Performance Struggles Fail to Stem Hedge Fund Capital Gains

The latest quarterly HFR Global Hedge Fund Industry Report from analytical firm HFR shows that performance struggles at many hedge funds in Q1 did nothing to dampen capital levels, which set a new record for the sixth successive quarter.

Total global hedge fund capital ended the Q1 2025 at an estimated $4.53 trillion, an increase of $12.6 billion over the prior quarter, HFR reports, with money chasing both positive and negative performers over the quarter. The best performer over the quarter, fixed income relative value, experienced the largest strategy-level capital increase, with assets increasing by an estimated $22.4 billion for the quarter, inclusive of a net asset investor inflow of $4.4 billion.

It was the same for Macro, which also performed credibly during the first quarter, capital rose by an estimated $8.9 billion, inclusive of a small net asset inflow of nearly $1 billion, bringing total Macro capital to an estimated $720.2 billion. Macro sub-strategy asset increases were led by Discretionary Thematic funds, with these increasing by an estimated $7.2 billion.

Lack of performance was not a barrier to new investment, however, as strategies like Equity Hedge attracted new asset inflows of $5 billion, while the performance drag meant capital only increased by $1.78 billion. The only major strategy covered by HFR that suffered was Event Driven, which attracted $2.4 billion, but lost $20.4 billion in performance over the quarter.

Inflows were spread across funds of all sizes, as firms managing greater than $5 billion experienced estimated inflows of $7.0 billion, while mid-sized firms managing between $1 and $5 billion saw estimated inflows of $1.4 billion, and firms managing less than $1 billion to begin the quarter experienced inflows of $4.0 billion.

“Total global hedge fund capital rose to a sixth consecutive record in Q1 2025 as managers navigated an unprecedented and historic surge in volatility and extreme risk off sentiment as a result of the imposition of new trade tariffs and increased uncertainty on both corporate earnings and aggregate economic growth through mid-2025,” says Kenneth Heinz, president of HFR. “Volatility has been historic including records of consecutive daily trading ranges, record reversal gains/declines and volatility across government bonds ranging from flight to quality to extreme selloffs in US treasuries as managers position for fluid and ongoing policy adjustment.

“Investors have continued positioning for this environment across a wide range of hedge fund strategies which offer both defensive capital preservation and portfolio protection, as well as opportunistic positioning and exposure to these powerful and highly volatile extreme dislocations,” he continues. “Managers which have demonstrated their strategy’s robustness and veracity through this ongoing volatility cycle are likely to lead industry growth through mid-2025.”