Global hedge fund industry assets rose by a record $409.3bn in the second quarter to reach $5.6tn, as strong investment performance and continued investor inflows drove the sector’s 15th consecutive quarterly expansion, according to HFR.
The increase was the largest quarterly rise in the industry’s history, surpassing the previous record of $290.4bn set in the fourth quarter of 2020.
Performance gains accounted for an estimated $364bn of the increase, while net investor inflows contributed a further $45.2bn, according to the latest HFR Global Hedge Fund Industry Report.
The latest inflow figure brings total net allocations over the past three quarters to $134.4bn, the strongest three-quarter period for investor flows since 2007. The figure has already exceeded the $115.8bn of net inflows recorded for the whole of 2025.
The industry’s expansion came despite continued geopolitical uncertainty, including the Iran military conflict, with HFR saying risk-on sentiment surrounding artificial intelligence, technology investment and a strong initial public offering market provided a powerful counterweight.
“The current environment is unequivocally the strongest for hedge fund capital growth since industry inception,” said Kenneth J Heinz, HFR’s president.
“The industry has effectively demonstrated the ability to navigate rapidly shifting risk-on and off sentiment, see-sawing market conditions, and intense dislocations driven by these forces,” he added.
Hedge funds generated broad-based gains during the first half of 2026, with the HFRI Fund Weighted Composite Index up 7.5%, its strongest first-half performance since 2021.
Equity hedge strategies led the major strategy groups, gaining 9.6% during the first six months of the year. Technology-focused equity hedge funds rose 19%.
Event-driven strategies returned 7.4% in the first half, supported by exposure to M&A, IPOs and distressed situations. Distressed strategies gained 12.4%.
Macro strategies advanced 6.1%, led by systematic diversified strategies, which rose 9.7%, while relative value strategies returned 3.7%. Fixed-income yield alternatives were the strongest-performing relative value sub-strategy, gaining 16.3%.
Equity hedge strategies also recorded the largest increase in assets during the second quarter, with capital rising by $173bn to $1.76tn. Fundamental value funds accounted for $82.9bn of the increase, taking the strategy’s assets to a record $933bn.
Event-driven assets increased by $145bn to $1.59tn, with special situations funds accounting for $66bn of the quarterly increase.
Relative value arbitrage assets rose by $55.1bn to $1.43tn, including $11.7bn of net inflows. Multi-strategy funds accounted for $37.3bn of the increase, taking assets in the sector to $880bn.
Macro assets grew by $36.4bn to $857.5bn, including $15.9bn of net investor inflows. Quantitative and trend-following CTA strategies led growth within the category.
Investor flows remained heavily concentrated among the largest hedge fund managers. Firms managing more than $5bn attracted an estimated $38.1bn of net inflows in the second quarter, compared with $6.3bn for managers with between $1bn and $5bn and $700m for firms managing less than $1bn.
For the first half of the year, the largest managers attracted $77.2bn of net inflows, compared with $10.3bn for mid-sized firms and $2.2bn for smaller managers.
HFR said the combination of shifting macroeconomic conditions, geopolitical risks and rapidly evolving technology markets could continue to support demand for hedge funds during the second half of the year.
“Investors are increasingly allocating to hedge funds not only to navigate market micro-cycles but also to reduce overall portfolio volatility and capitalise on rapidly shifting opportunities,” Heinz said.
