Strong Start, Weak Finish: How Hedge Funds Have Performed So Far in 2026

Hedge funds entered 2026 on a strong footing after a robust 2025, but the first quarter quickly highlighted how dependent performance remains on market conditions and strategy selection.

The first two months of the year were notably positive. Industry-wide returns reached approximately +4.3% by the end of February, supported by broad gains across strategies. Around 75% of funds were profitable in February, with macro and equity-focused strategies benefiting from trends in commodities, energy, and sector dispersion. Macro strategies were particularly strong, posting gains of roughly +4.15% in January and +3.0% in February, marking one of their best starts in years.

However, March proved to be a turning point. Hedge funds experienced their worst monthly drawdown in over four years, driven by heightened geopolitical tensions and a sharp sell-off in global equities. This sudden shift erased a significant portion of earlier gains and exposed weaknesses in several strategies.

• Equity long/short strategies were hit hardest, with losses across all regions. In March alone, declines reached approximately -4.3% in the U.S., -6.3% in Europe, and -7.3% in Asia. A major driver was the technology sector, which fell ~11.8% over the quarter.
• Macro strategies delivered strong gains early in the quarter but struggled in March as interest rate expectations shifted unexpectedly and geopolitical risks intensified.
• Systematic / CTA strategies stood out as relative outperformers, generating positive returns (~+1.1% in March) by capturing trends across asset classes during the volatility.
• Multi-strategy platforms, typically seen as resilient, were not immune. Diversification helped limit losses, but returns were generally modest or slightly negative by quarter-end.

Overall, Q1 2026 can best be described as a “two-speed” environment: strong early gains followed by a sharp risk-off phase. While the industry did not experience a broad collapse, performance fell short of expectations set by 2025’s double-digit returns.

Dispersion has returned, and in a more volatile environment, outcomes are increasingly driven by strategy selection and risk management rather than market direction alone.

Ref: Reuters. (2026, April 1). Hedge funds face worst monthly drawdown in over four years, Goldman Sachs says., Business Insider. (2026, April). March 2026: First-quarter hedge fund performance update., Business Insider. (2026, March). Macro hedge fund performance amid market volatility., Integrity Research. (2026, March). Hedge funds surge in February 2026 despite rising geopolitical risk., HFR. (2026, January). HFRX indices January 2026 performance notes.