The second quarter of 2026 marked a decisive turnaround for the global hedge fund industry. Following a volatile first quarter, managers capitalized on a powerful rebound in equity markets, AI-driven technology stocks, increased merger activity, and stabilizing geopolitical conditions. According to HFR, the HFRI Fund Weighted Composite Index gained 6.55% in Q2, the industry's strongest quarterly performance since Q4 2020, lifting first-half returns to 7.6%, the best start to a year since 2021.

The rally was broad enough to drive global hedge fund assets under management to a record US$5.6 trillion, an increase of US$409 billion during the quarter, the largest quarterly rise ever recorded. Investor appetite also strengthened, with US$134 billion of net inflows over the past three quarters, the strongest inflow streak since 2007.

Performance varied significantly by strategy.

Equity Hedge

Equity Hedge funds were the clear winners, benefiting from record equity markets and renewed enthusiasm for AI-related companies. The HFRI Equity Hedge Index returned 6.58% in Q2, outperforming all major hedge fund categories. Event-Driven managers also excelled, with the HFRI Event-Driven Index gaining 4.07%, supported by an acceleration in mergers and acquisitions and high-profile IPO activity, including SpaceX.

Macro

Macro funds generated positive but more modest returns. The HFRI Macro Index advanced 1.30% during Q2, although commodity-focused and CTA managers struggled in June as oil prices fell sharply following easing geopolitical tensions. By contrast, discretionary macro managers generally benefited from active positioning across interest rates and currencies.

Relative Value

Relative Value strategies produced the most stable risk-adjusted performance. The HFRI Relative Value Index gained 2.05% in Q2, supported by fixed-income arbitrage, convertible bond trading, and increased activity in equity capital markets. While returns lagged Equity Hedge funds, Relative Value managers continued to deliver lower volatility and consistent positive performance.

Manager Selection Matters

Despite the strong headline results, dispersion remained exceptionally wide. HFR reported that the top 10% of hedge funds gained an average 8.1% in June alone, while the bottom decile lost 8.4%, highlighting that manager selection remained critical. Approximately 55% of hedge funds finished June with positive returns, underscoring the uneven but improving investment environment.