Anthony Scaramucci On Hedge Funds And The Long Game

In an era of rising correlations and market uncertainty, active strategies are regaining attention.

For much of the past decade, the rapid rise of passive investing appeared to cast a long shadow over hedge funds. Low-cost index funds captured the lion’s share of new capital as investors questioned whether high-fee active strategies could consistently justify their cost. Yet amid a shifting macroeconomic backdrop—marked by higher interest rates, geopolitical uncertainty and renewed market volatility—many institutional investors are again taking a closer look at hedge funds.

Few observers of the industry have watched its evolution more closely than Anthony Scaramucci, founder of the alternative investment firm SkyBridge Capital. In a recent discussion on the state of modern portfolio construction, Scaramucci argued that hedge funds remain an important tool for investors seeking diversification and risk management in an increasingly complex financial environment.

“Hedge funds were never designed to simply track the market,” Scaramucci said. “Their value lies in navigating uncertainty.”

The Case for Active Strategies

The core argument in favor of hedge funds has always centered on flexibility. Unlike traditional long-only investment vehicles, hedge funds deploy a wide range of strategies aimed at generating returns regardless of market direction. Long/short equity, global macro, event-driven trading, merger arbitrage and opportunistic credit strategies all fall under the industry’s umbrella.

The objective is not merely to outperform a benchmark during strong markets but to produce returns that are less correlated with broader equity or bond indices. In theory, such diversification can cushion portfolios during downturns while preserving upside over longer cycles.

That argument is gaining renewed traction as correlations between traditional assets have risen. During periods of monetary tightening, both stocks and bonds have at times declined simultaneously—a dynamic that challenges the conventional 60/40 portfolio framework long favored by institutional investors.

Scaramucci said hedge funds can serve as a counterbalance in such environments, particularly when valuations in public markets appear stretched after years of ultra-loose monetary policy.

“Investors are realizing that diversification isn’t just about holding different asset classes,” he said. “It’s about holding strategies that behave differently.”

Fees, Performance and Investor Scrutiny

Hedge funds have faced sustained criticism over their fee structures, typically known as the “2 and 20” model—charging roughly 2% in management fees and 20% of profits. Critics, including many proponents of passive investing, have argued that such costs are difficult to justify when broad market indices have delivered strong returns.

Industry defenders counter that fees should be evaluated in the context of risk-adjusted performance rather than raw returns. Hedge funds, they argue, aim to limit downside volatility while producing steady gains over time.

Scaramucci acknowledged that investors have become more demanding in recent years. Institutional allocators now scrutinize transparency, liquidity terms and alignment of incentives far more closely than they did during the hedge fund boom of the early 2000s.

“The bar is higher,” he said. “Managers need to demonstrate a clear edge—whether that’s in research, access to information or risk management.”

A Focus on Overlooked Opportunities

While hedge funds employ diverse strategies, many successful managers share a common trait: a willingness to search for value in areas overlooked by larger pools of capital.

Ironhold Capital managing partner Paul Gray highlighted this dynamic during the conversation, pointing to sectors where structural inefficiencies persist despite the rapid dissemination of financial information. According to Gray, these pockets of mispricing often emerge in industries that receive limited analyst coverage or where investor sentiment has turned excessively pessimistic.

Such opportunities require patience and deep fundamental research, he said—qualities that can be difficult to maintain in markets increasingly driven by short-term momentum and algorithmic trading.

Gray argued that disciplined investors can still identify compelling entry points by focusing on cash flows, competitive advantages and management quality rather than short-term price fluctuations.

“The market is efficient most of the time,” Gray noted, “but not all of the time.”

Risk Management as a Core Discipline

A defining feature of many hedge funds is their emphasis on risk management. By employing tools such as short selling, derivatives and dynamic position sizing, managers can adjust exposures quickly in response to changing market conditions.

Gray emphasized that such discipline allows managers to maintain conviction during periods of volatility—an advantage that can prove critical when markets experience sudden reversals.

Rather than viewing downturns purely as losses, some hedge funds treat them as opportunities to increase exposure to high-conviction positions at more attractive valuations. Over full market cycles, Gray said, this approach can transform temporary drawdowns into sources of long-term outperformance.

The Role of Networks and Experience

Scaramucci also pointed to a less quantifiable but equally important element of investment success: relationships.

Over decades on Wall Street, he said, professional networks often become a key source of information and insight. Conversations with entrepreneurs, industry executives and fellow investors can reveal opportunities long before they appear in market data.

Mentorship and collaboration, he added, have historically played a major role in the development of successful hedge fund managers. Many leading investors began their careers working under established figures before launching firms of their own.

“The business is analytical, but it’s also human,” Scaramucci said. “Trust and relationships still matter.”

Digital Assets Enter the Conversation

Another theme shaping the future of hedge funds is the growing integration of digital assets into alternative investment strategies.

SkyBridge was among the early firms to establish dedicated investment vehicles focused on cryptocurrencies and blockchain-related technologies. Scaramucci described digital assets as a rapidly evolving asset class that, while volatile, may offer exposure to long-term technological shifts.

He cautioned that investors should approach the space carefully. High volatility and regulatory uncertainty make thorough due diligence essential, particularly for institutions with strict risk mandates.

Nevertheless, Scaramucci believes the asset class could eventually occupy a more permanent place in diversified portfolios.

“When used thoughtfully, digital assets can complement traditional strategies,” he said.

Consolidation and Industry Evolution

The hedge fund industry itself has undergone significant change in recent years. While the number of funds has grown, capital has increasingly concentrated among a smaller group of large, multi-strategy platforms.

These firms benefit from scale, advanced technology infrastructure and the ability to attract top talent. Smaller managers, by contrast, often face higher barriers to entry and increased competition for institutional allocations.

Despite those challenges, Gray said differentiated managers with specialized expertise can still succeed. Investors continue to seek strategies capable of generating returns independent of broad market trends—particularly as economic conditions grow more unpredictable.

A Role in an Uncertain Era

The global investment landscape remains unsettled. Central banks are navigating persistent inflation pressures, geopolitical tensions continue to reshape supply chains and technological change is transforming entire industries.

Against that backdrop, proponents of hedge funds argue that the industry’s defining characteristic—adaptability—may prove increasingly valuable.

Scaramucci believes the next decade could look very different from the last one for alternative managers.

“The market environment is changing,” he said. “Periods of volatility are when active strategies can really demonstrate their value.”

For investors seeking resilience rather than simple market exposure, hedge funds may once again become an essential component of sophisticated portfolios. And as Gray suggested during the discussion, the search for overlooked opportunities—and the discipline to pursue them—remains at the heart of what hedge funds were designed to do.