Hedge fund strategies across event-driven, equity hedge, and cryptocurrency led the industry’s performance gains in May, buoyed by easing volatility, improving macro sentiment, and continued momentum in equity markets, according to data from HFR.
The HFRI Event-Driven (Total) Index was the top-performing primary strategy, rising +3.8%, marking its strongest monthly performance since December 2023. Close behind, the HFRI Equity Hedge (Total) Index posted a +3.7% gain, while the HFRI Fund Weighted Composite Index® (FWC) – a broad measure of hedge fund industry performance – advanced +2.0% for the month.
Cryptocurrency strategies continued their sharp recovery from Q1 losses. The HFR Cryptocurrency Index surged +12.7% in May, its best monthly return since November 2024. Notably, the HFR Cryptocurrency-Fundamental Index – part of HFR’s newly launched suite of crypto-focused sub-strategies – soared +24.7% during the month.
“The performance leadership in May came from strategies positioned opportunistically to capture the market rebound, with a strong tilt toward event-driven equity exposures and digital assets,” said Kenneth J Heinz, President of HFR. “Allocators are increasingly focused on managers demonstrating strategic adaptability amid macro and geopolitical volatility.”
Within event-driven strategies, special situations and activist approaches led returns. The HFRI ED: Special Situations Index gained +6.0%, while the HFRI ED: Activist Index added +4.35%. These managers capitalised on renewed M&A activity and value dislocations tied to evolving corporate events.
Equity hedge funds also benefitted from strong sector-specific returns. The HFRI EH: Technology Index climbed +6.0%, while the HFRI EH: Fundamental Growth Index gained +4.7%. Fundamental Value and Quantitative Directional strategies delivered +4.2% and +3.9%, respectively.
The HFRI Multi-Manager/Pod Shop Index, which tracks diversified multi-manager platforms, rose +1.0%, supported by contributions from equity, event-driven, and crypto allocations.
Despite rising interest rates linked to fiscal uncertainty in the US, Relative Value Arbitrage strategies posted modest gains. The HFRI RV (Total) Index added +0.9%, led by the FI: Corporate Index (+1.3%) and RV: Multi-Strategy Index (+1.2%).
Macro strategies, by contrast, delivered mixed results. The HFRI Macro (Total) Index fell -1.0%, with systematic strategies under pressure: the Macro: Systematic Diversified Index declined -1.8%, while currency and discretionary thematic macro strategies each edged up +0.2%.
As volatility subsided from April’s spike, hedge fund performance dispersion narrowed. In May, the top decile of HFRI FWC constituents returned +10.6%, while the bottom decile lost -4.6%, a 15.2 percentage point gap — down from April’s 17-point spread. Approximately 70% of hedge funds posted positive returns during the month.
However, long volatility and tail risk strategies gave back some of their April gains. The newly launched HFRI Long Volatility Index dropped -2.5%, following a +4.7% surge the prior month.
While geopolitical and inflation concerns have eased somewhat from 2024 levels, Heinz cautioned that new sources of uncertainty — including US fiscal policy, government borrowing, and military tensions — are keeping funds tactically positioned for fast-moving market developments.
“Institutional investors seeking to navigate this shifting landscape are increasingly looking to strategies that have demonstrated resilience and adaptability,” Heinz added. “This is likely to drive allocation flows and industry growth into the second half of 2025.”
