Average Hedge Fund Performance: Returns by Strategy, Fund Size, and Fees (2023-2025)

Lambda Finance compiled average hedge fund performance data from public index providers (HFR, Aurum), SEC filings, institutional reports from Barclays and Goldman Sachs, and academic research databases. This dataset covers full-year returns from 2023 through 2025, aggregated in March 2026. The report benchmarks average hedge fund performance across six strategy types, four fund-size tiers, and gross-versus-net fee structures. The average hedge fund returned 11.5% in 2025, compared to 23.3% for the S&P 500 and 14.1% for a 60/40 portfolio. The tables below segment that headline figure by strategy, manager quartile, fund size, and fee impact to give allocators, researchers, and journalists a comprehensive benchmarking resource.

1. Average Hedge Fund Returns by Year (2023–2025)

The table below compares average hedge fund performance against two common benchmarks: the S&P 500 Total Return Index and a standard 60/40 equity-bond portfolio.

Year	Hedge Fund Avg Return	S&P 500 Return	60/40 Portfolio	HF vs S&P 500 Gap
2023	+10.0%	+26.3%	+17.7%	-16.3 pp
2024	+11.1%	+25.0%	+15.6%	-13.9 pp
2025	+11.5%	+23.3%	+14.1%	-11.8 pp

Average hedge fund performance has improved incrementally over this three-year window, rising from 10.0% in 2023 to 11.5% in 2025. However, the gap against the S&P 500 narrowed from 16.3 percentage points to 11.8 percentage points, driven primarily by moderating equity market returns rather than a significant acceleration in hedge fund gains.

2. Hedge Fund Performance by Strategy

Average hedge fund performance varies substantially depending on the strategy employed. The table below segments returns across six major hedge fund strategy categories, as classified by HFR and Aurum.

Strategy	2023	2024	2025	3-Year Avg
Equity Long/Short	+12.3%	+14.1%	+14.8%	+13.7%
Multi-Strategy	+9.7%	+11.4%	+12.1%	+11.1%
Event Driven	+8.5%	+10.8%	+11.6%	+10.3%
Relative Value	+7.9%	+9.2%	+10.3%	+9.1%
Credit	+10.2%	+8.7%	+9.4%	+9.4%
Global Macro	+8.1%	+7.6%	+8.9%	+8.2%

Equity Long/Short led all strategies with a 14.8% average return in 2025 and a 13.7% three-year average, benefiting from sustained equity market dispersion. Multi-Strategy funds, which represent over 35% of total industry AUM, delivered consistent double-digit returns across all three years. Global Macro produced the lowest three-year average at 8.2%, largely due to reduced currency and rates volatility in 2024.

3. Manager Dispersion: Top Quartile vs Bottom Quartile

Average hedge fund performance masks enormous variation between top and bottom managers. The table below shows 2025 returns by quartile within each strategy, compiled from HFR and institutional allocation data.

Strategy	Top Quartile	Median	Bottom Quartile	Spread (Top – Bottom)
Equity Long/Short	+26.4%	+13.1%	+2.8%	23.6 pp
Multi-Strategy	+18.7%	+11.5%	+5.2%	13.5 pp
Event Driven	+21.3%	+10.8%	+1.4%	19.9 pp
Global Macro	+19.1%	+7.6%	-3.2%	22.3 pp

Equity Long/Short showed the widest dispersion at 23.6 percentage points between top and bottom quartile managers. Global Macro bottom-quartile managers posted negative returns (-3.2%), while top-quartile Macro managers returned 19.1%. This dispersion data is important context: when researchers cite “average hedge fund performance,” the median manager experience may differ substantially from the mean.

4. Hedge Fund Returns by Fund Size

Fund size is a material driver of hedge fund performance. Smaller, more nimble funds have historically generated higher returns, but also exhibit greater volatility and higher closure rates. The table below segments returns by assets under management tier.

Fund Size (AUM)	2024 Return	2025 Return	% of All Funds	% of Industry AUM
Under $100M	+13.2%	+14.6%	~50%	~5%
$100M – $500M	+11.8%	+12.7%	~25%	~12%
$500M – $1B	+10.6%	+11.2%	~12%	~15%
Over $1B	+10.1%	+10.4%	~13%	~68%

Funds under $100M in AUM returned 14.6% in 2025 — outperforming billion-dollar-plus funds by 4.2 percentage points. However, these small funds represent roughly 50% of all hedge funds by count but only 5% of industry assets. The data reflects a well-documented pattern: as funds scale, capacity constraints and position-sizing limitations tend to erode alpha generation. For allocators, the trade-off is between higher returns from smaller managers and the operational risk and liquidity limitations they carry.

5. Hedge Fund Fees and Net-of-Fee Returns

Fee structures directly affect the average hedge fund performance that investors actually realize. The industry has moved away from the traditional “2 and 20” model, but fees remain a significant drag on gross returns.

Fee Component	Traditional “2 and 20”	Current Industry Avg (2025)	Trend
Management Fee	2.00%	1.36%	Declining
Performance Fee	20.00%	16.20%	Declining
Effective Fee on $100 Invested (at 11.5% gross)	$4.30	$3.22	—
Net Return to Investor	$7.20	$8.28	Improving
Investor Share of Gross Return	62.6%	72.0%	Improving

Under the traditional “2 and 20” fee model, investors retained only 62.6 cents of every dollar in gross returns. Current industry averages of 1.36% management and 16.2% performance fees improve the investor share to approximately 72 cents per dollar. Multi-strategy platforms, which have attracted the largest inflows, often operate closer to “1.5 and 20” with pass-through expenses, making effective fees higher than the headline figures suggest.

6. Hedge Fund Industry AUM and Capital Flows

The hedge fund industry continues to grow, with total assets under management reaching $4.74 trillion by mid-2025. The table below tracks industry size and capital flows.

Period	Total AUM	Net Inflows / Outflows	YoY AUM Growth
End of 2023	$4.04 T	-$105 B	+4.9%
End of 2024	$4.51 T	+$28 B	+11.6%
H1 2025	$4.74 T	+$37 B	+5.1% (annualized: ~10.2%)
Projected 2030	~$11.0 T	—	CAGR ~10.8%

 

 

The industry reversed three consecutive years of net outflows in 2024, drawing $28 billion in new capital. H1 2025 accelerated that trend with $37.3 billion in net inflows. Notably, funds with over $5 billion in AUM attracted approximately $30 billion of the total H1 2025 inflows, reflecting continued institutional preference for large, established platforms. Institutional investors now represent approximately 65% of total hedge fund capital, with retail investors accounting for roughly 7%.

7. Hedge Funds vs S&P 500: Risk-Adjusted Comparison

Raw return comparisons between hedge funds and the S&P 500 are incomplete without accounting for risk. The table below provides a risk-adjusted view of average hedge fund performance versus passive equity exposure.

Metric	Hedge Funds (Composite)	S&P 500	60/40 Portfolio
3-Year Avg Annual Return (2023–2025)	+10.9%	+24.9%	+15.8%
Annualized Volatility	~6.5%	~17.2%	~10.8%
Max Drawdown (2022)	-6.3%	-25.4%	-21.0%
Return per Unit of Volatility	1.68	1.45	1.46
2022 Calendar Year Return	-4.2%	-18.1%	-16.9%
Correlation to S&P 500	~0.75	1.00	~0.95

On a risk-adjusted basis, hedge funds delivered 1.68 units of return per unit of volatility over the 2023-2025 period, compared to 1.45 for the S&P 500. The advantage becomes most apparent in drawdown scenarios: hedge fund composite drawdown in 2022 was -6.3% versus -25.4% for the S&P 500. This asymmetry is the core value proposition that institutional allocators pay for — not absolute return maximization, but capital preservation during periods of equity stress.

8. Key Takeaways

• Average hedge fund performance reached 11.5% in 2025, the highest annual return in the 2023-2025 sample period, though it trailed the S&P 500 by 11.8 percentage points.
• Strategy selection matters more than asset class allocation. Equity Long/Short returned 14.8% in 2025, nearly double Global Macro’s 8.9%. The top-to-bottom quartile spread in Equity L/S was 23.6 percentage points.
• Smaller funds outperform, but carry concentration risk. Funds under $100M returned 14.6% vs 10.4% for billion-dollar-plus funds. However, small funds represent only 5% of industry AUM.
• Fees have declined, but remain substantial. The industry average has moved from “2 and 20” to approximately “1.36 and 16.2,” improving the investor share of gross returns from 63% to 72%.
• Risk-adjusted returns favor hedge funds. Hedge fund composite volatility of ~6.5% is less than half the S&P 500’s ~17.2%, and the 2022 drawdown was a quarter of the equity index decline.

Methodology

This analysis aggregates data from public index providers, institutional reports, SEC filings, and academic research databases. All hedge fund return figures are reported net of management and performance fees unless otherwise noted. Strategy classifications follow HFR taxonomy. Fund size tier boundaries are approximate and vary by source. The S&P 500 returns reflect total return with dividends reinvested. The 60/40 portfolio benchmark uses a blend of S&P 500 Total Return (60%) and Bloomberg US Aggregate Bond Index (40%). Data compiled March 2026 by Lambda Finance.

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