What fund allocators are really looking for heading into 2026

The past few weeks have been busy on the travel front. Dubai first for the Hedge Funds Club Dubai event, then New York for the Funds of the Future Summit (and to accept 26 Degrees’ Best Prime Broker: Capital Introduction award), and finally Hong Kong for the Hedge Funds Club event there.

I met with a broad mix of allocators: multi-family offices in the $200–500m range, larger funds of funds around $10–15bn, and the very large manager-of-managers platforms north of $20bn. In other words, people who can quite comfortably write $100m tickets.

Different cities, different styles, but the conversations were surprisingly consistent. A handful of themes kept coming up, sometimes almost word for word.

Smaller managers are in demand

Nearly all the allocators I met were focused only on sub-$500m managers, and quite a few are explicitly interested in sub-$100m. Why? Smaller managers tend to generate more alpha post fees than the big hedge funds. Research shows that smaller funds, particularly those under $500m, tend to outperform larger funds on a risk-adjusted basis.

Smaller funds can operate with a level of agility and focus that size often dilutes, which helps them find and protect that niche alpha. The allocators I was speaking to also valued the partnership you form with a smaller manager, rather than becoming yet another line in a huge multi-strat book. You matter to them, and they matter to you.

Operational DNA is as important as the idea

Once you get past the size conversation, the focus very quickly shifts to what’s under the hood. Pedigree still matters (nobody is pretending it doesn’t) but operational risk is now treated as every bit as important as investment risk.

What allocators want to see is a true institutional operational set-up. Proper cash controls, clear signoffs, and no critical processes being done manually in someone’s spreadsheet. A few allocators were quite open that they are uncomfortable when everything is outsourced. They want to see real operational DNA inside the firm, not just an investment story wrapped in third-party providers.

One summed it up quite neatly: story matters, background checks and DD matter, and having “institutional DNA” on the operations side is as important as the investment deck. Lack of infrastructure and lack of transparency are both instant red flags.

Allocators are paying for uncorrelated, repeatable returns

Another word that kept coming up was “uncorrelated.” Most of these allocators do not need any more beta – they feel they are already long enough of the world. What they are looking for now are genuinely different, alpha-generating return streams that don’t just rise and fall with equities. They want strategies where the net exposure is low or tightly controlled and where the return profile is driven by something other than the next move in the S&P.

Equally important, they want that return profile to be repeatable and explainable – a clear edge that can be articulated in something like ninety seconds, not a one-off trade or a lucky year that is hard to reproduce. Discretionary macro is in demand by a majority of the allocators I spoke with. Also heard interest in low-net equity, particularly where managers can demonstrate real alpha on the short side and behaviour that looks genuinely different when markets are under stress. Event-driven, certain rates and credit relative-value trades also came up.

Priority is for highly specific strategies

One of the things that really struck me on this trip was how little appetite there is for “generic” hedge fund exposure. No one said they were looking for broad global equity long/short or a multi-strat.

Instead, they are looking for very specific strategies in areas where the manager has clear, demonstrable expertise – whether that’s a particular country, a region, or a defined sector they’ve lived and breathed for years. When I recently spoke with Stefan Nilsson, Co-Founder of a Tokyo-based family office and The Hedge Funds Club, he said exactly the same thing: allocators want very targeted strategies and managers with a real edge. They’re after something different.

Discretionary macro is the main exception that can be broader by nature, but even there they want pure discretionary macro, not a hybrid of systematic and discretionary.

Asia keeps coming up

Finally, Asia, and Japan in particular, was a recurring theme in all three regions. There is strong interest in Japanese engagement strategies, especially where there is a credible governance or balance-sheet angle, and there is still some (more cautious) interest in China. More broadly, allocators are open to backing managers with real local expertise in Asian markets, provided that expertise translates into the kind of specific, uncorrelated strategies they are trying to add to their portfolios.

The message from Dubai, New York and Hong Kong was surprisingly consistent: smaller, institutional managers with clear, specific strategies and a real edge are exactly what allocators want more of.

At 26 Degrees, our Capital Introduction Program is built around exactly these themes. We take a selective, relationship-driven approach, matching managers to our global network of allocators whose mandates, risk tolerances and portfolio goals we know well. If this sounds like your fund, get in touch with the 26 Degrees team to discuss whether our Capital Introduction program is the right fit.

If you are a Fund Manager looking for more information on our Capital Introduction services, get in touch.