Performance Overview

September MTD and YTD Performance (Wells Fargo PB)

(MS PB)

Amid strong gains across equity indices globally in September, HF performance ended broadly in-line with expectations. On average, Global HFs captured roughly half of the MSCI AC World’s gains in September, finishing +1.7%.

Global L/S funds fared slightly better, delivering gains of just over +2%. YTD, this leaves the average Global HF +9.2%, while Global L/S funds are up slightly higher at +11.6%, which compares to the MSCI’s gains of +19%.

– Returns across Americas-based HFs were strong through most of September, but the late-month momentum reversal eroded some of this PnL. Americas-based HFs (across all strategies) finished +1.5%, while Americas-based L/S funds gained +1.7%. When compared to the S&P’s gains of +3.6%, this meant both groups captured less than half of the index’s upside despite running nets north of 50%, suggesting factor moves weighed on performance. For the year, returns remain favorable, with Americas-based HFs (all strategies) and L/S HFs +7.8% and +10.2%, respectively, vs. the S&P +13.3%

Q3 2025 delivered the strongest quarterly returns in four years for hedge funds, continuing the industry’s impressive momentum with compelling performance across most strategies.

Key Performance Metrics:

• PivotalPath’s hedge fund composite returned 5.3% in the third quarter marking the highest quarterly return since 2021
• Hedge funds generated positive performance during Q3, up 2.4%, though it underperformed both bonds and equities
• Industry assets reached $4.74 trillion as of June 30, up from $4.53 trillion at the end of 2024, with net inflows of $37.3 billion in the first half of 2025

Venture Capital Markets

Q3 2025 marked a decisive turning point for venture capital, with funding reaching multi-year highs driven by massive AI rounds.

Funding Metrics:

• Global venture funding reached $97 billion in Q3, up 38% from $70 billion in Q3 2024
• According to KPMG data, global VC investment rose from $112 billion in Q2 2025 to $120 billion in Q3 2025, marking the fourth consecutive quarter of robust investment
• Each of the past four quarters saw global startup funding above $90 billion — quarterly amounts not seen since Q3 2022

AI Dominance:

The AI sector continued its extraordinary run with $45 billion — or around 46% of global venture funding — going to the sector, with 29% invested in a single company, Anthropic.

Major AI funding rounds included:

• Anthropic ($13 billion), xAI ($5.3 billion) and Mistral AI ($2 billion)
• New York-based Reflection AI secured $1 billion
• In Canada, Cohere raised $600 million, while in China, MiniMax AI closed a $300 million round

Deal Concentration:

The trend toward mega-rounds intensified: A third of all venture investment in Q3 went to just 18 companies that raised funding rounds of $500 million or more each with 11 of the 18 companies raising funding in September.

Geographic Distribution:

The Americas led global VC investment, attracting $85.1 billion across 3,474 deals in Q32025—more than 70% of the total funding seen globally. Within the Americas, the US accounted for $80.9 billion in VC investment during Q3 2025, while Canada attracted $2.7 billion and Brazil attracted a 12-quarter high of $1.1 billion.

Exit Environment Improvement:

The IPO market showed significant improvement with 16 venture-backed companies going public above $1 billion in Q3, collectively valued north of $90 billion at their IPO prices. Major IPOs included Figma, Klarna, Netskope, and Chery Automobile.

M&A activity moderated to $27.5 billion in reported exit value for venture-backed companies in Q3, down from $43.6 billion in Q2.

Interest Rate Outlook

The Federal Reserve began its easing cycle in September 2025 with a 25 basis point cut, bringing rates to 4.00%, -4.25%. The broader set of FOMC projections shows that the median participant expects the rate to hit 3.50%, -3.75% by the end of 2025, with rates projected to drop further to 3.25%, -3.50% by the end of 2026.

2025: Two more 25-basis-point cuts projected at the central bank’s October and December policy meetings, leaving the federal funds rate at a median of 3.6% this year

2026: The pace of rate cuts is projected to slow in 2026 and 2027, which have median estimates of 3.4% and 3.1%, respectively

Stay connected with us on LinkedIn for the latest updates and for inquiries please reach out to our team, Jennifer Ries @ jries@hcglobalfs.com OR Ghufran Rizvi @ grizvi@hcglobalfs.com  Tel: 415-796-7520

Performance Overview 

Hedge funds overall posted returns of 3.8% through the end of June. This represents a solid recovery after previous challenging periods and demonstrates the industry’s resilience in navigating market volatility. 

Strategy Performance 

 June MTD and YTD Performance (Wells Fargo PB) 

(MS PB) 

1. HFs posted strong gains in June, with June ending as the strongest month of global long alpha since January ‘24 
2. Long performance in N. Am was particularly notable – after being down as much as 5% in April, longs in N. Am have since fully recouped those losses

 Winners: Most hedge fund strategies generated positive performance. Equity long/short was the strongest performing master strategy Hedge fund performance by strategy. This outperformance reflects the normalized interest rate environment and increased market dispersion that favors active stock selection. 

Laggards: For another month, the weakest performing strategy was quant, although there was significant sub-strategy performance dispersion; CTAs had a positive month after a recent run of poor performance Hedge fund performance by strategy. 

The current environment has created several tailwinds for hedge funds: 

With risk-free rates now at 4%-5%, hedge fund strategies with meaningful cash holdings (e.g., market-neutral, long/short equity, arbitrage strategies, and macro) now generate an attractive short-interest rebate, providing a buffer to returns  Strategies like fixed-income arbitrage and relative value function better when short-term rates are positive, resulting in a higher carry on these strategies that make them more attractive. 

Investor Sentiment & Allocations 

Growing Appetite: 30% more investors expect to increase allocations to hedge funds in 2025 than to decrease them and the capital may be coming from Long-Only Equity and even more so from Long-Only Fixed Income, which are both expected to see a decrease in capital deployed. 

Performance Recognition: In 2024, hedge funds (HFs) delivered differentiated performance – the second highest returns over the last 10 years, setting the stage for continued investor interest. 

Strategic Outlook 

Favorable Positioning: We maintain a positive outlook in two areas: Global Macro managers should be able to continue to navigate increased volatility across all asset classes, serving as a dynamic hedge against uncertainty. Additionally, we expect Micro Quantitative strategies to continue to perform strongly overall given expectations of prolonged higher rates and elevated levels of single stock volatility. 

Market Diversification: Hedge funds have the ability to add non-correlated return streams to institutional portfolios that protect against traditional long-only asset class sell-offs making them increasingly valuable as portfolio diversifiers. 

Industry Evolution 

Multi-Manager Growth: The outsized impact of multi-managers on the hedge fund talent landscape shows little sign of abating with headcount continuing to rise to as much as one quarter of the industry’s total. 

Credit and Distressed Opportunities 

Higher interest rates and regulatory constraints have made banks more reluctant lenders, allowing hedge funds to step in via credit risk transfer transactions and outright loans to companies creating new revenue streams for credit-focused strategies. 

Bottom Line 

Q2 2025 represented a strong quarter for hedge funds, with the industry posting solid 3.8% returns while benefiting from normalized interest rates and increased market volatility. Equity long/short strategies led performance, while the structural shift toward higher base rates has created more favorable operating conditions across multiple strategies. Growing institutional appetite suggests continued capital inflows ahead, positioning the industry well for the remainder of 2025.Venture Capital Q2 2025 

Private Equity Q2 2025 

Market Activity: Private equity (PE) activity in the first half of 2025 remained muted, as the dual forces of sustained high interest rates and extended holding periods continue to reshape deal economics. 

Exit Challenges: US PE exit value in Q2 2025 plummeted more than 40% from the previous quarter, while exit count fell to the second lowest level in over five years. 

Fundraising Environment: Private equity fundraising continues to face headwinds, with capital will continue to consolidate in the hands of top performers and scale funds with the most fund-raising clout. 

Value Creation Focus: The industry is adapting by turning portfolio strategy into the primary engine of value as traditional financial engineering becomes less effective in the current rate environment. 

Looking Forward: Despite challenges, The outlook for private markets is decidedly more optimistic in 2025 than in the past two years, with investors expecting to benefit from increased dealmaking and liquidity. 

Key Takeaways 

Bottom Line: While Q2 2025 showed mixed results across alternative investments, several positive trends emerged. Hedge funds delivered modest but consistent returns amid normalized interest rates. Venture capital saw strong AI-driven mega-rounds despite overall volume declining from Q1 peaks. Private equity faced continued exit challenges but showed signs of adaptation through operational value creation strategies. The second half of 2025 appears positioned for improved market conditions across all three sectors. 

Stay connected with us on LinkedIn for the latest updates and or feel free to reach to us anytime: Email: info@hcglobalfs.com  Tel: 415-796-7520