Hedge Funds Prove Resilient in 2024, Offering Strong Returns and Risk Mitigation Amid Market Volatility

According to the latest report from alternative investment data specialist Preqin, hedge funds have proven to be valuable components in investor portfolios, functioning both as diversifiers and risk mitigators, while also generating double-digit returns. The Preqin 2025 Global Report: Hedge Funds emphasises that, despite volatility in global equity and bond markets in 2024, hedge funds maintained relative stability. Preqin’s All Hedge Fund Index recorded a 10% return for the year up to Q3 2024, equating to a 14% compound annualised growth rate (CAGR).

Hedge funds experienced inflows of $25.5 billion in Q3 2024, which led to $19.2 billion in net subscriptions for the first nine months of the year. However, Preqin warns that this quarter should be viewed as an anomaly, as net outflows have been a persistent trend for much of the past decade. Hedge fund assets under management (AUM) globally reached $4.9 trillion by Q3 2024, an 8% increase from the beginning of the year, with a 12% annual growth rate for the 12 months ending in Q3 2024—significantly higher than average historical growth figures. Despite the persistent outflows in the long run, it is the strong performance of hedge funds that has driven this recent AUM growth.

While hedge funds delivered an overall return of 10% in 2024 through Q3, this lagged behind global public equities, which saw a 19% return according to the MSCI World Index. However, hedge funds outperformed public debt, which grew by just 4%, as tracked by the Bloomberg Global Aggregate index. Each hedge fund strategy demonstrated its ability to dampen the volatility faced by equity and bond markets in 2024 when incorporated into broader public market portfolios.

Funds employing niche strategies, particularly those focused on cryptocurrency, led the way with the highest returns, delivering a remarkable 16% return for the year to Q3 2024. Equity-focused funds followed closely, returning 12%, while global macro and commodity trading advisor (CTA) funds trailed, as expected given their respective risk and return profiles. Global macro funds gained 7%, and CTAs saw a 4% return over the same period.

Over the past eight years, the number of new hedge fund managers entering the market has steadily declined, with 2024 projected to have the lowest number of new entrants since 2000. By Q3 2024, 123 new managers had launched, significantly fewer than the 191 in 2000 and the peak of 697 in 2017. While equity strategy funds remain the dominant type among new hedge fund launches, the number of niche funds has more than doubled in the past five years, growing from 730 in 2019 to 1,570 in 2024. Furthermore, multi-strategy funds, which have seen an annual growth rate of 4% from 2017 to 2024, have gained popularity, now ranking just behind niche strategies in terms of new launches.

Institutional allocations to hedge funds have shifted, with public pension plans, the largest segment of institutional investors, reducing their average hedge fund allocations to 7% of total assets over the past five years, down from a historical average of 8%. This marks a significant reduction in capital directed toward hedge funds, particularly given the size of the US public pension system, valued at $8 trillion.

Geographically, North America-based hedge funds represent the largest portion of global AUM, accounting for an estimated $3.95 trillion, or approximately 81% of total global hedge fund assets by Q3 2024. This consolidation of assets reflects the trend of North American hedge funds capturing a larger share of global market share. Europe ranks second with $746.6 billion in assets, representing 15% of global AUM, while the Asia-Pacific (APAC) region holds $164.4 billion, or 3% of the global total.

In terms of strategy, global macro funds remain the largest category by AUM, with approximately $1.41 trillion in assets by Q3 2024. However, global macro funds experienced only a 5% increase in AUM during this period, which was below the overall hedge fund industry’s growth. Other strategies, such as relative value and equity funds, saw larger increases, with AUM growing by 13% and 10%, respectively, over the same period.