Hedge Funds
J.P. Morgan AM lifts long-run hedge fund return forecast to 6.7%, its biggest alternatives upgrade
The 2027 capital market assumptions raise diversified hedge funds by 140bp on higher alpha estimates, with event-driven and equity long-bias seeing the largest moves.
HedgeWeekly Hedge Fund Desk ·
J.P. Morgan Asset Management now expects diversified hedge funds to return 6.7% a year over the next 10 to 15 years, up from 5.3% in last year's edition, according to its 2027 Long-Term Capital Market Assumptions published on 19 October. The 140bp increase, driven by higher alpha estimates, is the largest upgrade to any alternative asset class in the report.
By strategy, the report as summarised by Hedgeweek lifts equity long-bias by 180bp to 7.3% and event-driven by 190bp to 7.1%, while relative value edges up 40bp to 6.1% and macro rises 150bp to 5.6%. Estimated alpha for diversified funds climbs to 3.9% from 2.4%, so manager skill now accounts for more than half of the expected return. JPMAM said part of that alpha increase reflects methodology changes made this year.
The firm's case rests on higher rates boosting the carry earned on short positions, heavy government funding needs and a steadier flow of macro and policy catalysts that should open relative-value dislocations. JPMAM also projects a 60/40 portfolio returning 7.0%, rising to 7.5% when 30% is shifted into diversified alternatives, with a Sharpe ratio roughly 21% higher than the plain stock-bond mix.
Why it matters: LTCMA numbers feed directly into the strategic asset allocation models used by many pensions, endowments and wealth platforms, so a sharper hedge fund assumption can support larger target weights. The report's emphasis on alpha rather than beta, and its warning that manager dispersion is set to widen, puts the burden on allocators' selection and due diligence rather than on broad industry exposure.