Hedge funds

17 September 2026, 21:00 UTC Chief Investment Office GWM Investment Research

Hedge funds CIO View: Hedge funds Karim Cherif, Head Alternative Investments, UBS Switzerland AG Tony Petrov, Alternative Investments Strategist, UBS Switzerland AG

• August saw gains across risk assets despite a more challenging macroeconomic backdrop of higher bond yields, renewed geopolitical tensions, and firmer energy prices. Global equities rose 2.7%, while commodities gained 7.4%, supported by precious metals and agriculture. Global bonds were broadly flat, returning 0.1%.

• The average hedge fund manager gained 1.7% in August (HFR mid- month estimates), with all main strategies advancing. Macro led with +3.3%, followed by equity hedge (+1.8%), while event driven and relative value returned +0.4% and +0.3%, respectively.

• Looking ahead, we continue to favor hedge funds as an effective complement to traditional allocations, as they can enhance portfolio resilience and broaden sources of return in a higher dispersion environment. Allocations should remain selective, with careful attention to strategy-specific risks.

The strategic case for hedge funds: Navigating dispersion and diversification

We remain constructive on the macroeconomic outlook, but uncertainty persists. Resilient AI investment, broadening earnings growth, and solid economic activity should continue to support risk assets, while sticky inflation, higher policy rates, geopolitical tensions, and elevated long-term yields leave room for volatility.

For hedge funds, we believe this setup creates a favorable mix of alpha and diversification opportunities. Elevated dispersion and rapid market rotations support active alpha generation, while less reliable traditional diversification and a broader set of structural themes strengthen the portfolio case for hedge funds.

For more details on recent hedge funds performance and strategy views, please refer to our "Third Quarter 2026" Hedge Funds Monthly Extended publication.

Our key strategy highlights include:

• Equity hedge: We hold a preference for low net and market neutral managers, supported by high dispersion and low correlations. We

This report has been prepared by UBS Switzerland AG. Please see important disclaimers and disclosures that begin on page 5.

remain neutral on directional equity hedge given market concentration and rapid factor rotations.

• Event driven: We favor merger arbitrage, where strong deal activity and greater complexity support the opportunity set. We remain balanced on distressed and credit arbitrage, where opportunities are selective.

• Relative value: We maintain a favorable view on FIRV, where broader opportunities across rates and regions, together with the strategy’s diversification benefits, remain supportive despite some compression in basis premiums. We remain balanced on convertible arbitrage and structured credit.

• Macro trading: We prefer discretionary macro, with its flexible approach well positioned to capture opportunities from policy rate shifts and geopolitical mispricings while providing diversification. We remain balanced on CTAs due to crowded signals and reversal risks.

• Multi-strategy platforms: We continue to view multi-strategy managers as a core allocation, offering diversified alpha sources and dynamic risk management.

Investors looking to invest in hedge funds should consider the risks related to these strategies.

August returns across hedge fund strategies and traditional assets

Source: Bloomberg, HFR, MSCI, UBS. Data as of 15 September 2026. Note: HFRI August 2026 returns are mid-month estimates and remain subject to revision.

• Alpha environment: Elevated dispersion and volatility support active management, rewarding managers with strong instrument selection and risk control.

• Low recession risks: Support earnings visibility and financing markets, limiting broad beta shocks and allowing managers to run risk more confidently.

• Increasing M&A activity: Elevated deal activity provides a richer opportunity set for event-driven strategies such as merger arbitrage.