Long-short equity hedge funds have started the year with impressive 6.7% returns. According to a report compiled by Goldman Sachs, the so-called long-short equity hedge funds delivered that return for the year to 14 April, before the rally in equity markets that followed news of the ceasefire in the Middle East. Over the same period, the MSCI World index gained 4.3% and the S&P 500 rose 3.9%.
The performance sits within a broader boom across the hedge fund industry. Global hedge fund capital reached a record $5.22 trillion in the first quarter of 2026, marking the 14th consecutive quarterly increase and the 10th consecutive record for inflows, according to the latest HFR Global Hedge Fund Industry report. The industry attracted approximately $44.5 billion in net asset inflows in the first quarter, following $44.8 billion in the final quarter of 2025. Together, these two quarters – totalling $89.3 billion – represent the highest two-quarter period of inflows since 2007.
Macro funds have been particularly popular. HFR’s benchmark index for these funds, the HFRI Macro (Total), returned 4.9% in the first quarter, outperforming the MSCI World index by 8.5%. Macro strategies are understood to be the least correlated to broader markets and are leading performance returns. Within the sector, systematic diversified CTA strategies saw significant asset gains of $17.75 billion. Energy and basic materials strategies surged by 8.4% in the first quarter, according to the HFRI EH: Energy/Basic Materials Index. Relative value arbitrage strategies saw assets increase by $17.8 billion, with multi-strategy funds leading the growth. Event-driven strategies, however, saw total capital decline slightly as performance-based losses offset inflows.
Several individual funds posted notable numbers. The Andurand Commodities Discretionary Enhanced fund, an energy-focused hedge fund managed by legendary oil trader Pierre Andurand, returned 31% in the first quarter of 2026, driven by bullish bets on oil markets – although it went on to lose 51% in April. Point72 Asset Management, a multi-strategy fund that trades everything from oil to interest rates, currencies and equities, ended March up nearly 4% despite global market volatility. Man Group’s computer-driven trading arm AHL saw its Alpha fund add 5.7% and its Dimension fund return 5.6% in the three months to the end of March. Man Strategies 1783 notched up a 3.8% return, helping push the firm’s total assets to $228.7 billion by the end of March, up from $227.6 billion at the end of 2025.
How long-short equity works
Long-short equity hedge funds are a specific part of the $5.2 trillion hedge fund sector. They aim to beat the market by taking long positions in the companies managers favour and going short – betting against – firms they believe are overvalued. Because they are aimed at high-net-worth and professional investors, hedge funds enjoy much more flexible regulation than funds available to retail investors. The assumption is that institutions and wealthy individuals who invest have the skills to evaluate the proposition themselves. Managers can invest wherever they wish, as long as they have their investors’ permission, and there is no obligation to report holdings or the reasoning behind trades. Some managers hold just a handful of assets and update investors once a year; others run thousands of positions with teams of traders buying and selling every minute.
Investor access: limited but not closed
Most hedge funds remain off-limits to ordinary investors. Minimum investments typically start at around £100,000, and some funds will not accept capital below several million pounds. To diversify adequately, investors often need a portfolio of several funds with different strategies, requiring many millions. That said, UK investors do have some options. A number of hedge funds are structured as investment trusts and listed on the London Stock Exchange.
Pershing Square Holdings (LSE: PSH), run by Bill Ackman’s Pershing Square Capital Management, has been listed in London since 2017. It is structured as an investment trust, meaning it is available to smaller investors and has an independent board of directors. It charges an annual management fee of 1.5% and a performance fee of 16%. Since its inception in 2012, the trust has produced an annualised return in net asset value of 11.8% compared with 6.5% for the FTSE 100 in US dollar terms. Holdings currently include Uber, Amazon, Google and Meta.
Man Group (LSE: EMG) is the world’s largest publicly traded hedge fund manager and a member of the FTSE 100. Buying shares in Man Group provides exposure to the firm’s income stream rather than direct access to its underlying strategies. For the year to 24 April, shares returned 11.6% and over the past five years produced a total annualised return of 13.8%.
BH Macro (LSE: BHMG) is an investment trust that invests solely in units of the Brevan Howard Master Fund, one of the world’s largest and most successful macro hedge funds. With 150 portfolio managers and traders, the fund has achieved an annualised return of 8.5% since inception with lower volatility than broader equity markets. Since the first half of 2007, there have been 20 significant market drawdowns where the S&P 500 fell by 5% or more – in 17 of those periods, BH Macro’s net asset value actually increased.
Tetragon Financial (LSE: TFGS) owns a portfolio of private businesses, hedge funds, credit, real estate and bank loans. Its net asset value has risen 612% since its inception in early 2007, nearly double the MSCI All Country World index. It charges a performance fee of 25% and an annual management fee of 1.5%.
For investors seeking alternative assets through investment trusts, BioPharma Credit (LSE: BPCR) lends directly to biotechnology companies and yields 7.5%, with a near-spotless lending record. The TwentyFour Income Fund (LSE: TFIF) and TwentyFour Select Monthly Income (LSE: SMIF) focus on trading collateralised loan obligations and mortgage-backed securities. CVC Income and Growth (LSE: CVCG), managed by private-equity giant CVC, holds a portfolio of senior secured loans. All of these can help diversify a portfolio but are highly specialised.
Looking ahead, Blackstone – the $1 trillion asset manager – is launching the Blackstone Multi-Strategy Hedge Fund (BXHF), its first hedge fund aimed at affluent individuals. According to Bloomberg, the fund will invest about 30% of its assets in other hedge funds as well as making its own investments across credit, equities and special situations. It targets accredited investors with at least $5 million in investments and will charge a 1.25% management fee and a 12.5% performance fee after a 5% hurdle rate, with quarterly redemption limits of 10%. Blackstone is leading the charge in bringing hedge funds to high-net-worth individuals.
The ‘two and 20’ fee structure and its impact
Hedge funds have long been criticised over fees. The most common structure is known as ‘two and 20’ – an annual management fee of 2% of assets and a performance fee of 20% of any profit. Managers may offer better terms for larger clients, but the basic principle remains: hedge funds are significantly more expensive than active funds aimed at the mass market.
The impact on returns is substantial. A study published in February 2020, “A Bias-Free Assessment Of The Hedge Fund Industry”, found that between 2013 and 2019 hedge fund managers created up to $600 billion in value added before fees. After fees, the figure was significantly lower. Another study, “The Performance Of Hedge Fund Performance Fees”, also published in 2020, examined 22 years of hedge fund data and found that fees consumed 64% of the gross returns on investors’ capital over the long run.
Hedge fund managers argue that higher fees are justified because they outperform the market. To a certain extent that is true. But a study published in May 2011, “Higher Risk, Lower Returns: What Hedge Fund Investors Really Earn”, found that although a hedge fund portfolio’s buy-and-hold return between 1980 and 2008 came in at 12.6%, higher than the S&P 500’s total return of 10.9% over the same period, the dollar-weighted annual return – accounting for investors’ inflows and outflows – was just 6% a year. This shows that even the wealthiest investors are subject to psychological biases. Morningstar’s latest Mind the Gap report revealed that the average investor lost 1.2 percentage points annually over the past decade due to poor timing of purchases and sales.
Fees also have an impact on the structures investors can access. Pershing Square Holdings, for example, charges a management fee of 1.5% and a performance fee of 16% – slightly less than the standard ‘two and 20’. Tetragon Financial charges a 25% performance fee. Blackstone’s new BXHF is undercutting the industry norm with a 1.25% management fee and a 12.5% performance fee after a 5% return hurdle. That lower fee structure reflects the growing competition for investor capital and the push to bring hedge funds to a wider, albeit still wealthy, audience.
Risks beyond fees: leverage, lock-ups and black swans
Hedge funds frequently use leverage – borrowed money – to enhance returns. That can lead to disastrous outcomes when managers borrow too much, too quickly. One of the most notable recent examples was Bill Hwang’s Archegos Capital, which imploded after borrowing $160 billion against just $20 billion in capital. The collapse wiped out Hwang’s $20 billion net worth overnight and ultimately led to the collapse of global investment bank Credit Suisse. Hwang was later sentenced to 18 years in prison on federal charges of fraud and racketeering.
Another example: in the first quarter of 2021, Melvin Capital, run by Gabe Plotkin, lost about $4.5 billion – 49% of its assets – in a few weeks betting against GameStop using borrowed funds. The fund survived only after receiving a $2.5 billion bailout from Citadel and Point72, although it closed for good a year later.
Hedge funds also restrict investor withdrawals. Some require investors to commit capital for five years. Others allow quarterly redemptions. Many reserve the right to ‘gate’ withdrawals – preventing investors from accessing cash if the manager believes doing so would hurt investment returns. That ability to lock in capital is useful when a fund uses esoteric or illiquid strategies, but it limits investor flexibility.
Despite these risks, hedge funds can play a valuable role in a diversified portfolio. Their ability to achieve positive absolute returns – regardless of whether markets rise or fall – can help smooth long-term performance and reduce volatility. Universa Investments, which specialises in risk mitigation against ‘black swan’ events, is a case in point. Universa reportedly manages $20 billion and posted a 100% return on capital when Donald Trump unveiled sweeping tariffs last April. It reportedly earned 3,612% in March 2020 during the pandemic-induced market crash. Bill Ackman’s Pershing Square hedge fund made $2.6 billion during the pandemic after paying $26 million for a portfolio of credit-default swaps that soared in value by more than 10,000%.
Institutions that invest in hedge funds typically do so as part of a broadly diversified portfolio. Insurers allocate between 3% and 10% of their funds to hedge funds and other alternative assets, according to figures compiled by Goldman Sachs and BNP Paribas. Public pension funds allocate up to 12% on average. University endowments take larger positions – 15% to 40% on average – primarily because they have much longer-term horizons. Family offices typically cap allocations at around 25%.
The Canada Pension Plan Investment Board (CPPIB), a $714 billion fund, has accumulated a $76 billion portfolio of internally and externally managed hedge funds. According to the fund’s 2025 annual report, its strategies have delivered $15.6 billion above its benchmark in net added value over the past five years, mainly due to external fund allocations.
Hedge funds are not as exotic as they are often portrayed. At their core, they are simply funds formed by private investors aiming to generate positive absolute returns. But they come with higher fees, lower liquidity and significant leverage risks. For those who can access them – either directly or through the handful of listed vehicles on the London Stock Exchange – they offer a way to diversify away from equity markets. The fees, however, remain the central trade-off: they provide alignment of incentives but can consume a large share of returns over time.
