Hedge fund launches climbed to a four-year high in 2025 as investors increased allocations to strategies positioned for rising market volatility, according to new data from hedge fund index and analysis specialist HFR.
The firm’s latest Market Microstructure Report shows an estimated 562 new hedge funds were launched in 2025, marking the strongest annual total since 2021. At the same time, fund closures fell sharply to just 287, down from 406 in 2024 and the lowest level recorded since 2004, highlighting improving industry stability.
The data comes as total hedge fund assets reached a record $5.16tn at the start of 2026, reflecting sustained capital inflows amid heightened geopolitical tensions, continued uncertainty around inflation and growth, and increased volatility tied to artificial intelligence and cryptocurrency markets.
Launch activity accelerated into the final quarter of 2025, with approximately 135 new funds coming to market. Equity Hedge strategies led with 65 launches, followed by Macro funds with 35, signalling a shift away from Relative Value Arbitrage strategies, which had dominated in the prior quarter. Liquidations remained subdued in the fourth quarter, with just 72 fund closures, led by Equity Hedge and Relative Value strategies.
HFR also reported a notable increase in performance dispersion across managers. The top decile of the HFRI Fund Weighted Composite Index delivered an average return of 47.3% in 2025, while the bottom decile declined by 11.3%, resulting in a spread of 58.6%, compared with 45.3% in 2024.
Management fees edged lower across the industry, falling by one basis point in the fourth quarter to 1.33%, while incentive fees rose slightly to 15.83%. Newly launched funds in 2025 charged an average management fee of 1.25% and an incentive fee of 17.92%.
In terms of service providers, Goldman Sachs, UBS, JPMorgan and Morgan Stanley remained the leading prime brokers, while SS&C GlobeOp, Citco Fund Services and State Street continued to dominate fund administration.
In a parallel development, HFR introduced the HFR Co-Investment Index (HFRCINV) in March 2026, tracking the performance of managers offering co-investment and “best ideas” strategies. The index has delivered a five-year annualised return of 18.47% with a Sharpe ratio of 1.04.
Kenneth J Heinz, president of HFR, said the increase in launches reflects strong demand from institutional and retail investors seeking liquid, low-correlated strategies as alternatives to private markets.
“As industry growth continues to accelerate to record levels, managers and investors are expanding the scope of their relationships with co-investment opportunities highlighting the strong performance of these opportunities,” he said. “Volatility and uncertainty have surged to record levels as a result of the Iran military conflict and although the drivers of volatility may change throughout the year, volatility will continue to be a strong feature of the months ahead.”
