Institutional investors should put more money into hedge funds to potentially generate higher returns amid warnings of ongoing global economic uncertainty, inflation volatility and geopolitical instability, strategists at BlackRock have said.

The BlackRock Investment Institute said on Thursday: “We believe investors can hold up to 5 percentage points more in hedge funds today than they did before 2020.” This is the biggest allocation increase to the sector ever recommended by the institute, which is part of the world’s largest asset manager.

There are tentative signs that the hedge fund industry has been emerging from a period of lacklustre performance, with many institutional investors having preferred to allocate funds to private equity and private credit.