Hedge funds delivered strong performance in the first half of 2025, returning 11% year-to-date after a sharp Q2 rebound that saw average returns reach 8.3%, according to new data from asset servicing solutions specialist Citco.
The performance marked the 11th consecutive quarter of gains, as the sector continues to benefit from market resilience and investor appetite for alternative strategies.
Second quarter returns were driven by a reversal of the initial volatility caused by new global trade tariffs introduced earlier in the year. As equity markets surged to fresh highs, multi-strategy and equity-focused hedge funds led the charge, delivering weighted average Q2 returns of 9.8% and 9.2%, respectively. Both strategy types are now firmly in double-digit territory year-to-date.
However, not all strategies fared equally. Commodity-focused funds lagged, with Q2 losses of 3.6%, pushing their year-to-date performance to -2.2%, the only strategy group in negative territory.
Size also mattered as larger hedge funds with over $3bn in assets under administration (AUA) outperformed their peers, generating a Q2 return of 10.4% and taking their YTD performance to 14.5%.
Investor confidence in the sector remained strong with hedge funds seeing net inflows of $10.7bn in Q2, bringing total net inflows for the year to $17.8bn. Multi-strategy funds were once again the preferred vehicle, drawing $12.1bn in net inflows in Q2 alone, building on their $3.5bn haul in Q1.
Trading activity also hit record levels, with equities and related derivatives dominating volumes. Citco reported that Q2 2025 marked the busiest quarter on record in terms of daily average trading volumes. Meanwhile, its Middle Office Solutions team processed over 170,000 payments in Q2 — another all-time high for outsourced treasury operations.
“While some strategies have excelled, the consistency of returns that hedge funds are delivering is also eye-catching – Q2 2025 marks their 11th consecutive quarter of positive returns, as they continue to deliver both diversification and returns for investors,” said Declan Quilligan, Head of Hedge Fund Services, Citco Fund Services (Ireland) Limited. “Investors are taking full advantage of this, with inflows increasing in Q2, and multi-strategy funds are the clear standout choice so far this year, with inflows outstripping other strategy types.”
