Hedge funds in Europe gain favour as investors steer away from US, says BNP Paribas

A recent BNP Paribas survey reveals a notable shift in hedge fund allocation, with investors prioritizing Europe and Asia over the U.S. for the first time since 2023. This strategic pivot, attributed to U.S. policy uncertainty and tariffs alongside European fiscal stimulus, has resulted in higher inflows for European hedge funds, particularly in credit strategies and smaller/mid-sized funds. The survey, encompassing $960 billion in assets, indicates a broader diversification away from U.S. markets, despite a majority of hedge fund investors remaining U.S.-based.

Analysis

A BNP Paribas survey of 140 financiers managing $960 billion in assets reveals a significant capital rotation in the hedge fund space, with investors favoring Europe and Asia over the United States for the first time since 2023. This shift is attributed to heightened U.S. policy uncertainty and tariffs, coupled with Germany's fiscal stimulus enhancing European growth prospects. The data indicates that European hedge funds captured the majority of new inflows in the first half of 2025, with 37% of allocators adding capital to the region and 33% planning to increase exposure further. In contrast, only 14% of investors intend to boost allocations to North American funds. The primary beneficiaries of this trend are credit hedge funds, which reported the highest inflows at approximately $4.5 billion, followed by multi-manager and equity-focused strategies. Notably, smaller and mid-sized funds with under $10 billion in assets are receiving the bulk of this new capital. While investment flows are diversifying geographically, the investor base itself remains heavily concentrated in the United States, with 73% of survey respondents based there.

Key Decisions for Investors

• Investors should assess their geographic hedge fund allocations, as current capital flows strongly favor European and Asian strategies over North American ones, driven by distinct policy and stimulus catalysts.
• Consider overweighting allocations to credit and multi-manager strategies, as these are identified as the primary recipients of new capital within the hedge fund sector.
• Focus due diligence on small- to mid-sized funds (under $10 billion AUM), as this segment is capturing the majority of the reported investor inflows.
• Monitor U.S. trade policy and German fiscal announcements closely, as these are the key drivers of the observed capital rotation and any changes could alter the current investment thesis.