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By Opalesque:

According to three separate outlooks for hedge funds in 2026, the year should be positive thanks to dispersion, higher volatility and other opportunities for active management. This may mark the end of the alpha winter, a time to spread one's wings geographically and to take note of potential warning sings in the AI sector and rich valuations in general.

Eyes wide open as AI, markets reach new summits

Morgan Stanley Investment Management views 2026 with cautious optimism. The S&P 500 has delivered more than 16% returns in 2025. This performance followed a gain of more than 20% in 2023 and 2024 - a feat only matched once before in 1995-1999. However, they see warning signs in the AI sector, where massive capital investment has preceded uncertain future revenues. They cite OpenAI's internal "Code Red" and rising debt concerns as evidence of potential excess.

Their strategy emphasizes three pillars: increasing active risk while minimizing market beta, diversifying across strategies and regions, and optimizing implementation structures. They favour both fundamental and quantitative stock selection given rising equity dispersion, recommend market-neutral approaches in international markets, and see opportunities in event-driven strategies due to increased capital markets activity. Discretionary macro f......................

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