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Rethinking Diversification Using Hedge Funds

November 2025

One of the main benefits of hedge funds is their ability to diversify equity risk. Historically, bonds have been the go-to defensive allocation in balanced portfolios, but their relationship with equities has changed. By contrast, institutional hedge funds have maintained a steadier diversification profile, if anything it has somewhat improved lately. Replacing half of a traditional bond allocation with institutional hedge funds yields compelling benefits, especially with an uncertain outlook for stock-bond correlations going forward. Read the paper to find out more.

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