Hedge Funds Are Back on Top After a Long ‘Alpha Winter’
Nearly half of investors plan to increase exposure to hedge funds, Goldman Sachs survey finds
Hedge funds achieved their best performance in over a decade in 2025, with assets under management reaching a record $3.5 trillion.
Investor interest surged, with 45% of fund investors planning to increase hedge fund exposure in 2026, a Goldman survey found
Top-performing strategies included healthcare, technology, and macro funds, with some firms gaining over 30% and management fees increasing.
Hedge funds are back on top of Wall Street’s pecking order.
Performance in 2025 across hedge funds was the best it has been in over a decade, with stock pickers and bond and currency traders reporting some of the best results. Managers of funds with elevated returns last year include Rob Citrone, part owner of the Pittsburgh Steelers; tech specialist Gavin Baker; and British billionaire Chris Hohn.
Last year, pension plans, endowments and other clients put more money into hedge funds than in any year since 2007, according to research firm HFR. The recent stretch of strong returns is making hedge funds the most favored asset class for institutions that allocate money to outside investment firms, according to a Goldman Sachs GS -3.75%decrease; red down pointing triangle survey of 317 fund investors viewed by The Wall Street Journal.
About 45% of them plan to increase their exposure to hedge funds in 2026, net of those looking to decrease it, an all-time high in survey records going back to 2017 and an 18-percentage-point increase from last year. That well outpaces the share that are planning increases to private-equity, private-credit, venture-capital and other types of fund managers, nearly all of which have seen declining interest since last year.
“Hedge funds have retaken that pole position,” said Freddie Parker, co-head of prime insight and analytics at Goldman. “All the numbers point to a very optimistic story.”
Assets under management in hedge-fund vehicles jumped to a record of roughly $3.5 trillion in 2025, according to Goldman estimates. That is up from $3 trillion in 2024.
It has been a long climb back to the summit. For most of the 2010s, hedge funds struggled to generate profits with short-term interest rates at zero, volatility at low levels and high correlations between different stocks. Hundreds of hedge funds closed shop, and the number of fund liquidations started exceeding the number of new launches. A unit of JPMorgan that invests client money in hedge funds called the period the “alpha winter.”
Now, with rates above 2%, divergence in monetary policy across the world and bouts of volatility and dispersion in stock markets, conditions are ripe for hedge funds to perform well. The shift has reverberated across Wall Street, with banks reporting record profits from their business of executing trades for and lending money to hedge funds.
“We’re in the heat of the summer right now,” said Paul Zummo, chief investment officer of JPMorgan Alternative Asset Management. “It’s been an excellent environment and people are taking advantage of it.”
A composite index from research firm PivotalPath that tracks the performance of nearly 1,300 hedge funds with $2 trillion in assets under management gained 11.9% in 2025. That was its best year since 2013. The top decile of funds in that PivotalPath index returned nearly 30%.
The best performing hedge-fund strategies last year included firms that bet on and against healthcare stocks, those that trade tech stocks and macro fund managers that predict big-picture market moves using economic and geopolitical information.
Biotech hedge funds rallied in the second half of the year thanks to an acceleration in merger activity and promising results from clinical drug trials. Roderick Wong’s $9 billion firm, RTW Investments, gained about 55% in its main biotech hedge fund, a person familiar with its performance said.
For tech hedge funds, surges in stocks involved in the artificial-intelligence supply chain helped turbocharge returns. Baker’s Atreides Management gained about 40% in its hedge fund’s portfolio of public stocks, according to an investor update. Positions in Ciena and Lumentum, makers of optical networking equipment and components, were winners. An Atreides portfolio that also holds stakes in private companies, including Elon Musk’s SpaceX and xAI, did even better, gaining about 47%.
Stock picker Chris Hohn made $18.9 billion for clients of his TCI Fund Management last year, a record one-year haul, according to estimates from Swiss investment firm Edmond de Rothschild. TCI finished 2025 with a 27.8% gain in its master fund, the Journal previously reported.
Turbulence in markets as well as geopolitics presented plenty of opportunities for others. Castle Hook Partners, a roughly $10 billion macro hedge-fund firm run by David Rogers, gained about 50% last year, helped by bets on AI and other stocks, a person familiar with its performance said.
Citrone’s Discovery Capital generated a 37% return, people familiar with his performance said. Gains came from big bets it had placed on Nigeria, especially on stocks with major Nigerian operations, and against stocks of companies poised to be disrupted by AI, according to an investor outlook viewed by the Journal.
The run of recent returns has made clients of hedge funds more comfortable paying higher fees. The average management fee that respondents to the Goldman survey reported paying ticked up to 1.64% of assets under management, and the average performance fee ticked up to 17.8% of investment profits. Each was the highest since at least 2016.
Rokos Capital Management, the macro hedge-fund firm run by British billionaire Chris Rokos, told clients last year he planned to raise performance fees to 25% from 20% over the next three years, according to people familiar with the matter. Rokos gained about 20% last year, one of the people said.