Citadel founder Ken Griffin believes hedge funds need to consistently generate returns of around 4 percentage points above the risk-free rate if they are to continue attracting investor capital over the long term, according to a report by eFinancial Careers.
Speaking at a Goldman Sachs event, Griffin said the equilibrium level for the industry is to outperform the risk-free cost of capital by roughly 4%, suggesting that investors will increasingly favour managers capable of delivering meaningful excess returns rather than simply outperforming traditional benchmarks.
With the yield on 10-year US Treasuries currently around 4.5%, Griffin’s comments imply that hedge funds should be targeting annual returns approaching 9% to remain competitive in fundraising over time.
The remarks come as performance across the multi-strategy hedge fund sector remains mixed during 2026.
Some of the industry’s largest managers have comfortably exceeded Griffin’s suggested hurdle. Marshall Wace’s Eureka fund reportedly gained nearly 20% during the first half of the year, while Citadel’s Tactical Trading fund returned approximately 14.3%.
However, a number of prominent hedge funds have posted more modest gains. Citadel’s flagship Wellington fund was up around 5.7% in the first six months of the year, while Jain Global returned about 3.9%, Balyasny gained 2.6%, and Brevan Howard’s Master Fund rose roughly 2.2%. Commodity-focused manager Taula posted a loss over the same period.
Griffin’s comments underline the increasing pressure facing hedge fund managers in an environment where elevated interest rates have raised the hurdle for generating attractive risk-adjusted returns. When investors can earn more than 4% from government bonds with minimal risk, hedge funds are expected to demonstrate a substantially higher level of performance to justify their fees and lock-up periods.
While many alternative investment funds operate with multi-year investor lock-ups that reduce the impact of short-term performance fluctuations, sustained returns below that threshold could make fundraising more challenging if investors conclude they are not being adequately compensated for the additional risk.
