The $5 trillion hedge fund industry is backed by some of the biggest pools of money in the world — pensions, endowments, and sovereign wealth funds.
But those big-name institutions are facing a cash crunch thanks to capital tied up in illiquid private equity and venture funds. For hedge funds looking to grow, there are trillions of dollars outside the institutions wanting in on the action, according to Goldman Sachs.
Private wealth — which refers to money held on platforms run by the private banking divisions of places like Goldman as well as wealth advice giants like Merrill Lynch, independent advisors, and family offices — is eager to invest in hedge funds and has plenty of capital to put to work.
Goldman’s report estimates that less than $500 billion of the $50.7 trillion of private wealth assets are in hedge funds. If this segment of capital followed the recommendation of chief investment officers from these platforms and family offices for hedge fund exposure, there would be more than $4 trillion in hedge fund investments — close to the industry’s total assets.
“Even closing 10% of this gap would double the current assets” that private wealth has in hedge funds, Goldman’s report states.
There have been big-name managers that have already tapped this space. Millennium has sold LP stakes in its flagship fund via private bank advisors and offered a piece of its business to wealthy clients of banks like Goldman, Morgan Stanley, and UBS. Jain Global tapped the private wealth channel for capital before launching in mid-2024. Coatue and Tiger Global count platforms like JPMorgan’s private bank as investors.
The channel is hungriest for more hedge fund exposure, according to Goldman’s report. A survey done by the bank’s capital introduction team found that 68% of private bank advisors and RIAs wanted to increase their hedge fund bets this year, while only 4% intended to cut them. Meanwhile, only 31% of pension and insurance investors wanted to put more into hedge funds. For endowments, foundations, and sovereign wealth funds, it was even worse — 30% wanted to increase hedge fund exposure while 14% wanted less.
Hedge funds thrive in chaos
For years, private wealth managers shunned hedge funds, which were perceived to have high fees and middling performance.
But choppy markets and higher interest rates since the pandemic have led to an “improved image” of the industry in the eyes of the rich and their advisors, Goldman’s report states.
It helps that firms have made money too: Goldman notes that the average fund has returned 9.4% annually from 2020 through June of 2025, while a 60/40 stocks-bonds portfolio was up only 6.6% annually over the same period.
The question for managers is, where do all these assets go? The industry is as big as it has ever been, and plenty of well-known firms are closed to new capital or returning money to investors to avoid becoming too bloated. Marshall Wace is the latest, according to Bloomberg, with plans to give $3.1 billion back to investors in its two largest funds.
The firms that have become the largest in the industry are the multistrategy behemoths that now have headcounts in the thousands and teams based around the world. These managers, especially those with established track records, such as Millennium, Citadel, and Point72, are often able to raise assets quickly but are constrained by a lack of talent.
Still, for funds seeking capital and willing to hire fundraisers focused on the needs of the private wealth channel, there are trillions of dollars available for the taking.
“The wealth segment offers both a new frontier and a formidable — but surmountable — challenge for managers. Those who invest in understanding the landscape, building the right capabilities, and fostering long-term relationships will be best positioned to capture this wave of growth,” Goldman’s report reads.
Read the full article here
