Hedge fund leaders and state-backed investors anticipate that heightened market volatility in 2026, driven by geopolitical tensions and diverging interest rates, will generate significant trading opportunities. Similar periods, such as 2022's market turmoil, have shown strong performance for funds adept at navigating such environments.

The Federal Deposit Insurance Corp. and the Office of the Comptroller of the Currency have rolled back 2013 guidance on leveraged lending, allowing banks more discretion in risk assessment. The move aims to level the playing field between banks and the rapidly growing private credit industry, which has thrived under the previous restrictions.

The Securities and Exchange Commission has delayed the compliance deadline for short-sale disclosure rules until January 2, 2028, and for stock lending disclosures until September 28, 2028. The extension follows a court ruling that the SEC did not fully consider the economic impact of the rules. SEC Commissioner Caroline Crenshaw has expressed concern that the delay could undermine the rule of law.

Apollo Global Management, Ares Management, Blackstone, Goldman Sachs Asset Management and KKR are among the firms that have agreed to take part in the Bank of England's inaugural stress test of the private credit and private equity sectors. The System Wide Exploratory Scenario exercise is designed to examine how private markets would respond to a severe global financial downturn. The central bank in early 2027 will issue a final report that will highlight the potential effects on the broader UK economy, rather than focusing on firms individually.

US investors have poured $104.75 billion into money market funds, the largest weekly inflow since November 2025, ahead of the Federal Reserve's policy decision. Investors pulled $3.52 billion from equity funds, with mid-cap, small-cap and large-cap funds all seeing net disposals. Sectoral equity funds, particularly industrials and gold, attracted inflows. Bond funds saw modest inflows of $314 million, with investment-grade and municipal debt funds performing well.

The average diversified US-stock fund has gained 12.6% year-to-date through November, putting markets on track for a third straight year of double-digit returns. A late-November rally, driven by solid earnings and renewed AI optimism, helped the S&P 500 recoup earlier losses, despite geopolitical turmoil earlier in the year. Bond funds also gained, up 7.5% for the year, while international stock funds led overall returns with a 26.4% gain.

Hedge funds are approaching record levels of leverage to boost returns, according to reports from prime brokers including JPMorgan Chase, Goldman Sachs and Morgan Stanley. Goldman data show global gross leverage at 285.2%, while JPMorgan figures put it at 297.9%. This trend, driven by a boom in artificial intelligence and increasingly complex strategies, has drawn regulatory scrutiny over potential market risks.

Global hedge funds have generated returns of nearly 15% through November, according to a Goldman Sachs report, outperforming indices including the S&P 500. Long and short funds gained 1.1% despite a tech selloff, with bets on specific assets, healthcare investments and US exposure driving performance. Systematic and quantitative funds rose 3.7%, while technology, media and telecom funds declined 0.8%.