Just 16 per cent of investors in hedge fund were disappointed by their hedge fund’s performance last year, according to new research from IG Prime, the prime broker for hedge funds, other institutions and family offices. By contrast, 30 per cent of hedge fund investors said they felt their hedge fund investments outperformed in 2024.
IG Prime’s ‘The State of the Hedge Fund Industry’ research suggests that 2024 and 2025 could see a turnaround in the sector after years of weak relative performance and sluggish growth in the sector’s assets under management. After substantial outflows from hedge funds in 2023 new investor inflows have increased in 2024.
76 per cent of hedge fund clients polled said that they will stay with their current fund in 2025 with 24 per cent of clients expecting to change their hedge fund in 2025.
The research suggests that hedge fund investors are still concerned that hedge fund managers are less able to deliver target returns once they reach a certain scale. 42 per cent of those looking to change their hedge fund manager said they would move to a smaller manager whilst just 25 per cent planned to seek a larger hedge fund manager.
42 per cent of investors looking to change their hedge fund cited poor performance and 58 per cent raised concerns over risk management.
The research report asked over 50 hedge fund clients globally questions about how their hedge funds have performed.
Continued volatility in financial markets has helped the performance of hedge funds in 2024. Uncertainty about the new US administration’s economic policies following the election of Donald Trump, alongside geopolitical threats in Europe are expected to be big drivers of volatility in 2025.
Cuts in interest rates from The US Federal Reserve have also improved the relative returns of hedge funds. Falling yields on government bonds have reduced the risk free rate of return that hedge funds will have their performance compared to.
The report shows 72 per cent of hedge fund clients expect returns over 5 per cent in 2025, and 41 per cent expect more than 10 per cent. Just 12 per cent of clients expect to make a loss on their hedge fund investments this year.
Says Chris Beauchamp, Chief Market Analyst at IG Prime: “Hedge funds and their clients are increasingly optimistic that hedge funds can provide stronger returns in the coming years.”
“There are signs that hedge funds have begun to swing back into favour and that clients on the whole are sticking with their current fund managers. However, there is still a significant minority of hedge fund investors who say they are looking to switch managers this year, that’s obviously a concern for those funds who have struggled with their performance.”
Equities focused strategies remain a popular choice amongst clients – 71 per cent of clients prefer them
71 per cent of hedge fund clients prefer equity hedge fund strategies in 2025, which is perhaps unsurprising given the strong performance of US equities (up 53 per cent in 2023 and 2024) and broader global equity markets. Many analysts have argued that US equities are expected to continue their strong performance under Trump.
37 per cent of respondents preferred multi-strategy funds. These are funds that rely on a variety of different strategies, which might include equity long/short, fixed income, arbitrage or credit markets.
Multi-strategy funds are more popular than long-short (31 per cent) and long-bias (27 per cent) funds. Commodity and volatility trading are the least popular hedge fund strategies for 2025, which are each popular with just 8 per cent of clients.
Only 16 per cent of hedge fund clients feel their hedge fund underperformed in 2024, while 30 per cent feel it overperformed.
