Hedge funds attracted the strongest inflows in more than a decade as volatility gave way to optimism, new industry figures show.

Global hedge fund assets reached a record-breaking $4.74 trillion in the second quarter of 2025, driven by  performance and renewed investor confidence. 

According to the latest data from Chicago-headquartered Hedge Fund Research, total industry capital gained by $212.7 billion quarter-over-quarter. This marks the seventh consecutive quarterly asset increase.

The sharp rebound came despite significant early-quarter volatility, as managers were adept at repositioning portfolios in response to an evolving macro environment, HFR said.

As implied volatility declined again from the historic April surge after US President Donald Trump’s “Liberation Day” tariff announcement, and despite a rise in geopolitical risk, the HFRI Equity Hedge (Total) Index led strategy performance. It rose 3.4 per cent in June; the index has risen 6.06 per cent since the start of the year.

The HFRI Event-Driven (Total) Index advanced by 3.2 per cent for the month, and more than 5.23 per cent for the year so far.

Such data show that, while hedge funds typically cannot always perform as strongly as long-only listed equities, they provide – so it is argued – a level of buffer against market falls. Since the start of 2025, the MSCI World Index of developed countries’ equities has chalked up total returns (capital gains plus reinvested dividends) of 12.1 per cent on a net basis (figures are in dollars). 

HFR said the second quarter of 2025 quarter ended on a markedly positive note, buoyed by progress on US budget negotiations, trade and tariff developments, an improved economic outlook for the second half of the year, and fading geopolitical tensions.

Performance 
Investor appetite returned in force, with hedge funds posting the strongest quarterly net inflows since Q2 2014. An estimated $24.8 billion of new capital flowed into the sector during the quarter, lifting first-half 2025 inflows to $37.3 billion – the best first-half result since 2015.

Equity hedge strategies saw capital swell by $90 billion in Q2, with net inflows of $5.1 billion bringing the strategy’s total assets to $1.4 trillion. (Such strategies are designed to capture upside movements in equities, while hedging risks by taking short positions in the market.)

Event-driven strategies also posted robust growth, with assets increasing by $81.2 billion to $1.34 trillion, including $4.7 billion in net inflows. (Such strategies seek to profit from price movements around mergers, acquisitions and other corporate developments.)

Relative value and macro trends
Relative value arbitrage strategies attracted $7.7 billion in net new capital, lifting total assets to $1.28 trillion. (RVA strategies aim to exploit discrepancies in the prices of related financial instruments.)

Macro strategies saw mixed results. Net inflows reached $7.2 billion – pushing total assets to $725.5 billion – performance lagged. The HFRI Macro (Total) Index fell 1.4 per cent, dragged down by systematic strategies, though discretionary thematic funds remained resilient. (Macro funds aim to profit from anticipated shifts in economic conditions, interest rate changes, inflation, and geopolitical developments.) 

Size matters
Investor allocations were concentrated among the industry’s largest managers. Firms overseeing more than $5 billion received $22.9 billion of the quarter’s net inflows. Mid-sized firms (managing $1 to $5 billion) garnered $1.77 billion, while smaller managers attracted just $150 million. Over the first half of 2025, the largest firms brought in nearly $30 billion in fresh capital.