Hedge fund performance strengthened sharply in December, capping the industry’s strongest calendar year since 2009, as managers successfully navigated evolving risks across macroeconomic, energy, technology and geopolitical markets, according to HFR.
Data from the company reveals that the HFRI Fund Weighted Composite Index (FWC) rose 1.6% in December, marking its eighth consecutive monthly gain. The index finished 2025 up 12.6%, its best annual performance in 16 years.
Performance momentum accelerated through the fourth quarter as hedge funds adapted to shifting “risk-on” and “risk-off” dynamics, including volatility linked to artificial intelligence investment, commodity markets, interest rate uncertainty and geopolitical tensions heading into 2026.
Macro strategies led performance in December, supported by gains in commodities, trend-following and multi-strategy exposures. The HFRI Macro (Total) Index advanced 1.9% for the month, extending a seven-month winning streak and bringing cumulative gains over that period to 9.9%.
Within macro, commodity-focused managers delivered the strongest results, with the HFRI Macro: Commodity Index rising 4.3% in December. The Macro: Multi-Strategy and Macro: Systematic Diversified indices gained 2.8% and 1.5%, respectively. For full-year 2025, macro strategies returned just over 7%.
Equity Hedge strategies emerged as the top-performing segment for the year, with the HFRI Equity Hedge Index gaining 1.8% in December and ending 2025 up 17.3%. This marked the index’s strongest annual return since 2020 and its second-best performance since 2009.
Energy and healthcare specialists stood out. The Equity Hedge: Energy/Basic Materials Index surged 5.2% in December, finishing the year up 23.4%. Healthcare-focused funds delivered exceptional performance, with the HFRI EH: Healthcare Index rising 45.8% from June through December and closing 2025 up 33.8% — its strongest annual gain on record.
Multi-manager and pod shop strategies also posted steady gains, with the HFRI Multi-Manager/Pod Shop Index up 9.7% for the year.
Event-driven strategies continued to recover as expectations built for stronger corporate activity in 2026, particularly around AI-related technology and infrastructure. The HFRI Event-Driven (Total) Index gained 1.5% in December and finished the year up 11.0%, its best result since 2021. Activist and credit arbitrage strategies led within the category.
Relative value strategies also ended the year in positive territory, supported by interest rate volatility and positioning ahead of uncertainty around inflation and monetary policy. The HFRI Relative Value (Total) Index rose an estimated 0.5% in December, bringing full-year gains to 7.5%, with convertible arbitrage among the strongest contributors.
Performance dispersion remained elevated, underlining the importance of manager selection. In December, the top decile of hedge funds gained an average of 8.9%, while the bottom decile fell 3.8%. For the full year, top-decile funds returned 62.7%, compared with a 12.8% decline for the bottom decile. Approximately 75% of hedge funds posted positive returns in December.
Kenneth J Heinz, president of HFR, said hedge funds benefited from powerful trends in AI investment while also navigating sharp reversals across cryptocurrencies, commodities and equity markets.
“The strong results highlight the industry’s ability to generate uncorrelated performance across diverse market environments,” Heinz said, adding that investor interest in hedge funds is likely to accelerate in 2026 as allocators seek resilience and diversification amid continued volatility.
