The Year Hedge Funds Regained Their Mojo

Hedge funds had a standout year in 2024, achieving some of their best and most consistent returns in over a decade. But as investors take stock of these gains, a pressing question remains: Was this a turning point for the industry, or will the pattern of uneven and often disappointing performance resurface?

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According to PivotalPath, which tracks over 1,100 hedge funds, the industry posted an average return of 10.7% after fees last year. This marked the strongest performance since 2020, when hedge funds gained 11.4% during the volatility of the pandemic. The last time the industry delivered double-digit returns before that was in 2013. Remarkably, every strategy tracked by PivotalPath delivered positive returns in 2024, a rare occurrence in a sector where multiple strategies often lag.

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“Last year was probably one of the best years in a long time for hedge funds,” noted Caron Bastianpillai, a senior portfolio manager at NS Partners, an investment firm based in Geneva. “Everything has been working. It’s rare that you find that.”

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Several funds delivered exceptional results. Castle Hook Partners, a macro investing specialist based in New York, gained over 60%. Florida’s Infinitum Partners, focused on technology stocks, returned 72%, while London’s Helikon Investments posted nearly 62%, buoyed by investments like its stake in Greece’s Eurobank Ergasias, whose shares jumped 39%.

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This performance is a welcome boost for an industry often criticized for high fees and lackluster returns. Even so, hedge funds’ average return in 2024 was less than half the S&P 500’s total return of 25%, including dividends.

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Hedge funds argue that their goal isn’t merely to outperform indexes like the S&P 500. Instead, they aim to deliver consistent returns regardless of market conditions. This resilience appeals to large investors such as pension funds and endowments, who value the diversification and downside protection hedge funds offer.

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Such qualities may prove particularly important in 2025, as markets face potential volatility amid diverging central bank policies and the inauguration of a new U.S. president. Hedge fund managers believe this environment could yield significant opportunities—provided they position themselves correctly.

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Rob Christian, head of absolute return strategies at Franklin Templeton Investment Solutions, revealed that his hedge fund portfolio delivered its best performance in five years in 2024. Managing over $10 billion in client assets, Christian’s team has opted to double down on managers they believe can sustain their momentum. “We’re pressing our winners,” he said.

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The year’s top-performing strategies included funds trading technology, media, and telecommunications stocks, which achieved an average return of nearly 23%, according to PivotalPath. Long-short equity funds also excelled, benefiting from high dispersion in equity markets. This variation in stock returns allowed skilled managers to outperform by identifying standout winners and shorting underperformers.

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Other high-performing strategies included distressed credit and quantitative stock funds, which posted average returns of 15% to 16%. Additionally, niche markets provided opportunities, such as Argentine debt, bankruptcy claims related to defunct crypto exchange FTX, and commodities like copper.

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Notable individual performances included:

• Rokos Capital Management: Gained 30.7%, driven by bets against overly optimistic expectations for Federal Reserve rate cuts.
• Infinitum Partners: Returned 72%, with its largest position in Singapore-based tech conglomerate Sea, whose shares more than doubled.
• Castle Hook Partners: Surged over 60%, benefiting from the AI boom, a post-election rally in the U.S. dollar, and declining bond prices.
• Helikon Investments: Achieved a nearly 62% gain, fueled by investments in Greek banks and other European equities.

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Multimanager hedge funds, or “pod shops,” had another impressive year. Among the largest players, Point72 posted a 19% gain and announced plans to return up to $5 billion to investors in 2025. Citadel’s flagship fund and Millennium Management each returned approximately 15%.

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Despite the stellar results, challenges remain. Hedge funds continue to face stiff competition from alternative investments like private credit, which attract significant investor dollars. Moreover, their high fees remain a point of contention.

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As markets enter a potentially turbulent phase in 2025, hedge funds may have an opportunity to demonstrate their value by navigating volatility and delivering uncorrelated returns. Many managers are optimistic that rising market dispersion and increased volatility will create fertile ground for their strategies.

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Whether 2024 marks a sustained turnaround for the hedge fund industry remains to be seen. For now, the year’s performance underscores the potential for hedge funds to excel in dynamic market environments, provided they maintain their focus and adaptability.

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