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In contrast to the significant trade, tariff and legislative uncertainty which characterized the beginning of 2Q25, the quarter concluded with strong momentum and an improving economic outlook for 2H25 with the passage of the US legislation relating to tax and government spending, while the Trump administration continued to make progress on global trade negotiations.

As implied volatility again declined from the historic April surge and despite an increase in geopolitical risk, the HFRI Equity Hedge (Total) Index led strategy performance, jumping +3.4 percent, while the HFRI Event-Driven (Total) Index advanced +3.2 percent for the month. The industry standard and globally recognized broad-based HFRI Fund Weighted Composite Index (FWC) gained +2.4 percent for the month.

The HFRI Multi-Manager/Pod Shop Index added +1.2 percent in June, with powerful contributions from equity, event-driven, and fixed income exposures.

The HFRI Asset Weighted Composite Index, which includes the same constituents as the FWC but constituents are weighted by assets (rather than the equal-weighted version), also advanced +1.6 percent for the month.

HFR is pleased to launch two new asset-weighted variations of the HFRI Asset Weighted Composite Index: the HFRI Asset Weighted Composite (ISW), which asset weights each constituent fund after imposing the FWC industry strategy weight, as well as the HFRI Asset Weighted Composite (EWS) which asset weights each constituent fund but applies an equal weight to each of the four main strategies that comprise the FWC. Additional information on these new indices can be found here. The HFRI Asset Weighted Composite (ISW) gained +1.9 percent for June, while the HFRI Asset Weighted Composite (EWS) gained +1.8 percent.

New hedge fund launches jumped while liquidations declined in 1Q 2025, as managers continued to position for both legislative, economic and geopolitical risks and opportunities in the second half of the year. The estimated number of new funds launched in 1Q25 increased to 121, the highest number of quarterly launches since 1Q24, while estimated liquidations fell slightly to 73 in 1Q, down from the estimated 80 liquidations in 4Q24. As previously reported by HFR, total hedge fund industry capital reached another record level in 1Q25, ending the quarter at an estimated $4.5 trillion.

Hedge fund performance dispersion contracted in June, as the top decile of the HFRI FWC constituents advanced by an average of +10.0 percent, while the bottom decile fell by an average of -2.6 percent, representing a top/bottom dispersion of 12.6 percent for the month. By comparison, the top/bottom performance dispersion in May was 15.4.0 percent. In the trailing 12 months ending June 2025, the top decile of FWC constituents gained +40.5 percent, while the bottom decile declined -22.6 percent, representing a top/bottom dispersion of 63.1 percent. Approximately eighty percent (80%) of hedge funds produced positive performance in June.

Equity Hedge (EH) funds, which invest long and short across specialized sub-strategies, led strategy performance in June, driven by gains in Technology, Fundamental Growth and Energy strategies.

The HFRI Equity Hedge (Total) Index advanced an estimated +3.4 percent for the month, led by the HFRI EH: Technology Index, which surged +7.1 percent, the HFRI EH: Fundamental Growth, which jumped +4.7 percent, and the HFRI EH: Energy/Basic Materials Index, which advanced an estimated +3.7 percent. For 2Q25, the HFRI EH (Total) Index surged +7.7 percent.

Event-Driven (ED) strategies, which often focus on out-of-favor, deep value equity exposures and speculation on M&A situations, also posted strong performance in June, as the HFRI Event-Driven (Total) Index jumped an estimated +3.2 percent for the month, resulting in a two-month surge of +6.0 percent to conclude 2Q25. ED sub-strategy performance in June was led by the HFRI ED: Special Situations Index, which vaulted +5.2 percent, and the HFRI ED: Multi-Strategy Index, which jumped +4.6 percent for the month.

Uncorrelated Macro strategies posted positive performance in June to reverse losses in the prior two months, with the HFRI Macro (Total) Index advancing +1.3 percent for the month, driven by gains across fundamental discretionary thematic and commodity exposures. The HFRI Macro: Discretionary Thematic jumped +2.5 percent in June, and the HFRI Macro: Commodity Index added +1.6 percent. Fixed income-based, interest rate-sensitive strategies also advanced for the month as interest rates declined in anticipation of the passage of US tax and spending legislation, with the HFRI Relative Value (Total) Index advancing an estimated +0.8 percent in June. Relative Value performance was driven by the HFRI RV: Multi-Strategy Index, which gained +1.3 percent for the month, and the HFRI RV: Corporate Index, which added +1.0 percent.

Liquid Alternative UCITS strategies gained in June, as the HFRX Market Directional Index gained +2.72 percent, while the HFRX Global Hedge Fund Index added +1.10 percent for the month. HFRX strategy performance was led by the HFRX Equity Hedge Index, which gained +1.43 percent in June.

Estimated industry-wide fees were relatively unchanged in 1Q25, as the average management remained at 1.34 percent, while the average incentive fee fell slightly to 15.80 percent, a minor decline from 15.84 percent as of 4Q24.

HFR announced the completion of the annual index IOSCO assurance certification in compliance with Regulation BMR.

"Hedge funds posted strong gains to conclude the second quarter- the best 2 month gain since 2023- accelerating with strong momentum through mid-year. The robust 2Q performance occurred against a backdrop of dramatically shifting drivers that began clouded by policy uncertainty, geopolitical risk, trade/tariff volatility, all of which evolved into significant policy clarity over the quarter stemming from passage of legislation, reduced geopolitical uncertainty and improving economic outlook," stated Kenneth J. Heinz, President of HFR. "Furthermore, hedge fund launches have increased while liquidations have fallen to historic lows with total industry assets at record highs, underscoring the strength and robustness of the value proposition for institutional investors. It is likely that this industry strength not only extends but accelerates into 2H25 and that, regardless of the prevailing volatility paradigm or investor risk sentiment, institutional investors will increase allocations to funds which have demonstrated success and veracity of their strategies in recent months."