Key Points
- Hedge funds landed their biggest annual gain in 16 years, with equity strategies and thematic macroeconomic funds leading the charge.
- Healthcare, energy and commodities markets offered fertile territory last year, as fund managers weathered tariff turbulence and crypto corrections.
- 2025 saw positive performances across a range of investment approaches, with industry mainstays Citadel and Bridgewater among the key winners.
The global hedge fund industry delivered a 12.6% annual return last year across all strategy types, its biggest since the Global Financial Crisis. The returns were driven mainly by stock-picking strategies that bet long and short on equity markets, as well as macro managers that use stocks, bonds, commodities, and currencies to trade big-picture macroeconomic themes. Both these strategies were up more than 17% for the year, according to new data published by industry tracker Hedge Fund Research (HFR). HFR numbers also showed comprehensive gains across a range of strategies and asset classes, with many in double-digit territory. Its main Fund Weighted Composite Index — a broad snapshot of manager performances across all strategy types — advanced 1.56% in December. That made its full-year gain in 2025 the strongest annual showing since 2009’s near-20% rise, when hedge funds capitalized on the subprime mortgage meltdown. Fertile terrain HFR president Kenneth Heinz highlighted 2025’s buoyant stock market driven by AI and technology and infrastructure spend, adding that hedge funds successfully traversed “oscillating cycles of risk-on and -off sentiment”, such as the “Liberation Day” tariffs announcement volatility, cryptocurrency depreciation and tech stock reversals arising from valuation concerns. .GSPHC 1Y mountain S & P 500 Health Care Sector. Healthcare, energy and commodities markets also offered fertile terrain for returns, as sector-specialist strategies successfully traded on the drug pricing themes and weight-loss treatments driving pharmaceutical stocks, and the ongoing rally in gold and silver. Healthcare -focused equity hedge funds finished last year up 33.8%, according to HFR data, while stock pickers focused on energy and basic materials rose 23.4%. Only one strategy type finished the year in the red. Quantitative diversified funds — computer-based strategies that use statistical algorithms and models instead of human traders to invest in markets — ended 2025 down 0.65%, wrong-footed by the volatility spike during April’s tariff announcements and November’s tech sell-off. ‘Diverse engines of performance’ Edgar Allen, founder and chief investment officer of High Ground Investment Management, a $2 billion long/short equity firm which takes a fundamental stock-picking approach to companies, said his fund performed well both from long positions, as well as alpha from short wagers, which can be tricky in rising markets. Allen highlighted defense stocks including BAE Systems and Leonardo , and financial names such as Allied Irish Bank, as key contributors to High Ground’s 39.4% annual gain after fees. LDO-IT 1Y mountain Leonardo. “It’s a market where there’s a very large amount of dispersion, so in general that makes stock-picking on the long side and on the short side a bit easier,” he told CNBC. Citadel ‘s flagship multi-strategy Wellington fund, the largest managed by billionaire Kenneth Griffin’s long-running firm, rose 10.2% in 2025. AQR Capital, the quantitative trading giant founded by Cliff Asness, saw its Apex multi-strategy vehicle rise 19.6% for the year. Bloomberg data showed big moves among Melqart Opportunities, an event-driven strategy run by Michel Massoud’s Melqart Asset Management, which surged 45.1%; Bridgewater Associates’ macro-focused Bridgewater Pure Alpha II, notching a 34% return, and D.E. Shaw’s multi-strategy Oculus fund, which added 28.2%. “The impact of these diverse engines of performance highlights the sophisticated nature of the modern hedge fund industry to deliver uncorrelated performance gains across a wide range of financial market environments,” HFR’s Heinz said.