Goldman Sachs sees hedge funds boosting risk appetite as rally extends

Goldman Sachs Group Inc.’s prime brokerage desk is seeing hedge funds put capital back to work, and that is the first place the rally should show up inside the firm. The immediate lift should land with equities traders, execution teams, financing desks and prime services, where more gross activity usually means more hedging, more borrow demand and more client traffic.

The flow was not subtle. Hedge funds bought U.S. equities at the fastest pace in six months as the S&P 500 kept extending its winning streak, with trading driven by long buying and short covering in index and exchange-traded fund products. Short positions in U.S.-listed exchange-traded funds fell 0.6% for a second straight week, and long buying was about 6.5 times short sales.

That matters because it changes the job of Goldman’s markets staff. When clients are adding exposure, not racing to cut it, the conversation shifts from emergency de-risking to sector rotation, financing and tactical hedges. Goldman’s Marquee Prime Services platform is built around exactly those functions, including cash management, onboarding, risk and reporting, which makes prime brokerage one of the clearest readouts of whether hedge funds are leaning in or backing away.

The move also looks partly position-driven, not just conviction-driven. Net leverage in U.S. long-short equity strategies rose to 55.3%, a level in the top 11% over the past year, which suggests more capital is being deployed into the market. That can keep Goldman busier in the near term, but it can also leave flows vulnerable if rates, inflation or growth data turn against the rally.

The backdrop is helping. The S&P 500 has now posted a nine-week winning streak, the longest run in a year, while the Nasdaq 100 is up more than 20% year to date. Financial stocks also saw about six months’ worth of large net buying, even though allocations remained near five-year lows in Goldman’s U.S. prime book. For Goldman, that means clients are not just chasing the same crowded tech names; they are starting to widen exposure, which usually creates more activity across cash equities, derivatives and securities lending.

The desk has seen a sharp turn before. In mid-May, Goldman’s prime brokerage note pointed to profit-taking in semiconductor stocks and more macro short positioning after higher bond yields and an inflation print. The latest swing shows how quickly hedge fund positioning can flip, but Goldman’s own 2026 Hedge Fund Industry Outlook adds context: more than 810 hedge fund allocators and managers were surveyed, and hedge funds posted an average return of 11.8% in 2025, their second straight year of double-digit performance. That kind of backdrop gives clients more room to press risk, and for Goldman’s markets employees, more reason to expect a busier operating environment if the rally keeps going.