Hedge Fund Performance Surge: 2024–25 Trends, Risks & Multistrategy Momentum

The NerdWallet primer “Hedge Funds: Strategies and How to Invest” outlines hedge funds as actively managed pools accessible only to accredited or high net-worth investors, utilizing a variety of strategies—including long/short equity, global macroeconomic bets, fixed-income arbitrage, merger arbitrage, and distressed securities—to deliver positive returns regardless of broader market trends. Key trade-offs include high fees, limited liquidity, less regulation, and complexity particularly around strategy risk, transparency and tax treatment [1].

Recent industry data confirm these expectations, but also show a bifurcation between broader hedge fund industry performance and that of large marquee funds. In 2024, hedge funds achieved a weighted average return of ~15.7 % with over 80 % of funds posting positive returns. Strategies with the strongest gains were equities (~20.2 %) and global macro (~19.5 %), with multi-strategy delivering ~13.3 % [6][7]. However, in 2025 through Q3, while the industry average returned ~16.6 %, large multistrategy players such as Citadel and Millennium managed only ~5-6 % over that period, underscoring scale, strategy, and flexibility distinctions among funds [2][4].

Capital flows reflect investor preferences: multi-strategy funds have dominated net inflows (~US$30 B of ~US$41.3 B through Q3 2025), suggesting investors favor managers capable of navigating multiple domains and reallocating dynamically amid economic uncertainty. Equity and global macro strategies also remain high conviction areas. Meanwhile, smaller funds seem to be outperforming larger peers on a percentage basis in many cases, due to agility and ability to take concentrated bets rapidly in opportunistic markets [2].

The strategic implications for investors and fund managers include:

• For investors: emphasize rigorous due diligence—review manager track record, fees, lockups, regulatory filings (e.g., SEC’s Form ADV), operational controls, and transparency.
• For fund managers: scale combined with flexibility may become a defining edge; delivering consistent alpha amid macro volatility, lean cost structures, diversified strategy allocation, and strong risk management practices will be key.
• Benchmarking matters: in years like 2024–2025, a simple 60/40 portfolio model has sometimes outperformed average hedge fund returns after fees and risk, raising questions about net return expectations and the role of fees when market beta is high.
• Open questions remain regarding regulatory changes (particularly around transparency, reporting of short positions, etc.), potential strategy crowding (especially in multi-strategy and macro), and whether strong 2025 returns are sustainable, particularly if inflation or tightening cycles re-emerge.