Hedge Funds Surge in Q3 as Equity Strategies Lead Double-Digit Gains — Evening Brief – 10.13.25
Equity-oriented hedge funds surged 7.2% in the third quarter and are now the only hedge fund sector posting double-digit gains for 2025, climbing 13.6% year to date through September, according to the latest data from HFR. The strong quarter capped a rebound in hedge fund performance across multiple strategies, as nearly 80% of managers reported positive returns in September amid easing interest rates, robust equity markets, and a revival in M&A activity.
Leading the charge was Bridgewater Associates’ flagship Pure Alpha Fund, which gained 26% year to date and 8.1% in September alone, underscoring a resurgence in macro strategies after a volatile start to the year. Macro and quantitative hedge funds collectively advanced 4.5% in September, while the HFRI Macro (Total) Index rose 3.4% for the month and 3.9% year to date, reversing second-quarter losses of roughly 1.5%.
Quantitative, systematic, and trend-following funds captured broad gains across asset classes, particularly in commodities, metals, and rates, reflecting renewed “risk-on” positioning as the yield environment stabilized. “Hedge funds posted a record surge in the third quarter, accelerating strong gains led by Systematic Macro and Equity strategies, with powerful risk-on sentiment driven by lower interest rates, falling geopolitical risk, record equity levels, acceleration of M&A, and unprecedented strategic investment in AI development, capabilities and infrastructure,” said Kenneth Heinz, President of HFR.
Event-driven strategies also posted solid results, up 1.22% in September and 9.1% year to date, supported by rising deal flow and capital markets activity. However, performance dispersion widened sharply — the top decile of funds returned 12.2% in September while the bottom half declined 3.2%, pushing top-to-bottom dispersion to 67.2% from 12.9% in August, according to HFR.
Investor sentiment has followed performance. The hedge fund industry, now valued at $4.7 trillion, saw $37.5 billion in net inflows during the first half of 2025, surpassing the $10.5 billion of inflows recorded in all of 2024. Heinz noted that institutional and individual investors alike — from pensions and sovereign wealth funds to family offices — are allocating more capital to hedge funds for both growth and downside protection.
“These record gains across the broad range of hedge fund strategies have contributed strongly to portfolio performance through the current risk-on cycle,” Heinz said, “and are expected to drive record industry capital growth through year-end and into 2026, even as volatility and macro uncertainty remain defining themes.”