Led by directional Equity Hedge and Event Driven strategies, hedge funds posted their strongest monthly gain since December 2023 in June to conclude 1H25, as reported today by HFR.
In contrast to the significant trade, tariff and legislative uncertainty which characterised the beginning of 2Q25, the quarter concluded with strong momentum and an improving economic outlook for 2H25 with the passage of the US legislation relating to tax and government spending, while the Trump administration continued to make progress on global trade negotiations.
As implied volatility again declined from the historic April surge and despite an increase in geopolitical risk, the HFRI Equity Hedge (Total) Index led strategy performance, jumping +3.4 per cent, while the HFRI Event-Driven (Total) Index advanced +3.2 per cent for the month. The industry standard and globally recognised broad-based HFRI Fund Weighted Composite Index (FWC) gained +2.4 per cent for the month.
The HFRI Multi-Manager/Pod Shop Index added +1.2 per cent in June, with powerful contributions from equity, event-driven, and fixed income exposures.
The HFRI Asset Weighted Composite Index, which includes the same constituents as the FWC but constituents are weighted by assets (rather than the equal-weighted version), also advanced +1.6 per cent for the month.
HFR has launched two new asset-weighted variations of the HFRI Asset Weighted Composite Index: the HFRI Asset Weighted Composite (ISW), which asset weights each constituent fund after imposing the FWC industry strategy weight, as well as the HFRI Asset Weighted Composite (EWS) which asset weights each constituent fund but applies an equal weight to each of the four main strategies that comprise the FWC.
The HFRI Asset Weighted Composite (ISW) gained +1.9 per cent for June, while the HFRI Asset Weighted Composite (EWS) gained +1.8 per cent.
New hedge fund launches jumped while liquidations declined in 1Q 2025, as managers continued to position for both legislative, economic and geopolitical risks and opportunities in the second half of the year. The estimated number of new funds launched in 1Q25 increased to 121, the highest number of quarterly launches since 1Q24, while estimated liquidations fell slightly to 73 in 1Q, down from the estimated 80 liquidations in 4Q24. As previously reported by HFR, total hedge fund industry capital reached another record level in 1Q25, ending the quarter at an estimated USD4.5 trillion.
Hedge fund performance dispersion contracted in June, as the top decile of the HFRI FWC constituents advanced by an average of +10.0 per cent, while the bottom decile fell by an average of -2.6 per cent, representing a top/bottom dispersion of 12.6 per cent for the month. By comparison, the top/bottom performance dispersion in May was 15.4.0 per cent. In the trailing 12 months ending June 2025, the top decile of FWC constituents gained +40.5 per cent, while the bottom decile declined -22.6 per cent, representing a top/bottom dispersion of 63.1 percent. Approximately 80 per cent of hedge funds produced positive performance in June.
Equity Hedge (EH) funds, which invest long and short across specialised sub-strategies, led strategy performance in June, driven by gains in Technology, Fundamental Growth and Energy strategies. The HFRI Equity Hedge (Total) Index advanced an estimated +3.4 per cent for the month, led by the HFRI EH: Technology Index, which surged +7.1 per cent, the HFRI EH: Fundamental Growth, which jumped +4.7 per cent, and the HFRI EH: Energy/Basic Materials Index, which advanced an estimated +3.7 per cent. For 2Q25, the HFRI EH (Total) Index surged +7.7 per cent.
Event-Driven (ED) strategies, which often focus on out-of-favour, deep value equity exposures and speculation on M&A situations, also posted strong performance in June, as the HFRI Event-Driven (Total) Index jumped an estimated +3.2 per cent for the month, resulting in a two-month surge of +6.0 per cent to conclude 2Q25. ED sub-strategy performance in June was led by the HFRI ED: Special Situations Index, which vaulted +5.2 per cent, and the HFRI ED: Multi-Strategy Index, which jumped +4.6 per cent for the month.
Uncorrelated Macro strategies posted positive performance in June to reverse losses in the prior two months, with the HFRI Macro (Total) Index advancing +1.3 per cent for the month, driven by gains across fundamental discretionary thematic and commodity exposures. The HFRI Macro: Discretionary Thematic jumped +2.5 per cent in June, and the HFRI Macro: Commodity Index added +1.6 per cent.
Fixed income-based, interest rate-sensitive strategies also advanced for the month as interest rates declined in anticipation of the passage of US tax and spending legislation, with the HFRI Relative Value (Total) Index advancing an estimated +0.8 per cent in June. Relative Value performance was driven by the HFRI RV: Multi-Strategy Index, which gained +1.3 per cent for the month, and the HFRI RV: Corporate Index, which added +1.0 per cent.
Liquid Alternative UCITS strategies gained in June, as the HFRX Market Directional Index gained +2.72 per cent, while the HFRX Global Hedge Fund Index added +1.10 per cent for the month. HFRX strategy performance was led by the HFRX Equity Hedge Index, which gained +1.43 per cent in June.
Estimated industry-wide fees were relatively unchanged in 1Q25, as the average management remained at 1.34 per cent, while the average incentive fee fell slightly to 15.80 per cent, a minor decline from 15.84 per cent as of 4Q24.
