Hedge funds recorded their tenth consecutive quarter of positive returns in Q1 2025, shrugging off volatility sparked by mounting global trade tensions to record a weighted average return of 2.8%, according to new data from Citco.

The performance of funds administered by the Citco group matched Q4 2024's performance, with 62% of funds ending the period in positive territory.

Multi-strategy hedge funds led the pack, delivering an average return of 4.7%, narrowly ahead of global macro strategies at 4.5%. Equity and commodities strategies both returned 1.6%, while fixed income arbitrage strategies posted a more modest gain of 1.1%. Event-driven strategies were the lone detractors, ending the quarter down 3.4% on average.

Larger managers outperformed, with funds managing more than $3bn in assets under administration (AUA) posting an average return of 4.6%. Returns were more muted across smaller fund categories.

Despite market headwinds from the announcement of new trade tariffs, investor appetite for hedge funds remained strong. Net inflows totalled $7.1bn in Q1, driven by $46.9bn in subscriptions against $39.8bn in redemptions. January and February each saw net inflows exceeding $4bn, although March registered a net outflow of $1.4bn.

Multi-strategy funds were the most active over the quarter, attracting $3.5bn in net new capital despite some March outflows, partially reversing losses seen in late 2024.

Trading activity across hedge funds also hit record highs. Q1 2025 included the two busiest months Citco has ever recorded, with equity, equity options, index futures and bank debt volumes all reaching new peaks. Treasury activity also remained robust, with 163,971 payments processed — a 16% increase from a year earlier.

“Hedge funds faced headwinds from tumbling markets in the first quarter of 2025 as investors reacted to a series of trade tariff announcements which have caused upheaval across the globe," said Declan Quilligan, Head of Hedge Fund Services at Citco Fund Services (Ireland) Limited. "Nonetheless, funds continued to deliver for investors with the tenth consecutive quarter of positive returns, and investors opted to increase their positions in hedge funds, particularly multi-strategy offerings."

Looking ahead, Quilligan warned that intensifying market turbulence could increase demand for hedge funds as investors seek diversification away from the worst of the volatility.