Hedge funds demonstrated value in investor portfolios as both diversifiers and risk mitigators, while offering double-digit returns, according a new report from alternative investment data specialist Preqin.
The Preqin 2025 Global Report: Hedge Funds highlights that while global equity and bond markets were relatively volatile in 2024, hedge funds proved to be comparatively steady. Preqin’s All Hedge Fund Index returned 10% in 2024 to Q3, or 14% at a compound annualised growth rate (CAGR).
Inflows of $25.5bn Q3 2024 resulted in $19.2bn in net subscriptions through the first nine months of the year. However, Preqin cautions that this single quarter should for now be considered an outlier given net outflows have persisted for most of the last decade.
Assets under management (AUM) for hedge funds globally stood at $4.9tn by Q3 2024, an 8% increase from the $4.5tn at the start of the year. The 12% 12-month growth to Q3 2024 was notably above average historical figures. As an asset class, hedge funds have mostly seen net outflows over the long-term, meaning performance was the key driver behind AUM growth.
Overall returns of 10% for 2024 to Q3 lagged global public equities at 19% (MSCI World Index), but outperformed public debt at 4% (Bloomberg Global Aggregate index). Within overall returns, each hedge fund strategy showed itself capable of mitigating – to varying degrees – the volatility experienced in equity and bond markets in 2024 when added to a larger public market portfolio.
Niche strategy funds, dominated by cryptocurrency-focused sub-strategies, had the highest returns in 2024 to Q3, reaching 16%. Equity-focused funds returned 12% over the same period, while global macro and commodity trading advisor (CTA) funds trailed their peers, but in line with their respective risk and return profiles. Global macro funds were up 7% and CTAs gained 4% in 2024 by Q3.
The number of new hedge fund managers coming to market trended lower over the past eight years, and 2024 will likely end the year at the lowest level since 2000. By Q3 2024, 123 new managers entered the market, compared to 191 in 2000, with a peak of 697 in 2017. Equity strategy funds dominate new hedge fund offerings, but the number of niche funds available has more than doubled over the past five years, from 730 in 2019 to 1,570 in 2024. Adding to this, the number of multi-strategy fund launches grew at an annual rate of 4% since 2017 to 2024 by Q3, with these funds becoming more popular and second only to niche strategies.
In terms of institutional investor allocations, the largest segment – public pension plans – saw average hedge fund allocations fall towards 7% of total assets over the past five years, from 8% historically. This marks a large amount of capital no longer focused on hedge funds, with the US public pension system alone worth $8tn.
North America-based hedge funds’ assets stood at an estimated $3.95tn and made up about 81% of global AUM by Q3 2024. North America-based hedge funds’ share of AUM points towards the recent trend of asset consolidation by taking greater share from other global regions. Europe was the next largest region with $746.6bn, or 15% of global assets, while APAC held $164.4bn in hedge fund assets, 3% of total AUM.
At the strategy-level, global macro funds remain the largest category by AUM with an estimated $1.41tn in net assets by Q3 2024. However, global macro funds’ 5% increase in AUM by this same period was below hedge funds’ overall growth. It was also below relative value and equity funds, which were up 13% and 10% over the period, respectively.
