Liquid alternatives: A turnaround in cash flows – interest has returned

Compared to the turn of the year, the number of funds in the segment decreased by four to 715 by 30 June 2025. Hedge fund strategy providers have launched 29 UCITS funds – i.e. more funds have left the market than new ones. The Absolute Return and Alternatives sub-segments performed in opposite directions: The number of absolute return concepts decreased by 3.4% to 228 funds, while the number of alternatives increased marginally – from 483 to 487 funds. Overall, however, the ratio remains almost constant: Alternatives account for around two thirds of the funds and Absolute Return accounts for one third.

After the massive outflows in 2023, the tide turned in the second half of 2024. Although the full year was still down, net new investor capital came into the segment from mid-year onwards. This positive trend continued: In the first half of 2025, net €6.9 billion flowed into Liquid Alternatives – a clear sign of the renewed interest in this asset class.

Cash inflows did not fully offset the slightly negative performance of -1.87% (see page 7), resulting in a slight decrease in total asset class volume from €243.2 billion to €241.8 billion.

This decline is mainly at the expense of Alternative Funds, whose volume fell by €3.2 billion (-2.0%). Absolute Return funds increased their volume by €1.7 billion (2.1%). This is mainly due to the strong net inflows into the fixed income strategy “Absolute Return Bond” (€3.9 billion; see page 4).

After several years in which all strategies were impacted by outflows in phases, eight of the 14 strategies benefited from net inflows in the first half of 2025. The biggest winners were the Absolute Return Bond at €3.91 billion (+7.8%), Alternative Equity Market Neutral at €2.01 billion (+17.6%) and Alternative Long/Short Equity at €1.21 billion (+5.2%). These inflows show that investors prefer to increase their allocation to Liquid Alternatives defensively. In contrast, Alternative Global Macro posted outflows of €1.00 billion and Alternative Managed Futures of €0.74 billion.
 

Liquid Alternatives posted net inflows in all six months of the first half. Particularly noteworthy are May and June, which together accounted for almost 70% of total inflows. This strong demand was triggered by President Trump’s announcement of new tariffs in April. These led to some sharp market distortions on the global financial markets. Apparently, this shock has prompted many investors to reassess their risk tolerance and build portfolios more robustly. Particularly with regard to drawdown reduction, Liquid Alternatives Funds have repeatedly proven that they can significantly limit strong price declines, unlike pure equity or bond investments (see page 11). The increased allocation to Liquid Alternatives can thus be interpreted as a deliberate measure for risk management.

A closer look at inflows in May and June underscores this trend: Among the most sought-after strategies were Absolute Return Bond, Alternative Credit Focus, Alternative Long/Short Equity and Alternative Equity Market Neutral. Investors were therefore looking specifically for defensive equity and credit strategies. However, more broad-based concepts such as macro, currency or multi-strategy funds were avoided.

The market shares of the individual strategies in the segment barely changed compared to 2024. Absolute Return Bond remains the largest strategy with a market share of 22.1% and has increased its share by a further 0.7 percentage points compared to the previous year. The second place is Alternative Multi Strategies with a market share of 19.5%. The continued strong position of alternative fixed income strategies overall is also noteworthy: Combined, Absolute Return Bond and Alternative Credit Focus achieve a market share of almost 30%, underscoring their central role within the segment.