(HedgeCo.Net) A noticeable rebalancing is underway across the hedge fund universe: demand for North America-focused strategies is softening, while interest in Europe and parts of Asia is rising. This isn’t a simple “anti-U.S.” call, and it isn’t a one-week positioning wobble. It reflects a broader shift in how large allocators and hedge fund risk teams are interpreting the 2026 opportunity set—one shaped by trade-policy uncertainty, currency effects, megacap concentration risk, and an evolving view that dispersion and idiosyncratic alpha may now be more attractive outside the United States.
A rotation that starts with allocators, then shows up in portfolios
Recent prime brokerage commentary and industry interviews compiled by Reuters describe a decline in demand for North America-focused hedge fund strategies over the past year, with appetite benefitting other regions instead—particularly Europe and Asia.
That matters because prime broker “demand” isn’t an abstract sentiment survey—it often reflects the real behavior of institutional allocators (pensions, sovereign wealth funds, large family offices, endowments) and intermediaries (consultants, capital introduction teams) who are steering new allocations and re-ups. When those channels collectively lean away from a region, it quickly becomes visible in manager fundraising conversations, portfolio risk budgets, and the geography of new launches.
This trend has been building for months. In late 2025, a Bank of America survey reported that wealthy investors in the U.S. and Asia were canceling plans to allocate to U.S. hedge funds and increasing exposure to Europe and the Middle East. The “why” wasn’t a single macro variable—it was the growing belief that the balance of risks and opportunities was shifting.
The core driver: policy uncertainty is re-pricing U.S. “comfort”
Hedge funds—especially large multi-strategy and global macro platforms—are structurally allergic to one thing: regime uncertainty. They can trade rates. They can hedge FX. They can short indices. What is harder to price is the probability distribution of policy outcomes when markets are already concentrated and valuations are elevated.
The current rotation away from North America is tightly linked to rising uncertainty around trade policy and geopolitical posture—factors that can ripple through corporate margins, supply chains, inflation expectations, and currency markets. Reuters’ February 2, 2026 reporting explicitly ties the pullback in North America interest to trade tensions, dollar pain, and megacap weakness.
For hedge funds, this is critical: when headline risk and policy shocks dominate, the correlation structure of U.S. equities can tighten—reducing the payoff to traditional stock selection. A market that becomes more “index-like” is a market where hedge funds often seek opportunity elsewhere.
Megacap concentration: when the benchmark becomes the risk
A second driver is U.S. megacap concentration risk. Over the past cycle, U.S. equity performance—and in some periods global equity performance—has been unusually dependent on a narrow group of mega-cap technology and AI-linked names. When those names are rising, global risk appetite looks healthy. When they wobble, the perception of “U.S. exceptionalism” can weaken quickly.
Reuters frames this clearly: allocator and hedge fund appetite for North America strategies has been pressured as megacap leadership has softened, making the U.S. opportunity set feel less one-directional.
For hedge fund portfolios, concentration risk also creates a practical problem: even “market neutral” books can inadvertently inherit factor exposures—growth, momentum, quality—because those factors are heavily represented in U.S. megacaps. When the same handful of names drive both beta and factor performance, it becomes harder to diversify within one geography.
The currency layer: dollar weakness changes the math
The third major factor is currency. A weaker dollar can be beneficial for U.S.-based investors buying international assets, but it can also signal something more uncomfortable: that international investors are experiencing poorer translated returns from U.S. holdings and are therefore more motivated to diversify.
This is not theoretical. A separate Reuters “Market Talk” segment in January 2026 described “diversifying away from the U.S.” as a priority for major investors, noting that the U.S. isn’t being abandoned, but de-concentration is moving up the agenda—especially in a world of heightened geopolitical tensions.
At the institutional level, FX can become a decisive lever. If investors believe the dollar has entered a weakening phase, the hurdle rate for U.S. assets rises for non-USD allocators—especially if currency hedging is expensive. In parallel, a weaker dollar can enhance the return profile for unhedged international exposures, making Europe and parts of Asia more compelling from a total-return standpoint.
Why Europe looks “tradable” again: dispersion, catalysts, and valuation shape
If the U.S. is viewed as “crowded, concentrated, and policy-sensitive,” Europe is increasingly being framed as “dispersed, catalyst-rich, and more valuation-flexible.” That’s a hedge fund-friendly setup.
One large-manager perspective from Morgan Stanley argues dispersion has increased in both Europe and Asia, creating a richer stock-picking environment—particularly suited to market-neutral approaches—and notes improved capital markets activity that can support event-driven opportunity into 2026.
This is key: hedge funds don’t need Europe to “beat the U.S.” in a straight line. They need spread between winners and losers, corporate actions, and catalysts that can be traded with hedges. Europe—through restructuring cycles, sector rotations, and M&A repricing—can provide exactly that kind of differentiated opportunity set.
Industry coverage also reinforces that allocator interest is shifting toward Europe as U.S. policy uncertainty rises. Even if some of this is cyclical, it aligns with a broader thesis: Europe may be entering a phase where idiosyncratic fundamentals and local policy dynamics matter more than a single global “risk-on” narrative.
Asia’s appeal: structural growth plus idiosyncratic inefficiency
Asia’s role in this shift is slightly different. For some allocators, the case is about structural growth and market depth. For many hedge funds, it’s about microstructure, dispersion, and local inefficiency—the raw materials of alpha.
In the Reuters February 2026 framing, allocator appetite for Asia-focused strategies has risen to levels not seen since 2022. When interest returns to Asia in size, it often reflects the view that:
- equity markets offer more two-way opportunity,
- regional policy and sector cycles are less synchronized with U.S. megacap narratives,
- and local catalysts (reforms, domestic demand cycles, tech hardware supply chain moves) can be traded with better diversification properties.
For multi-manager platforms, Asia also provides a practical portfolio benefit: it helps reduce portfolio-level concentration in U.S. factors—particularly the “AI mega-cap beta” that can seep into many strategies.
A hidden accelerant: leverage and risk budgets are being reallocated, not reduced
A notable nuance: this shift away from North America is not necessarily a shift toward caution. In many cases, it is a re-allocation of risk budget. Hedge funds can maintain or even increase gross exposure while moving the center of gravity from U.S. equities into Europe/Asia books, global sector themes, or cross-market relative value.
We’ve seen broader industry reporting that hedge funds have been willing to use high leverage to enhance returns during favorable opportunity sets. When leverage and activity are elevated, the question becomes: where is the best risk-adjusted place to deploy it? If U.S. markets feel more “policy headline sensitive,” and if Europe/Asia offer improving dispersion, it is rational for those marginal risk dollars to rotate.
What this means for “largest hedge funds” right now
For the biggest multi-strategy hedge funds, the implication is straightforward: 2026 may reward global breadth more than U.S. concentration.
What’s likely happening inside large platforms:
- Geographic sleeves are being resized—less North America single-country risk, more diversified regional books.
- Equity L/S tilts are shifting toward markets where dispersion is rising and market-neutral construction is more robust.
- Event-driven and special situations are gaining attractiveness as capital markets activity improves, particularly outside the U.S.
- FX and macro overlays are becoming more central, as currency and policy volatility increasingly shape equity outcomes.
The result is not a wholesale U.S. exit. It’s a recognition that the U.S. may no longer be the only—or even the best—default arena for hedge fund alpha in this regime.
The bottom line
“Hedge funds shifting away from North American exposure” is best understood as a regime response: a recalibration toward markets where dispersion is improving, valuations are less concentrated in a handful of names, and the policy-driven risk premium is perceived as more manageable—or at least more tradable.
If this trend persists, it could become one of the defining hedge fund narratives of 2026: not that the U.S. is “uninvestable,” but that global opportunity is widening, and the smartest capital is starting to behave like it.