightly below interest in North America, which has fallen from 2025 levels.
A rally following DeepSeek’s artificial intelligence breakthrough helped push the benchmark Chinese share index up 28 percent last year, its strongest gain since 2017, with Chinese equities outperforming MSCI’s broader Asia‑Pacific gauge and beating the S&P 500 Index by nearly 12 percentage points.
Even so, BNP Paribas found investors still prefer broader Asia‑Pacific mandates: a net 30 percent plan to add to pan‑Asia funds in 2026, making the region the second‑most sought‑after destination after Europe, while North America has slipped to fifth.
On strategy, allocators expect discretionary macro to be this year’s top‑performing hedge fund style, with one in four planning to increase exposure, and they continue to add to quant equity and multistrategy funds.
According to Bloomberg, the average allocator returned 9.84 percent from hedge funds last year, slightly above a 9.54 percent target, and plans to lift hedge fund allocations by a net US$24bn this year after adding US$25bn in 2025, as some investors question whether private markets still justify their illiquidity.
