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Hedge funds made their largest asset gains on record in 2025, as investors shift away from struggling private equity investments and seek to offset exposure to equities amid concerns about a bubble.
The size of the global hedge fund industry increased by about $628bn in 2025, including both returns from existing assets and new money from investors, according to estimates by data provider HFR, as the sector passed $5tn for the first time in October.
The industry recorded returns of 12.8 per cent last year, according to an HFR index that tracks the sector globally, its best performance since 2009.
Hedge funds have enjoyed a resurgence in part because investors have cooled on private equity investments, with buyout funds struggling to return cash to investors during a prolonged downturn in dealmaking.
“In previous years, we saw much more activity in private markets but that priority has shifted,” said Marlin Naidoo, the head of capital introduction at BNP Paribas. “I have not seen this much enthusiasm for hedge funds in a very long time.”
The sector has also been helped by concerns about an artificial intelligence-fuelled bubble in the stock market, which has led some investors to trim their exposure to equities.
The hedge fund industry has rebounded since its last difficult year in 2022, when investors pulled back because of poor performance. Hedge funds shed about $180bn of assets that year, HFR data show, before adding $285bn in assets in 2023 and about $400bn in 2024.
“In 2023, investors had a toehold in hedge funds and were very comfortable with the performance,” said Kier Boley, co-head and chief investment officer of alternative investment solutions at Swiss private bank UBP. “That continued into 2024 and 2025, and clients are happy increasing again.”
In recent years so-called multi-strategy hedge funds that promise investors consistent returns by investing across a spectrum of markets have boomed. Firms such as Millennium, Citadel, Balyasny and Point72 have sucked in assets, with the largest of the group now boasting almost $85bn in assets under management.
Hedge funds were investors’ most sought-after asset class at the start of 2025, ahead of private credit and equity, according to a survey of investor clients by Goldman Sachs.
Jon Caplis, the founder and chief executive of hedge fund research firm PivotalPath, said the “negative halo around private equity and these first cracks appearing in private credit” are both driving capital to hedge funds. “The appreciation of liquidity is back across the board.”
Some investors have also decided to trim the exposure of their winning passive equity investments in indices such as the S&P 500, benefiting hedge funds, which have sucked in some of the excess cash.
“Equity exposure has been top of their range because of the exceptional performance [stocks] have had, so [investors] rebalance their portfolios to bring them back to long-term target weights,” said Boley.
Investors have deployed some of that cash in hedge funds, which performed well during the market turmoil around the Trump administration’s “liberation day” tariffs in April 2025.
“Hedge funds really demonstrated in the beginning of the year their downside protection,” said one top banker for hedge funds.
While that period helped give investors some comfort about the asset class’s resilience, the period of volatility was too short to demonstrate how hedge funds would fare during a recession.
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