Hedge funds suffered their first monthly loss since the start of the second quarter in July, with weakness in equity and fixed-income arbitrage strategies dragging the industry’s weighted average return down 0.8%, according to Citco’s latest monthly hedge fund update.
The decline came after three consecutive months of gains through the end of June. Despite the setback, more than half of funds still generated positive returns during the month and the industry’s year-to-date return remained close to double digits at 9.7%.
Equity strategies were the weakest performers, falling 2.7% on a weighted average basis, while fixed-income arbitrage strategies declined 1.2%.
The majority of other strategies ended July in positive territory. Commodities were the strongest performers, returning 5%, followed by global macro at 1%, multi-strategy at 0.5% and event driven at 0.4%.
Performance was also generally weaker among funds of different sizes. Funds with less than $200m in assets under administration recorded the largest decline, at 1.6%, followed by funds with $1bn to $3bn at 1.2% lower. Funds with $200m to $500m fell 0.9%, while those with more than $3bn declined 0.7%.
The $500m to $1bn segment was the only size category to post a positive return, gaining 0.2%. Performance dispersion narrowed during the month, with the gap between the best- and worst-performing funds falling to 9.9% from 10.9% in June.
The July performance setback did not translate into weaker investor demand.
Hedge funds attracted $12bn of net inflows during the month, extending their run of monthly inflows to seven consecutive months. Subscriptions of $20bn exceeded $8bn of redemptions, taking cumulative net inflows for 2026 to $86.9bn.
Multi-strategy funds continued to dominate the fundraising picture, attracting a further $5.3bn in July and bringing their year-to-date inflows to $49.2bn.
Hybrid funds received $2.4bn, while equity strategies attracted $2bn and fund of funds $1.5bn. Global macro funds also recorded $0.7bn of net inflows. No strategy category experienced net outflows during the month.
The largest managers continued to account for most of the capital movement. Funds with more than $10bn of assets under administration attracted $6.5bn during July, taking their year-to-date inflows to $67bn.
Funds with $5bn to $10bn attracted $2.7bn, while those with $1bn to $5bn received $2.3bn. Smaller funds, with less than $1bn, recorded $0.5bn of net inflows.
Europe remained the strongest regional destination for hedge fund capital, attracting $5.9bn in July. The Americas followed with $4.6bn, while Asia recorded $1.6bn of net inflows.
Citco also reported continued growth in operational activity across its middle-office business, with treasury payments reaching a new monthly high of 74,303 in July.
The total surpassed the previous record of more than 72,000 payments set in June and represented a 22% increase from July 2025. Citco said the figure marked a strong start to the third quarter after record-breaking activity in the second quarter.
Trade volumes, meanwhile, declined 4.2% from June, reflecting the seasonal slowdown typically seen during the Northern Hemisphere summer.
Activity in rate and index derivatives fell, although this was partly offset by stronger trading in commodity and equity derivatives, where volumes increased 17% month-on-month. Credit default swap activity continued to rise, increasing another 10% from June.
Despite the softer trading volumes, Citco’s straight-through processing rate reached 98.1% in July, pointing to continued operational efficiency across its client base.
