Hedge fund launches accelerated sharply in late 2025, while liquidations remained near historic lows, as investors positioned for geopolitical risk, strong economic growth, and inflation uncertainty heading into 2026, according to HFR’s latest Market Microstructure Report.
The estimated number of new hedge funds launched in the third quarter of 2025 rose to 165, bringing the year-to-date total to 427—on pace for the highest annual tally since 2021. In contrast, liquidations remained muted, with an estimated 77 closures in 3Q25, keeping year-to-date closures at 215, roughly half the 406 liquidations recorded in 2024, the lowest level since 2004. Total industry capital reached a record $4.98tn heading into the final quarter of 2025.
Relative value arbitrage led new launches in 3Q25, with an estimated 70 new funds, followed by equity hedge (47) and macro (41). Equity hedge funds accounted for the largest number of closures in the quarter, with 27 estimated liquidations.
HFR reported that performance dispersion among hedge funds contracted slightly in 3Q25, with the top decile of the HFRI Fund Weighted Composite Index returning an average 22.2%, while the bottom decile fell 4.4%, representing a top/bottom dispersion of 26.6%. Over the trailing 12 months, the top decile returned 41.1%, compared with -12.6% for the bottom decile.
Fees remained largely stable, with the average management fee estimated at 1.34% and incentive fees at 15.8%. Newly launched funds in 3Q25 charged slightly lower average management fees of 1.18%, and incentive fees of 16.29%.
Goldman Sachs, UBS, JP Morgan, and Morgan Stanley continued to dominate as prime brokers for hedge funds, while SS&C GlobeOp, Citco Fund Services, and IFS State Street remained the leading fund administrators.
“Hedge fund launches reflect record capital levels, strong performance, and rising investor demand,” said Kenneth J Heinz, President of HFR. “Allocators are deploying at levels not seen since 2007, supporting both established managers and new launches, which often deliver strong early performance. Managers navigated diverse market cycles in 2025 and are positioning for a continuation of these trends into 2026, amid inflation, monetary policy, trade, and geopolitical risks.”
