Hedge fund performance turned negative in the first quarter of 2026 as global markets were disrupted by geopolitical tensions in the Middle East, although investor allocations to the asset class remained resilient, according to data from Citco.

Across approximately $1.3tn in hedge fund assets administered by Citco, gains made in January and February were erased by a March downturn, leaving the sector with a weighted average return of -1.4% for the quarter. The result ended a 13-quarter run of positive performance for hedge funds.

Performance was broadly negative across most major strategies. Event driven funds recorded 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%. On an assets-under-administration weighted basis, all categories posted negative performance for the quarter.

Despite the overall decline, some strategies delivered positive returns. Global macro funds were the standout performers with an 8.5% gain, supported by macroeconomic volatility and shifting interest rate expectations. Commodities strategies also performed strongly, returning 7.1% amid rising commodity prices, while fixed income Arbitrage funds were marginally positive at 0.1%.

While performance weakened, investor demand for hedge funds remained robust. The sector recorded net inflows of $24.1bn in Q1, with subscriptions of $69.8 billion outweighing $45.7bn in redemptions. Inflows were positive in each month of the quarter, marking one of the strongest quarterly fundraising periods so far this decade.

Multi-strategy funds attracted the largest share of allocations with $10.5bn in net inflows, followed by hybrid strategies at $8.6bn and fund of funds at $4.9bn. Equity strategies also saw modest inflows of $1.6bn, while global macro strategies were the only category to record net outflows, at around $1bn.

Trading activity also reached record levels during the quarter. Client volumes hit new highs in both monthly and quarterly terms, with January standing out as particularly active. Average daily trade volumes exceeded 37 million transactions during the month, driven in part by heightened activity from high-frequency trading strategies.

Treasury activity also accelerated, with Citco processing 187,591 payments during the quarter—well above the same period last year and just shy of the record set in Q4 2025.