The world's 100 largest hedge funds underperformed the broader industry in the first half of 2026, returning 6.0% compared with 7.0% for the wider sector, according to new research from Canoe Intelligence, a Bloomberg company.

The Canoe Hedge Fund VIP Performance Report Q2 2026 found that the largest managers, representing approximately $3.2tn in institutional allocations, struggled to outperform smaller peers despite their scale and risk management capabilities.

The performance gap followed a period of volatility in March, when an energy shock linked to the Iran conflict triggered a 3.2% maximum drawdown among the largest funds, broadly in line with the 3.3% decline recorded across the wider hedge fund index.

However, performance varied significantly by strategy. Long/short equity funds among the top 100 managers returned 9.2% in H1, outperforming the broader long/short equity index's 8.9% gain and a 60%-exposure S&P 500 benchmark, which returned 6.2%.

The largest long/short equity managers also maintained their longer-term advantage, having returned 21.4% in 2025 compared with 14.8% for their smaller peers.

Multi-manager platforms demonstrated greater resilience during March's volatility, recording a maximum drawdown of 1.25% – their largest in three years – as diversified exposures and dynamic capital allocation helped contain losses. Most had recovered by April.

Relative value and arbitrage strategies showed the opposite trend, with the largest funds returning 2.9% in H1 against 5.4% for the broader strategy index. Canoe attributed the gap partly to smaller managers' greater flexibility in executing trades, particularly where speed and position sizing are critical.

Mike Muniz, chief strategy officer at Canoe Intelligence, said the findings highlighted the importance of assessing hedge fund performance by strategy rather than size alone.

“The largest long/short equity funds have led their smaller peers in every full year since 2023, while smaller relative value funds have kept the edge,” Muniz said.

The findings underline the divergence in returns across the hedge fund industry, with larger managers retaining an advantage in long/short equity while smaller funds outperform in strategies where trading flexibility and execution speed are more significant.