A turnaround in fund inflows – interest has returned

The number of funds in the investment universe examined rose by 14 to 727 in the first half of the year. This means the segment recorded growth again for the first time since 2022. 30 new funds came to market, while 16 left the data set. A trend reversal is evident in the development of the two major sub-segments: while Alternatives concepts remained almost unchanged at 492 funds, the number of Absolute Return concepts rose for the first time in four years, up 12 to 235 funds (+5.4%). The ratio of roughly one-third Absolute Return to two-thirds Alternatives thus remains in place.

The market volume of Liquid Alternatives rose by EUR 37.5 billion in the first half of the year to EUR 296.4 billion (+14.5%), marking an all-time high. For the first time, the asset class has exceeded its previous record high from 2019 (EUR 274.3 billion). As recently as the end of 2023, at the low point after the rate-hike turn, the segment managed EUR 231.6 billion. Within two and a half years, the volume has thus grown by around EUR 65 billion (28%).

Both sub-segments contributed to this growth: Absolute Return funds rose by EUR 16.0 billion to EUR 113.4 billion (+16.4%), while Alternatives concepts rose by EUR 21.5 billion to EUR 183.0 billion (+13.3%). The increase was fuelled both by net inflows (EUR 21.5 billion) and by positive performance of the investment segment (4.16%).

This development shows that Liquid Alternatives have not only recovered from the confidence crisis of the 2022/2023 rate-hike years but have cemented their role in investors’ strategic asset allocation. Given persistently high equity market valuations and diverse geopolitical uncertainties, investors are evidently increasingly turning to strategies with high diversification potential. 

In terms of market distribution, the trend observed since 2024 continues: Absolute Return strategies keep expanding their share of assets under management – from 34.6% (2024) to now 38.3%. Measured by fund numbers, however, the ratio remains stable at around one-third Absolute Return to two-thirds Alternatives. Absolute Return funds are thus on average significantly larger and growing faster. This reflects strong demand for concepts aiming for consistently positive returns.

Assets under management in institutional share classes rose by EUR 20.7 billion in the first half of the year to a record EUR 148.4 billion (+16.2%). Institutional investors thus once again account for more than half of market volume, at 50.1% – up from 49.3% at the end of 2025 and the previous high of 51.7% at the end of 2024. Non-institutional volume also grew strongly, by 12.8% (+EUR 16.8 billion), so the shift in market shares is moderate: the upswing in the asset class is being carried by both investor groups.

Within the institutional segment, EUR 58.1 billion is attributable to Absolute Return concepts and EUR 90.4 billion to Alternatives. Both sub-segments recorded growth of around 16% compared to the end of 2025.

Investor demand is broadly spread: 13 of the 15 strategies recorded net inflows, with only two experiencing minor outflows – Alternative Event Driven (–EUR 0.70 billion) alongside Alternative Equity Leveraged (–EUR 0.32 billion). Absolute Return Bond remains at the top with inflows of EUR 8.7 billion (+13.6%). It is followed by Alternative Long/Short Equity and Alternative Equity Market Neutral, two equity strategies with controlled market risk.

Fixed Income, with the two strategies Absolute Return Bond and Alternative Credit Focus, attracted EUR 9.3 billion and remained the most important driver of inflows. At the same time, the strong demand for Equity Market Neutral, Long/Short Equity and Managed Futures shows that investors are broadening their allocation beyond pure fixed-income strategies.

The following chart illustrates the net effects by month. In total, the Liquid Alternatives segment received gross inflows of EUR 47.9 billion in new money (green bars), while EUR 26.5 billion flowed out (red bars). This results in net inflows of EUR 21.5 billion. A notable feature across the individual months of the first half-year is the comparatively strong outflows in March. Even though Liquid Alternatives tend to offer a more defensive risk profile than classic long-only strategies, investors temporarily reduced their risk positions after the outbreak of the war in the Middle East due to increased market uncertainty.  

Even more than in the previous year, inflows benefited large providers: 70.1% of net inflows in the first half of the year went to the top 5% of funds by volume alone (full-year 2025: 44.2%). The top 20% attracted 81.7% of inflows, while the lower half of the universe received 8.4%. The upswing in the asset class is thus also a process of concentration: investors prefer to allocate to established, high-volume products with a long track record. This once again highlights the limited market penetration of smaller providers.

The already high concentration among providers has increased further: the largest 5% of funds now manage 49.2% of total market volume (full-year 2025: 47.4%) – more than double the smallest 80% (20.6%). Fund sizes underline this picture: 90.5% of all funds manage less than EUR 1 billion, and 80.0% even less than EUR 500 million. Of the 727 funds in total, only 64 manage more than EUR 1 billion.

Absolute Return Bond remains by far the largest strategy in the investment universe examined, with a market share of 24.8% (end of 2025: 24.2%), and continues to extend its leading position. It is followed by Alternative Multi Strategies at 19.0% (20.2%) and Absolute Return at 13.5% (unchanged). The two fixed-income strategies Absolute Return Bond and Alternative Credit Focus together account for 31.4% of market volume, underscoring the central role of defensive bond strategies in the segment.

Liquid Alternative strategies are thus once again taking up their classic position between equities and bonds, as the following chart shows. 

Over five years too, Liquid Alternatives confirm their stabilising role between traditional asset classes: with a return of 5.08% p.a., they are only narrowly behind unregulated hedge funds (6.00% p.a., in USD), but clearly ahead of euro corporate bonds (0.16% p.a.) and euro government bonds, which at –2.04% p.a. still have not recouped price losses from the 2022 rate-hike year. As expected, the hedge fund strategies within a UCITS wrapper do not match the above-average performance of equity markets – Euro Stoxx 50 at 11.94% p.a. and MSCI World (EUR-hedged) at 10.50% p.a. – though this comes with significantly lower maximum losses (see risk assessment).

At the level of individual strategies, the usual wide range of performance is evident. Alternative Managed Futures achieved the best half-year result of all unlevered strategies with a median return of 7.7%, marking a comeback after a weak 2025. Trend-following models were evidently able to successfully capture the market movements of the half-year. As expected, the two leveraged strategies mark the poles of the spectrum: Alternative Equity Leveraged reached a median of +13.3% (best fund: +41.5%), while Alternative Dedicated Short Bias brought up the rear with a median of –5.9%.

The fixed-income strategies delivered solid but largely unspectacular results: Alternative Credit Focus achieved a median of +1.7%, Absolute Return Bond +1.1% – both with the usual narrow dispersion: for Absolute Return Bond, the best fund (+6.8%) and weakest fund (–3.4%) are just over ten percentage points apart. At the other end of the dispersion scale are Alternative Managed Futures (–19.1% to +28.3%) and Alternative Long/Short Equity (–20.7% to +25.3%), with ranges of more than 45 percentage points. The wide dispersion within strategies once again underscores how crucial careful fund selection is for investment success. 

The risk assessment for the first half of the year also confirms the strengths of the asset class: 11 of the 15 strategies kept their average maximum losses below the drawdown of the MSCI World (EUR-hedged: –8.5% year to date). The smallest setbacks were recorded by the two fixed-income strategies Alternative Credit Focus (–2.2%) and Absolute Return Bond (–3.0%), as well as Alternative Currency Strategies (–2.4%). They are thus at a similar level to euro bonds (–3.0%). As expected, significantly higher maximum losses were seen in the two leveraged strategies Alternative Equity Leveraged and Alternative Dedicated Short Bias, as well as Alternative Cryptocurrency.

Over five years, the stabilising role of Liquid Alternative strategies becomes even clearer – this period also includes 2022, with its heavy losses in both equities and bonds. 

The chart plots the average annual return of the past five years against the average maximum drawdown. The dashed lines mark different ratios of return to maximum drawdown. A value of 0.5, for example, means that a return of 10% p.a. is offset by a maximum drawdown of 20%. In other words, one percentage point of annual return in this case costs two percentage points of maximum drawdown.

The MSCI World (EUR-hedged) achieves a ratio of just under 0.5, with a return of around 10.5% against a maximum loss of about 24%, setting a demanding reference point. A cluster with a comparatively favourable ratio of return to maximum drawdown is formed by the three strategies Alternative Multi Strategies, Alternative Equity Market Neutral and Alternative Credit Focus. Outside the axes shown are the two leveraged strategies Alternative Dedicated Short Bias and Alternative Equity Leveraged.