Greg Hart
Hello and welcome to Strategic Alternatives, the RBC Capital Markets podcast, where we uncover new ways to raise capital, drive growth and create value in an ever-changing world. This episode was recorded on October 23, 2025. I'm your host for this episode. Greg Hart, Head of Global Market Sales for the U.S. here at RBC Capital Markets. Within global market sales, we engage with a wide variety of client types, from corporates, financial sponsors, insurance, traditional asset managers and hedge funds. Today's episode, we will be discussing all things hedge funds, how we at RBC are thinking about this client segment, what we see as the major themes in our discussions with hedge funds, key risk factors, and best trade ideas. My hope is that you will come away from this episode with a better understanding of how hedge funds are operating in this unprecedented market environment, and how RBC is working to drive value across a wide range of hedge fund strategies. To help us unpack how hedge fund strategies are evolving, I'm joined by Jack Weiss, who leads our Cross-Asset Hedge Fund Sales Team and partners with clients across products and strategies to deliver differentiated content and actionable ideas. Jack, thanks for being here.
Jack Weiss
Good to be with you, Greg.
Greg Hart
So, this is a timely conversation. Hedge fund assets globally have risen to a record of 5 trillion. This is the result of performance in the funds, as well as inflows driven by investor demand for diversified, non-correlated exposure. You've been covering hedge funds for a long time. What do you make of this trend, and how have you seen the hedge fund industry evolving over the years?
Jack Weiss
Thanks Greg. The growth in hedge funds is nothing short of remarkable. When I think about the evolution too, from single manager now to seeing some of the largest multi-strat, multi-manager hedge fund strategies, the growth has been pretty astounding. The largest multi manager and multi-strats probably run north of 3.6 trillion of that $5 trillion number you quoted. That's up 8% just in the last five or six months alone. You've got five firms that are exceeding 70 billion in AUM and growing, and that includes firms like Bridgewater, AQR, Millennium, Elliot, TCI. But, looking at a number of different surveys that have recently been published, you've seen explosive growth, specifically of the multi-manager and multi-strat community, where they've gone from call it 40 firms just three/four years ago now to almost 57; that's a 50% increase at a time too, when that collective now accounts for a third of equity hedge fund head count. Another thing too is, and we'll chat about this further, but specifically for our business here at RBC and our cross-asset hedge fund sales effort, we spent a lot of time with the hedge fund managers that kind of live in the five to $15 billion AUM category, and that collective is actually done really well. They're up, on average, almost 15% versus 12% for some of the biggest platforms out there, and it's worth noting that funds that are smaller scale in the world today can competitively and effectively compete against those that are 50 billion plus in scale.
Greg Hart
That's really interesting, if we zero in on fundraising for a second. Obviously, a lot has been made in the in the press about the rise of alternative asset managers and the impact and the interest that that's drawing from the retail community and wealth management channels. As we think about the hedge fund space, as you talk to your hedge fund clients, how important is that investor base for future fundraising?
Jack Weiss
The new frontier that seems to be getting unlocked, just given the evolution of the marketplace, really is private wealth. When I think about the amount of capital that sits within that private wealth channel, it's north of $50 trillion. That's massive. And then when you compare that to defined benefit pensions that are around 25 trillion, endowments, which, on a relative basis, are at 2.5 trillion. And even sovereigns that are, call it 13 trillion. So, you know, wealth is growing faster structurally, and the historical barriers for this cohort seem to be coming down. One of the big issues has been around tax inefficiency as it pertains to hedge funds, just given the amount of short-term gains that this cohort typically locks. But a lot of that's getting addressed through product innovation. You're seeing interval funds, BDCs, active ETFs and some tax advantage structures. But it's pretty compelling, as you think about the evolution of the of the underlying capital base, and how that could also then drive further hedge fund growth, not just for the multi-strats, multi managers, but the broader segment over the course of the coming years.
Greg Hart
Yeah, it's a really interesting point and topic. Last week, I was at a conference in California that was really geared towards alternative asset managers and wealth advisors. You know, how hedge funds play into that ecosystem is developing, obviously, the creation of new fund structures that allow for retail involved in whether that be taxes, you say, liquidity, etc. I think that's going to be just a really interesting development, and against the backdrop of an industry that's already exploded in terms of AUM. So, it's something that we're certainly going to be keeping our eyes on in the coming years. Let's talk for a second about your role at RBC. So, you've been here for nine months now. You've worked at other global investment banks in the past, all covering the hedge fund segment. In your early read what differentiates RBC when it comes to serving the hedge fund client base.
Jack Weiss
RBC is the ninth largest bank globally. It's the sixth largest in North America, and it has a double A minus credit rating. It's North-American headquartered, so it provides non-US Bank diversification away from the big five, and our goal is to be the number one non-US Bank and be viewed as a diversification play for clients. Just given the size and strength of the institution as a universal banking model, really gives RBC a leg up versus most of its competitors, just because it's able to deliver across the firm in the franchise. Core to that, and specific to hedge funds, is leveraging our balance sheet. And there's north of a trillion dollars of balance sheet sitting within the global markets business alone. A good part of that is being lent out by our central funding group, which lends north of 100 billion and growing primarily in fixed income repo to hedge funds. And that is a growing business with this hedge fund segment. From a trading perspective the firm has made a whole series of investments, but is depending on product, a top five at seven player across a lot of different asset classes and a lot of different products. There's a huge investment underway within our equity derivatives franchise, specifically in QIS. There's been a lot of interest in our cross-asset tail hedging solutions offering, also in Delta One, we've engaged with clients on custom baskets and single name swaps, and also in structural products. We have a pretty robust credit trading platform, whether it's an IG, LevFin, and then a new credit derivatives business is now a top three at five player across credit derivative options index, and we're building out our single name capabilities. Also loan TRS is a big focus for the firm and the franchise, and we've engaged with a number of clients within our business in that too. The last thing has been a focus and inbounds into our commodity franchise, where we're a top player across a number of different products, given our offering, whether it's in US and European power and gas, carbon, oil, gold specifically, silver. And so, a pretty robust offering that continues to expand, not just in the US Canada, but also now in Europe.
Greg Hart
We've made a real push to strengthen our hedge fund coverage with the cross asset team that we've created under your leadership. Talk about your specific approach with the clients that you're covering day to day, and how that's resonating.
Jack Weiss
Yeah we're a relatively small team, but we have a pretty dynamic and wide mandate, and that is to partner with our clients on trades effectively do business across any asset class. But our focus has been the intersection of RBCs largest risk positions and our clients’ capabilities to trade in those specific situations and or partner on that risk. There are ancillary opportunities that also come up, given our engagement around these large risk positions. And so, whether it be the opportunity to hedge, to lever up, or to express risk ideas in some other asset class. We cover 55 hedge fund clients and growing but across effectively, four cohorts. One, a group of multi-strat hedge funds. Two, a group of single manager, fundamental equity long short funds. Three, a group of single manager, credit long short funds. And then lastly, a group of event-driven, risk ARB, what I'll call activist constructivist type hedge funds. But our approach has very much been focused around reestablishing and deepening existing connectivity with top of house, so GP-level C suite, senior risk takers at the clients we cover. Really understanding the key risks that they're trying to solve, either in their portfolio or for their business, helping educate our clients in terms of what our core capabilities are, our strengths, where we're investing, and then ideally looking to originate content that we can leverage for their benefit, and at the same time also developing a network and a collective of clients that also know each other, have spent time around different themes and prosecuting different ideas in partnership with RBC, but effectively creating a hedge fund community that we are a part of. We spend a lot of time really focused on a couple things, which is trying to source long/short ideas on situations where there are defined risk parameters, and where there's at least 50 at 60% type upside, which is not necessarily the easiest thing, but in a tape like this, have presented opportunities more so than not. We typically are looking for situations where we have a differentiated view, either from a risk perspective or from a content perspective, and trying to identify where the asymmetry is forming in a company's capital structure or in a particular market. And that specifically may be either on a single name basis, it may be in macro and specifically in having an idea and finding maybe a hedge that you can ideally isolate the alpha that you're looking to focus and capitalize on, credit derivatives, connectivity with banking, access to risk, recycling some of our balance sheet trades. I found that the client receptivity in early days here has been super positive.
Greg Hart
So, if we think about some of those themes. I'm going to highlight maybe three or four we can dive a little bit into. The first one is private credit. And I bring up private credit because it's obviously dominated the headlines for the last couple of weeks, the expansion of private credit, a couple of big credit blow ups over the past few weeks, how that impacted regional bank earnings, and then some of the back and forth in the financial press. What's interesting about this is that obviously private credit is growing massively, but, also we're seeing private credit strategies kind of evolving from traditional hedge fund strategies. So, let's just take a step back and think about private credit as it relates to hedge funds that you're talking to, whether it be, concern over the over the impact of the market systemically, whether it be strategies that they're launching, whether it be individual trades that they're getting involved in. How are you talking to these hedge fund clients today?
Jack Weiss
Yeah, it is pretty fascinating, too, when I think about the evolution, in some cases, of single manager equity long/short that now, fast forward 10 to 20 years, and in their new footprints, let's say two thirds of their AUM is tied and tethered to trading public and private credit. You know, we as a firm have been active in and around a number of these situations. The situations around First Brands, Tricolor, these all seem to be and appear to be isolated events. And when you think about in the context of things, you're, you're coming off, effectively, historically, a very low delinquency baseline. The Tricolor hit that JP Morgan took was approximately 175 million. It's important to put that in the context of, you know, 58 billion in net income that that firm generates. The feedback I've gotten from most clients, and also how they think about what's going on currently is that, look the banking sector, the fears of maybe a systemic crisis forming or building, I think, are somewhat overblown. I think that also got reflected in the market very quickly. When I think about large cap bank earnings, the banking center fundamentals are exceptionally strong. The large cap bank cohort, they posted, on average, a 16 and a half percent return on tangible equity, growing earnings 25% you saw some reserve releases. You're seeing declining charge-offs, and, you know, some mid-single digit loan growth. But this is not an environment typically, where systemic credit stress starts to emerge. So that's one thing. Bank exposure to private credit is growing, but it's still somewhat contained. I mean, private credit only represents 3% of bank loan portfolios. Now granted, lending to non-depository financial institutions has grown probably 20% give or take, year over year to now about 16% of outstanding loans. But there's a big focus on quality control and questions around underwriting discipline, underwriting standards, and could there potentially be a risk, especially given the evolution and proliferation of some of these smaller firms and questioning their underwriting standards, whether they're over levered, and as a result of that, are subject to finding situations in cases of fraud. So, could that be the next shoe to drop? Potentially, it feels super early days. And I think it feels, in large part, ring fenced, and the market price action is suggestive of that.
Greg Hart
I mean, we're not talking about firms that are investing deposit or money, right? So that's not a systemic risk for the market itself. I think it's just a discussion of the asset class in general, and how much is there versus the growth in the traditional bank lending space, and it's gotten, obviously, quite a lot of attention, especially, I think, in the context of what we talked about earlier, with the growth of retail money and wealth money in these channels, right? It's one thing to have professional investors invested in private credit and to experience some losses, but it's a totally different thing if we start seeing, bigger allocations of retail money into the space, and then we start to see those losses. I think then it hits, the market quite differently, but I would caveat all that and say if we look at some of the larger private credit funds that are out there, there's no sign of weakness in their portfolios, not anything systemic or to be concerned about it in a broader credit landscape.
Jack Weiss
What's interesting is around the pic toggle feature, you know, a new market standard in new private credit loans, which has now become more normal course over the course the last year, year and a half, where it allows borrowers a discretionary pick option within a predefined window. Usually it's one to two years of a seven-year loan. But people you know sort of raise an eyebrow, because why are you bypassing some of these traditional liquidity sources that you would typically use, whether it's capital calls or corporate revolvers or whatnot, and where you're using this for working capital, which folks will ask a question around, do I view that as a potential canary in the coal mine? No, not really. But it's these types of questions that come up for those that are taking a look at underwriting standards. Also looking, too, at the amount of dry powder that is sort of sitting on the sidelines waiting to be deployed. The private credit spread premium versus some of the broadly syndicated loans are effectively at the all-time tights, and is it still an attractive area in which to invest, specifically for these players, the answer is yes, but in many ways, it's gone from being extremely attractive in terms of pricing to attractive, but it's still attractive.
Greg Hart
So if we shift to another theme. Clearly, the strength in equity markets, in equity indices, has really been driven by some of the big tech names over the past several months. But when you talk to investment professionals in this space. How are they viewing the AI investment trade, and what should we be looking at in the in the months ahead?
Jack Weiss
You know, it's remarkable in terms of the level of growth, specifically in and around the AI ecosystem, and the second, third derivatives. These stocks have been pretty well bid, and that has continued for a whole slew of reasons, as you think about a long dated, long duration thematic that has the legitimate chance of changing the way in which we live, the way in which we operate, the way in which we conduct various things that historically we've done a particular way, but that are evolving in such a rapid fashion. Without question, nearly every client we talked to has exposure, looking to add exposure, you know, tactically, especially given where we are in the year. Hyperscalers grew capex, from 153 billion back in ‘23 to what will end up being close to 400 billion this year. That's north of a 60% CAGR. And at a time too, when capacity still feels constrained. Street estimates imply 19% year over year, capex growth at a time when you're seeing this type of growth, which looks pretty light. People have been, have been using this recent degrossing over the course the last two, three weeks, in particular, to take some chips off the table. But they're still staying long this theme, whether it's outright or it's synthetically. I think the expectation and the concern is, could you see a capex inflection? Because there is a fear that you may see eventual deceleration in hyperscaler capex growth. But in the scheme and context of things, I think that's not so much a debate for this coming quarter, nor for next.
Greg Hart
And I guess the issue right now is that the whole market − it's a winner, and we don't have enough information yet to understand who the winners and who the losers will be. And so we have to start thinking about when in the future we’re going to start to start to see, you know, who are those winners and who are those losers as this investment plays out?
Jack Weiss
I mean, every company at the infrastructure layer effectively confirmed they're nowhere near meeting demand with their current capacity. I think this demand-capacity gap is effectively going to support the amount of capex spend you're seeing, which would suggest that numbers are probably going to be going higher and validates the near term trade. I don't think that that shifts in any meaningful way. I know there's been a lot of talk and some concern around, you know, circular funding dynamics that are going on within the industry. But you know, one thing to be mindful of, it's still a small percentage of revenue in the grand scheme of things. The other two things that come up to is just the amount of power that's required as a result of this spend and as a result of this build-out. And it's not a one- or two-year constraint. It is a three-to-10-year constraint. And so that also is as a theme, is one that we're acts to as a firm and as a franchise, and also one that I continue to see having long legs.
Greg Hart
Yeah, that's a great segue into the next theme I wanted to touch on, which is commodities. Now, I wanted to talk about gold, because obviously that's gotten a tremendous amount of attention as it as it broke through 4000 and has reached all-time highs. But also, more recently, in the last 24 hours, we've seen a strength in in crude prices, which is something that we hadn't seen in quite some time, given the new sanctions that the administration put on Russia. So, let's just talk about the commodity trade for a second. And then if we just pivot for a second with this new information we have in crude prices, you know, how do you think that the hedge fund community is going to react to that?
Jack Weiss
Look on oil. It's very much been a… short oil has been a consensus trade for a good part of the marketplace. I was surprised when I think back on a couple of months back after that weekend where you effectively had 12 bunker buster bombs dropped on Iran, and even before the squadron of B2s could land in Missouri, you effectively had put in the highs on oil. That's a function of a couple of things. One is demonstrative of what we've seen so far this year in terms of the market effectively being able to compartmentalize and ring fence historically, would be considered pretty fat left tail risk. But part of it is a function of supply, demand. Part of it is a function on OPEC policy because you had the sanctions levied by the US against Russia. This is the first time now in years, where that's a pretty aggressive stance, and that's a very strong stance that's being taken here. Am I surprised that we see a 5% plus spike in oil? No, I'm not. Do I think that has the legs and that that we're going to retest the highs of the year, I don't think that's the case nor do I think most people think that's the case. I think what would potentially drive that, and what has come up in a few conversations, is if there's a potential change in OPEC policy that could get floated at some point in the first quarter. And so that, I believe it would be the bigger issue, per se, but that's where things are. I think, you know, clients are obviously responsive. Folks are getting lifted on, you know, on this, on this short oil trade. But it feels like, at least for the immediate to near term, we're dealing with a with a highly volatile oil market.
Greg Hart
Look, the hedge fund community at large might have been somewhat short oil, but I would say that the producer community was a little bit more sanguine on it. The consumer side, where these oil prices or commodities are input to their businesses, as we saw oil trade down, we did see so consumers get in and start to lock in energy prices for the next, six months, 12 months, 18 months, as part of their business planning. What will be interesting to see is if this trade stays on course, whether it be a 5%, 8%, 10% what happens on the producer side? Are they looking at those levels to actually lock in, you know, their prices for production over the next couple of years? So we'll be watching that very carefully.
Jack Weiss
Maybe a quick thought on gold, given your question there. So, the rally we've seen, really, since ‘23 in gold is also quite remarkable. Post the Russia sanctions, in the first part of this year you saw a 30% increase in the price of gold, in part because you saw, in anticipation of the Fed cutting and then you know, ETF investors returning to market and having a pretty strong bid from that community. And then the usual speculative crowd, but it's really in large part, been driven by the central bank bid, and separately, just by the amount of capital that's flowing into ETF. And then this move, really, in the last two plus months, really since late August, has been a re acceleration of central bank demand, plus, you know, ETF holdings that jumped significantly, in part as that, U.S. dollar debasement trade went into overdrive, and especially in light of the fiscal uncertainty we're seeing across multiple geographies, not just here in the US. When I think about, you know, kind of where and how gold moved and got to, and this retracement earlier this week, and it, you know, finding a level today, it feels like, you know, the central bank bid, it feels like that floor is probably in and around 3900 at the $4,000 level. Obviously, the $4,000 is a big psychological level. But this trade it's one that has legs.
Greg Hart
Last week we saw a pretty meaningful move in the VIX, and related short-term pullback in stock prices and widening of credit spreads. Obviously, we've bounced back from those levels, but I do think that that reminded us quite clearly that we're still operating in a very risky environment, despite the fact that we've experienced strength in financial markets since post Liberation Day. What are some risk factors that you're thinking about as we head into year end?
Jack Weiss
I think the three principal ones that come up in conversation more often than not, is, what if unemployment spikes significantly and quickly? The challenge with that, too, is that, we're in a data vacuum, where you know we're not going to get data, we're not really going to get data on October for probably at least another month plus. The other fear is, what were to happen if the if the 10-year were to go north of 5% and the Fed loses control of the back end? I think both those issues, risk one and risk two, are not necessarily front and center, as the key risk in market. I think the key risk in large part, is focused on at the micro level, on the AI trade, and if that falls apart or breaks, just given concerns around the relative return on capital investment that's been made over the course of the last couple of years, and just given the sheer magnitude even this year alone. This market has had a an uncanny way of creating a wall of worry and then climbing it. But these left-tail concerns are, I mean, they're relevant, and clients, as I mentioned earlier, are looking to find and capitalize on ways where they can hedge against them with cheap optionality, while still maintaining long exposure to the market.
Greg Hart
So as we think about that, what would be some of the high-conviction trades where RBC is leading the conversation, or we're helping clients size up specific opportunities?
Jack Weiss
Look, it's been a choppy de-grossing tape over the last two weeks. Nets are constrained, gross leverage is high. You've seen a reversal in US momentum. Also in this recent run-up in non-profitable tech that clients have been reaching for since late April. But these are things like quantum and nuclear and biotech and whatnot, where you've seen a significant pullback in that cohort. As I mentioned before, it very much feels like, as we've been rolling through earnings, that investors are using this as an opportunity to take some chips off the table, in large part because they also want to lock in what has been a pretty remarkable year. And most of the clients we cover are outperforming the market and outperforming their relative benchmarks. The price action, especially going into end of October, as is typically the case, tends to be somewhat wonky. Dealers are short gamma, there's low liquidity. The one thing to note is, you've got, call a 23 at 24% of the mutual fund complex that has their fiscal year ends at the end of October. And so, the expectation you're going to see some tax loss selling, which I think we're seeing to some degree. But the setup improves dramatically in November, at least from a technical. The thing also, too, which we haven't talked about so far. Hedge funds are one part of the marketplace, but in the context of the entire marketplace, they only really account for 2% of that. The one big monster in the room here that we haven't chatted about is retail. And I've read a couple of stats too, where retail has only shown sell imbalances six times in the last six months, despite all the headlines we've received, we've taken, we've absorbed, we've digested. Coming back to big themes that clients are long or will look to stay long, I think a few things. One, the AI trade, coming back to that, it doesn't feel like it's a bubble yet, despite the fact that it comes up often in conversation. I know there are concerns around potentially tapping the debt markets, potentially tapping private credit, but to be very clear, a large part of the investment to date has been underwritten internally by the cash flow streams at these hyperscalers, and by the big juggernauts within AI. So, people continue to stay long that theme. Two, there's, there's been a lot of consternation and worry that the US consumer is going off a cliff. That hasn't been the case. It's due for a catch-up trade, and that's come up a couple times in conversation as well. One thing that clients have been looking to do is take advantage of the big valuation disconnect between the US and China, and specifically getting further and more diversified exposure to the AI theme in China. In a world that starved for power and compute, I mean, they have invested through the years heavily on grid infrastructure, nuclear, coal, cheap oil from some of these sanctions sources. But, there's a, the type of manufacturing scale for AI driven automation, and also just their control on rare earths is, positions China and investments in and around that, the China exposed supply chain. People want that. And so, I have a feeling that if we get through the APEX summit and where we effectively, there's a stay of execution, and we resume back on this more measured de-escalation, de-confliction that we've seen. I very much think that you're going to see further diversification, The other two or three things. I think clients want to stay long the dollar debasement trade. I think that continues here. I think relative to silver, we haven't chatted about that, but I think the view is to put the incremental dollar to gold over silver. I think the idea over time will probably lay out the shorts on oil at some point over the course of the coming months. But it's very much, continue to ride the winners that have worked for you over the course of the last year. And I very much see that continuing through November/December, but really into next year.
Greg Hart
That’s a great point to end on Jack. Thank you very much. And thank you all for listening to Strategic Alternatives, the RBC Capital Markets podcast.
This episode was recorded on October 23, 2025. Listen and subscribe to Strategic Alternatives on Apple Spotify, or wherever you get your podcasts. And if you'd like to learn more or continue the conversation, please visit us rbccm.com/strategicalternatives, or contact your RBC representative. See you next time.
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