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)
Hedge Fund Performance | MTD (%) | 2025 YTD (%) |
US Equity Long/Short | 2.91 | 1.97 |
Global Equity Long/Short | 3.22 | 7.31 |
Credit | 0.88 | 3.66 |
Event Driven | 2.56 | 3.38 |
Global Macro | 1.21 | 0.27 |
Managed Futures | 0.62 | -9.89 |
(MS PB)
- HFs posted strong gains in June, with June ending as the strongest month of global long alpha since January ‘24
- 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.
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