J.P. Morgan lifts long-run hedge fund forecast to 6.7%

J.P. Morgan Asset Management raised its 10-to-15-year return forecast for diversified hedge funds to 6.7% from 5.3% in its 2027 Long-Term Capital Market Assumptions, HedgeCo News reported.

Hedgeweek reported the 140-basis-point upgrade was driven by higher alpha estimates and higher interest rates and was the largest upgrade to any alternative asset class in the report. The private equity assumption slipped to 9.8%, global core infrastructure rose to 7.1% from 6.5%, U.S. core real estate eased to 8.1% and European core real estate rose to 7.1%.

For allocators setting 2027 policy targets, the 6.7% hedge fund assumption is a gross figure: the report's assumptions are passive and exclude fees and implementation costs. The estimate rests largely on alpha rather than market beta, so the result depends on manager selection.

For portfolio construction, J.P. Morgan projects a 7.0% annual return for a U.S. dollar 60/40 stock-bond portfolio. A 30% allocation to diversified alternatives lifts that to 7.5% and improves the Sharpe ratio by 21%, the firm said, citing higher stock-bond correlations as the case for more diversification.