Hedge funds attracted $36bn in net inflows during the third quarter of 2026 despite posting a negative weighted average return of 0.7%, as investor demand for multi-strategy and hybrid funds remained strong, according to Citco's latest Quarterly Hedge Fund Report.

The decline followed a 12.3% gain in Q2, the strongest quarterly performance of the decade, although 53% of funds administered by Citco delivered positive returns in Q3. Year-to-date weighted average returns stood at 10.5% through September.

Commodities strategies led performance with an 11.9% quarterly gain, followed by global macro funds at 3.1%. Event driven strategies recorded the steepest losses at 3.8%, while multi-strategy funds declined 1.4%, fixed income arbitrage fell 1.1% and equity strategies lost 1%.

Global macro remained the strongest-performing strategy year-to-date, returning 26.4%, followed by commodities at 14.3% and equities at 12.2%. Multi-strategy funds gained 7.2%, while event driven was the only strategy in negative territory, down 1.7%.

Despite weaker quarterly returns, investor allocations remained robust, with $36bn in net inflows following $39.1bn in Q2, bringing year-to-date net inflows to well over $100bn.

Multi-strategy funds attracted the largest share of new capital at $15.4bn, followed by hybrid funds at $12.3bn and funds of funds at $5.7bn.

Larger managers continued to dominate fundraising, with funds holding more than $10bn in assets under administration attracting $24.9bn in net inflows. The Americas accounted for $20.8bn of allocations, followed by Europe at $13.8bn and Asia at $1.4bn.

Performance varied by fund size, with managers overseeing between $1bn and $3bn recording the largest quarterly decline at 2.1%. Funds with more than $3bn in assets under administration fell 0.6%, although the largest managers remained ahead for the year, with a weighted average return of 13.4%.

Declan Quilligan, Head of Hedge Fund Services at Citco Fund Services (Ireland), said continued demand for diversification was supporting inflows, particularly into multi-strategy funds, despite the moderation in returns following an exceptionally strong second quarter.

Operational activity also remained elevated. Citco's Middle Office Solutions team processed a record 208,210 treasury payments during Q3, up from 193,433 in Q2, while trading volumes recovered in September following a summer slowdown. Straight-through processing averaged 97.6% during the quarter.