Average Hedge Fund Return: What “Average” Really Means

Intro

Average hedge fund return gets tossed around like it is a single number you can compare to the S&P 500 and call it a day. That is not how it works. Hedge funds are a bundle of strategies, many are designed to reduce volatility or protect downside, and the “average” hides huge dispersion between winners and losers. In 2025, for example, the broad HFRI Fund Weighted Composite Index returned +12.6%, while the S&P 500 total return was +17.88%.

Tables + Analysis

Table 1: 2025 hedge fund returns by major strategy vs S&P 500

Source: HFR market commentary for 2025 strategy indices, plus reported S&P 500 2025 total return.

What to take from this: 2025 was a strong year for hedge funds overall, but “average hedge fund return” still lagged a plain equity benchmark. Equity Hedge was the standout among the big strategy buckets, which is not shocking in a year where equity and AI themes mattered a lot.

Table 2: Long term context (annualized returns for major hedge fund strategies)

Source: UBS Hedge Fund Bulletin (annualized returns) and S&P 500 fact sheet (annualized total return as of late 2025).

Decision takeaway: If your goal is pure long run growth, the S&P 500 has been hard to beat in recent decades. Hedge funds can still make sense if you want a different risk profile, smoother returns, or exposure to specific strategies that behave differently than equities. For context on how individual investors fare against this benchmark, see our breakdown of what percent of retail investors beat the S&P 500.

Table 3: Why the “average” is a trap (dispersion inside hedge funds)

Source: HFR dispersion stats for 2025.

How to use this: When someone asks “what is the average hedge fund return,” the real question is usually “what are my odds of landing in the top half.” This table screams that manager selection and strategy fit are the whole game, not the asset class label. The same dispersion dynamic plays out in other markets; for instance, institutional vs retail trading volume data shows how different participant types can have vastly different outcomes in the same market.

Table 4 (Illustrative): What fees can do to “average returns”

Illustrative example only (not a specific fund). This is just fee math.

Why this matters: In 2025, commentary pointed out hedge fund fees have been rising again in parts of the industry. If the strategy’s edge is not meaningfully above public markets, fees can be the difference between “worth it” and “why did I bother.”

Conclusion / Callout

So, what is the average hedge fund return? A practical answer is: in 2025, broad hedge funds returned about +12.6%, and the S&P 500 total return was about +17.88%. Over the longer run, major hedge fund strategy buckets have tended to run lower than equities, with big variation across strategies and managers.