Hedge fund performance declined in Q1 2026 as volatility linked to geopolitical tensions weighed on returns, although investor allocations to the sector remained positive, according to data from hedge fund administrator Citco.
Across $1.3trn in assets under administration, hedge funds recorded a weighted average return of -1.4% in Q1, reversing gains made earlier in the year and ending a 13-quarter run of positive performance. Losses were concentrated in March, which offset returns achieved in January and February.
Event-driven funds posted the weakest results, with a weighted average return of -5%, followed by multi-strategy funds at -3.9% and equity-focused strategies at -1.8%. Global macro funds, on the other hand, delivered positive returns of 8.5%, while commodities strategies rose 7.1% amid higher commodity prices. Fixed income arbitrage strategies also remained marginally positive, at 0.1%.
Overall, hedge funds attracted net inflows in each month of the quarter. Total net inflows reached $24.1bn, among the highest quarterly totals in recent years, with subscriptions of $69.8bn exceeding redemptions of $45.7bn.
Equity hedge funds post largest decline in six years
Multi-strategy funds accounted for the largest share of inflows at $10.5bn, followed by hybrid strategies with $8.6bn and funds of funds with $4.9bn. Equity strategies also saw net inflows of $1.6bn. Global macro strategies were the only category to record net outflows, at $1bn.
Declan Quilligan, head of hedge fund services, Citco Fund Services, said: “In the opening three-months of 2026, hedge funds had their first negative quarter since 2022, with many strategies impacted by swings in markets. However, in some areas – specifically Global Macro and Commodities – returns were positive as the conflict in the Middle East impacted sentiment towards various asset classes differently. There was also no let-up in investor demand for hedge funds. We saw the fifth consecutive quarter of net inflows into hedge funds as investors continued to see the benefits alternative investments offer to portfolios.”
