Hedge Funds Deepen Private Market Push as Search for Alpha Intensifies
More than 70% of hedge funds now allocate capital to private markets, as rising investor demand for performance drives managers to diversify beyond traditional strategies, according to new data from IG Prime, the institutional arm of FTSE 250-listed IG Group.
The research shows hedge funds are increasingly venturing into private equity, real estate, private credit, and infrastructure—territory traditionally dominated by private equity firms. Specifically, 61% now invest in private equity, 45% in private real estate, 39% in private credit, and 38% in infrastructure.
“The growth of hedge funds has meant there’s been a crowding of trades that historically worked well. Some of the edge has been arbitraged away,” said Chris Beauchamp, Chief Market Analyst at IG Prime. “Funds are now looking to private markets as a new frontier for alpha.”
This shift is blurring the lines between hedge funds and private equity firms, with many hedge funds now acting as both competitors and collaborators in off-market dealmaking. Hedge funds are particularly active in sourcing and structuring bespoke transactions once dominated by buyout firms.
Private equity remains the fastest-growing private asset class for hedge funds, with 58% increasing exposure over the past year. Growth was also strong in real estate (48%), natural resources (34%), private credit (31%), and infrastructure (30%).
Among these, private credit stands out as a key growth engine. With traditional lenders retreating under regulatory pressure, hedge funds are seizing opportunities in direct lending and structured capital solutions. Nearly a third of hedge funds (31%) named private credit as their fastest-growing private markets allocation.
“Private credit has become an essential piece of the portfolio, particularly as institutional investors seek yield in a higher-rate environment,” Beauchamp said.
Broader macro trends—including delayed IPOs and rising de-listings—are also steering capital toward the private realm. These dynamics are expected to fuel further hedge fund participation in private markets, even amid intensifying competition from private equity giants.
“The question for hedge funds is what skills they bring to bear in these private market that might give them the edge over existing participants such as PE funds,” said Beauchamp.
IG Prime is the institutional business of FTSE 250-listed online trading platform IG.