Key Takeaways
- • Hedge funds posted their first negative quarter since 2022, returning -1.4% weighted average across $1.3 trillion in administered assets, as March volatility tied to Middle East geopolitical tensions erased January-February gains and ended a 13-quarter positive performance streak.
- • Performance diverged sharply by strategy: event-driven funds led declines at -5%, multi-strategy fell -3.9%, and equity strategies dropped -1.8%, while global macro funds surged 8.5% and commodities strategies gained 7.1% amid higher commodity prices.
- • Investor demand remained robust despite negative returns, with hedge funds attracting $24.1 billion in net inflows during Q1—among the highest quarterly totals in recent years—driven by $69.8 billion in subscriptions that exceeded $45.7 billion in redemptions.
- • Multi-strategy funds captured the largest inflow share at $10.5 billion, followed by hybrid strategies at $8.6 billion and funds of funds at $4.9 billion, while global macro was the only category to record net outflows at $1 billion.
- • Monthly inflows remained positive throughout all three months of the quarter, signaling sustained institutional and investor confidence in hedge funds despite near-term performance headwinds.
Summary
Hedge fund returns turned negative in the first quarter of 2026 for the first time since 2022, posting a weighted average loss of -1.4% across approximately $1.3 trillion in assets under administration, according to data released by Citco Fund Services. The downturn broke a 13-quarter streak of positive performance and was primarily concentrated in March, when geopolitical tensions—particularly Middle East conflict—created market volatility that erased gains accumulated during January and February.
Performance was broadly uneven across major hedge fund strategies. Event-driven funds experienced the steepest declines with a -5% weighted average return, followed by multi-strategy funds at -3.9% and equity-focused strategies at -1.8%. Conversely, global macro funds emerged as clear winners, delivering 8.5% returns as investors repositioned portfolios in response to macroeconomic volatility and shifting geopolitical risk. Commodities strategies also performed strongly, returning 7.1% amid elevated commodity prices linked to Middle East tensions, while fixed income arbitrage strategies remained marginally positive at 0.1%.
Despite negative absolute returns, hedge funds continued attracting substantial capital inflows, recording $24.1 billion in net new money during Q1—representing one of the strongest quarterly fundraising periods in recent years. Subscriptions totaled $69.8 billion while redemptions reached $45.7 billion, with positive monthly inflows recorded in January, February, and March. This resilience reflects sustained institutional investor confidence in hedge fund strategies despite near-term performance headwinds.
Capital allocation flowed disproportionately toward multi-strategy funds, which attracted $10.5 billion in net inflows, followed by hybrid strategies at $8.6 billion and funds of funds at $4.9 billion. Equity strategies also saw modest inflows of $1.6 billion. Notably, global macro strategies—which delivered the quarter's best absolute returns—recorded $1 billion in net outflows, potentially reflecting profit-taking or tactical rebalancing by investors following strong performance.
According to Declan Quilligan, head of hedge fund services at Citco Fund Services, the quarter demonstrated how geopolitical disruptions create divergent outcomes across hedge fund strategies. While event-driven and multi-strategy funds suffered from broad market swings, macro and commodities specialists capitalized on the thematic shifts in investor sentiment triggered by Middle East conflict, underscoring the diversification benefits of the broader hedge fund universe despite sector-wide near-term losses.
Performance was broadly uneven across major hedge fund strategies. Event-driven funds experienced the steepest declines with a -5% weighted average return, followed by multi-strategy funds at -3.9% and equity-focused strategies at -1.8%. Conversely, global macro funds emerged as clear winners, delivering 8.5% returns as investors repositioned portfolios in response to macroeconomic volatility and shifting geopolitical risk. Commodities strategies also performed strongly, returning 7.1% amid elevated commodity prices linked to Middle East tensions, while fixed income arbitrage strategies remained marginally positive at 0.1%.
Despite negative absolute returns, hedge funds continued attracting substantial capital inflows, recording $24.1 billion in net new money during Q1—representing one of the strongest quarterly fundraising periods in recent years. Subscriptions totaled $69.8 billion while redemptions reached $45.7 billion, with positive monthly inflows recorded in January, February, and March. This resilience reflects sustained institutional investor confidence in hedge fund strategies despite near-term performance headwinds.
Capital allocation flowed disproportionately toward multi-strategy funds, which attracted $10.5 billion in net inflows, followed by hybrid strategies at $8.6 billion and funds of funds at $4.9 billion. Equity strategies also saw modest inflows of $1.6 billion. Notably, global macro strategies—which delivered the quarter's best absolute returns—recorded $1 billion in net outflows, potentially reflecting profit-taking or tactical rebalancing by investors following strong performance.
According to Declan Quilligan, head of hedge fund services at Citco Fund Services, the quarter demonstrated how geopolitical disruptions create divergent outcomes across hedge fund strategies. While event-driven and multi-strategy funds suffered from broad market swings, macro and commodities specialists capitalized on the thematic shifts in investor sentiment triggered by Middle East conflict, underscoring the diversification benefits of the broader hedge fund universe despite sector-wide near-term losses.
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