Hedge funds are experiencing a surge in assets, reaching a historic $5 trillion as quarterly capital flows hit an 18-year high. This growth is fueled by a combination of factors, including rising M&A activity, successful bets on the AI and tech boom, and expectations for lower interest rates. The industry tracker Hedge Fund Research (HFR) reported a landmark $4.98 trillion in global assets under management at the end of the third quarter, with a $238.4 billion increase in assets over the three-month period. This includes $33.7 billion in net new allocations from investors such as pension funds and insurance companies, marking the biggest quarterly net asset inflow since 2007. The remainder of the capital increase came from positive trading gains made by managers. Equity hedge fund managers, who trade stocks long and short, were the big winners during the third quarter, making 7.2% in investment returns and seeing their assets grow by $96.7 billion. Macro hedge funds, which invest in macroeconomic and geopolitical trends, also saw significant growth, with assets increasing by $33.5 billion and investment returns of 4.7%. As the industry navigates a challenging geopolitical environment and trade policy uncertainty, investors are expected to continue allocating funds to managers who can navigate both risk-on trends and volatile reversals, potentially driving industry growth beyond the $5 trillion milestone.
