This revival stems from a fundamental shift in market conditions. Certain market environments are more conducive to alpha generation; specifically, when stock-to-stock correlations are low, while dispersion and volatility are high. Where the 2010s were characterised by unfavourable conditions across all three drivers, the 2020s have seen these same forces turn supportive again, much like in the 2000s. Thus, since 2020, hedge funds have delivered over 300 basis points of annualised alpha2.
Critically, industry growth has not outstripped the breadth, depth, and scale of the investable universe. Since 2015, hedge fund AUM has grown by ~70%3, while global equity and bond market capitalisation has expanded ~150% and private equity and credit have each grown their assets by ~250%4. This indicates that the market is not oversaturated, leaving ample capacity for skilled managers to deploy capital effectively.
Performance in 2025 was broad-based. Discretionary Equity was the standout performer, generating 17.1% returns and 5.7% alpha, fuelled by a variety of constituents, including healthcare sector specialists and Equity L/S hedge funds focused on Asia Pacific. From a sub-strategy perspective, market-neutral and low-beta discretionary equity managers led the way with more than 8.5%2 of alpha for the year. Meanwhile, Quant Equity led all strategies in alpha, generating 5.8% for the year while matching their annualised alpha since 2020.
Although performance was strong in 2025, there was considerable dispersion between top and bottom-quartile managers, reinforcing the critical importance of manager selection. Nevertheless, across most strategies, managers in the top two quartiles saw material alpha in 2025.
