Hedge fund returns turn negative in Q1 despite continued inflows

The hedge fund industry recorded its first negative quarterly return in four years during Q1 2026, with a weighted average loss of -1.4% across $1.3 trillion in assets under administration managed by Citco. The decline marks a significant inflection point, ending a 13-quarter run of consecutive positive performance. According to Citco Fund Services head Declan Quilligan, the losses were concentrated in March and driven by volatility linked to geopolitical tensions, though January and February had generated gains that were subsequently reversed.

Performance dispersion across fund strategies was pronounced. Event-driven funds suffered the steepest declines at -5%, followed by multi-strategy funds at -3.9% and equity-focused strategies at -1.8%. Conversely, global macro strategies delivered strong positive returns of +8.5%, while commodities strategies rose +7.1% amid elevated commodity prices, both benefiting from the geopolitical environment in the Middle East. Fixed income arbitrage strategies remained essentially flat at +0.1%.

Despite the negative return environment, investor capital continued flowing into the sector at substantial levels. Hedge funds attracted $24.1 billion in net inflows during the quarter, representing one of the highest quarterly totals in recent years. Subscriptions of $69.8 billion exceeded redemptions of $45.7 billion by a significant margin, with net inflows recorded in each month of the quarter. Multi-strategy funds led capital allocation with $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 drew $1.6 billion in net inflows. Global macro strategies stood as the sole category to experience net outflows, recording $1 billion in redemptions despite delivering positive returns—a dynamic that suggests performance-driven withdrawals may have been offset by strategic allocations elsewhere in the market.