Q3 2025 update

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