How did hedge funds perform in Q3 2024?

Hedge fund assets reached a historic $4.5 trillion in October 2024, according to Wells Fargo, driven by robust performance across key strategies. The HFRI Fund Weighted Composite Index posted a 7.4% year-to-date (YTD) return, reflecting the sector's resilience and adaptability in a complex economic environment.

Equity hedge funds: Leading the charge

Equity hedge funds were a standout performer, with a 9.6% YTD return, thanks to effective stock selection and increased exposure to public markets.

• Higher stock price dispersion, spurred by rising interest rates and slowing economic growth, created ample opportunities for active managers to excel.
• In Q3 alone, equity hedge funds gained 0.3%, with healthcare and technology sub-strategies leading the way.

Event-driven and Relative value strategies

Event-driven strategies, particularly distressed credit, delivered notable gains as companies underwent recapitalizations and restructurings.

• Relative value long/short credit strategies capitalized on pricing dislocations in fixed-income markets, providing steady returns with minimal correlation to broader market movements.

Macro hedge funds: Mixed results

Macro strategies faced headwinds in Q3, with the HFRI Macro (Total) Index down 0.7%. While systematic macro struggled due to frequent trend reversals across asset classes, discretionary approaches showed resilience.

• Despite these challenges, macro funds maintained a positive YTD return of 4.62%, reflecting their ability to navigate turbulent conditions.

Fixed-Income hedge funds

Fixed-income strategies saw steady returns, supported by tactical plays in emerging markets and corporate bonds. The HFRI Fixed Income-Convertible Arbitrage Index gained 1.2% in Q3, bringing its YTD return to 5.8%.

The hedge fund industry’s growth to a record $4.5 trillion underscores the sector's ability to adapt and capitalize on market opportunities.

As the year-end approaches, hedge funds will need to remain agile and strategic, leveraging active management and diversification to capture emerging opportunities while mitigating risks.