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Equity Hedge, Relative Value Arbitrage lead 1Q25 inflows;

HFR launches HFRI Long Volatility Index as equity, bond volatility surge

 

CHICAGO, (April 25, 2025) – Total global hedge fund capital rose to a record level in 1Q 2025 as financial market volatility surged on the imposition of tariffs by the US, with uncertainty contributing to dramatic, historic price swings in equities and contributing to intense pressure on interest rates and the US Treasury market.

Industry capital rose to a sixth consecutive quarterly record as hedge fund managers and institutional investors positioned for continuation of the unprecedented volatility and uncertainty. Total global hedge fund capital ended the 1Q25 at an estimated $4.53 trillion, an increase of $12.6 billion over the prior quarter, as reported in the latest HFR Global Hedge Fund Industry Report, released today by HFR^®, the established global leader in the indexation, analysis and research of the global hedge fund industry.

Capital flows in 1Q25 showed a net inflow of an estimated $12.6 billion for the quarter, this following the FY 2024 net inflows of $10.47 billion.

Hedge funds posted mixed performance in 1Q25 with the HFRI Asset Weighted Composite Index advancing +0.6 percent for the quarter, while the HFRI Fund Weighted Composite Index^® (which includes the same constituent funds but weights each fund equally rather than on an asset weighted basis) declined -0.5 percent.

Industry performance was led by fixed income-based strategies, as the HFRI Relative Value (Total) Index gained +1.7 percent in 1Q25, while the HFRI Macro Index (Asset Weighted) advanced +0.5 percent. The HFRI Multi-Manager/Pod Shop Index gained +1.6 percent in 1Q, while the HFRI Long Volatility Index jumped +2.1 percent.

Credit- and interest rate-sensitive fixed income-based Relative Value Arbitrage (RVA) experienced the largest strategy-level capital increase in 1Q25, with assets increasing by an estimated $22.4 billion for the quarter, inclusive of a net asset investor inflow of $4.4 billion, bringing total RVA capital to an estimated $1.24 trillion. Multi-Strategy funds led RVA asset increases in 1Q25, adding an estimated $12.0 billion of capital to end the quarter at $760.3 billion. The HFRI Relative Value (Total) Index advanced +1.7 percent in 1Q25, concluding a historic streak of 16 consecutive monthly gains with a narrow decline of -0.08 percent in March 2025. RVA sub-strategy quarterly performance was led by the HFRI RV: Convertible Arbitrage Index which jumped +3.0 percent in 1Q25.

Uncorrelated Macro strategies increased by an estimated $8.9 billion in 1Q25, inclusive of a small net asset inflow of nearly $1 billion, bringing total Macro capital to an estimated $720.2 billion. Macro sub-strategy asset increases in 1Q25 were led by Discretionary Thematic funds, with these increasing by an estimated $7.2 billion. The HFRI Macro (Total) Index – Asset Weighted advanced +0.5 percent in 1Q25, as the HFRI Macro: Discretionary Thematic Index surged +5.1 percent for the quarter.

Capital managed by Equity Hedge (EH) strategies increased by an estimated $1.78 billion in 1Q25, inclusive of a net asset inflow of $5.0 billion, bringing total EH capital to an estimated $1.31 trillion. EH sub-strategy asset increases were led by multi-strategy funds in 1Q25, which increased by an estimated $4.0 billion for the quarter. The HFRI Equity Hedge (Total) Index – Asset Weighted posted a narrow gain of +0.04 percent in 1Q25; EH sub-strategy performance was led by the HFRI EH: Equity Market Neutral Index, which advanced +1.5 percent.

Event-Driven (ED) strategies, which categorically focus on out of favor, deep value equity and credit positions, experienced an estimated asset decline of $20.4 billion in 1Q25, despite receiving net asset inflow of $2.4 billion, bringing total ED capital to an estimated $1.26 trillion. ED sub-strategy asset increases in 1Q25 were led by Credit Arbitrage strategies, with these increasing by $2.3 billion for the quarter. The HFRI Event-Driven (Total) Index – Asset Weighted posted a narrow decline of -0.26 percent in 1Q25, with ED sub-strategy performance led by the HFRI ED: Credit Arbitrage Index, which gained +1.2 percent for the quarter.

Investor inflows in 1Q25 were spread across funds of all sizes, as firms managing greater than $5 billion experienced estimated inflows of $7.0 billion, while mid-sized firms managing between $1 and $5 billion saw estimated inflows of $1.4 billion for the quarter, and firms managing less than $1 billion to begin the quarter experienced inflows of $4.0 billion.

“Total global hedge fund capital rose to a sixth consecutive record in 1Q25 as managers navigated an unprecedented and historic surge in volatility and extreme risk off sentiment as a result of the imposition of new trade tariffs and increased uncertainty on both corporate earnings and aggregate economic growth through mid-2025. Volatility has been historic including records of consecutive daily trading ranges, record reversal gains/declines and volatility across government bonds ranging from flight to quality to extreme selloffs in US treasuries as managers position for fluid and ongoing policy adjustment,” stated Kenneth J. Heinz, President of HFR. “Investors have continued positioning for this environment across a wide range of hedge fund strategies which offer both defensive capital preservation and portfolio protection, as well as opportunistic positioning and exposure to these powerful and highly volatile extreme dislocations. Managers which have demonstrated their strategy’s robustness and veracity through this ongoing volatility cycle are likely to lead industry growth through mid-2025.”

HFR will host a private investor event focused on Long Volatility in Boston on Tuesday, May 13, featuring an overview of the new indices, presentation and a panel discussion with constituent managers. Investors interested in attending may request an invitation at events@hfr.com. Space for the event is limited. Download the HFR research report on Long Volatility strategies at www.HFR.com.