Hedge funds reach highest gains since 2009 financial crisis on tariffs, AI market swings

Hedge funds capitalized on 2025’s market turbulence to deliver their strongest annual gains since 2009, turning geopolitical shocks, tariff wars, and AI-driven volatility into substantial profits. This performance marked a resurgence for the $5 trillion industry, outpacing broader indices in many cases and attracting renewed investor interest.

Hedge funds transformed 2025’s relentless volatility into their best year since the 2009 financial crisis, with broad-based gains reflecting adaptability across strategies. The industry posted returns rivaling the subprime-era windfalls, fueled by a mix of tariffs under President Trump’s policies, AI stock surges and corrections, and quant trading edges. HFR’s Fund Weighted Composite Index climbed 1.56 percent in December alone, capping a yearly performance that echoed hedge funds’ crisis-era prowess when they gained nearly 20 percent.

Mid-year surveys from BNP Paribas had already signaled momentum, with first-half returns averaging 4.83 percent and strategies on pace for a 9.34 percent full-year target. By year-end, top multistrat funds exceeded expectations, often beating the S&P 500’s 16.4 percent advance. This turnaround came after years of middling results, validating hedge funds’ role in navigating complex, uncorrelated risks.

The hedge fund sector’s aggregate gains in 2025 represented a high-water mark not seen in 16 years, with diverse strategies posting double-digit returns. HFR data highlighted profits across asset classes, from equities to fixed income, underscoring the industry’s resilience amid “market-rattling” events. While exact industry-wide figures vary, standout funds in the mid-teens percentages trailed the S&P narrowly but offered superior risk-adjusted profiles.

Early 2025 volatility, like April’s tariff-induced swings, set the tone as multistrats turned rocky months into steady profits. Asia-Pacific funds led regionally at 24 percent average returns, followed by EMEA at 16 percent.

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Winning strategies

Quant equity, event-driven, and multistrategy approaches dominated, capitalizing on rapid market shifts. Quant equity returned 6.73 percent in H1, thriving on AI trends and algorithmic edges, while event-driven gained 6.66 percent from corporate actions and restructurings. Multistrats like those at Citadel and D.E. Shaw excelled in dissecting tariff pauses and quant blowups.

Private banks boosted allocations by over 10 percent, driving inflows as they sought diversification in a low-yield world. Tactical macro and discretionary strategies also shone, with Europe emerging as a capital magnet. These approaches proved “uncorrelated,” hedging risks in ways passive indices could not.

Citadel’s Wellington fund, managed by Ken Griffin, ended 2025 up 10.2 percent after a 1.8 percent December, navigating AI spikes and sell-offs adeptly. ExodusPoint Capital, led by Michael Gelband, achieved a record 18 percent on a 2.1 percent year-end surge. Balyasny Asset Management returned 16.7 percent, with early gains like April’s 1 percent amid tariff chaos.

D.E. Shaw’s Composite fund hit 18.5 percent, outpacing peers, while Point72 and AQR’s Apex also topped the S&P. Schonfeld and Bridgewater contributed to the multistrat boom, with regional leaders in Asia pushing envelope returns. 

Influence of AI and crypto on market volatility 

President Trump’s 2025 tariff announcements and reversals created fertile ground for volatility trading, echoing 2018-2019 trade wars but amplified by AI and crypto swings. Pharma stocks, energy shifts, and “mysterious quant losses” added layers, rewarding funds that shorted overextensions or rode recoveries. Geopolitical tensions, including Middle East flare-ups, intertwined with commodity bets.

Post-election clarity from Trump’s November 2024 reelection spurred risk-on moves, but pauses in policies fueled whipsaws. Crypto bankruptcies and Argentine debt plays offered esoteric alpha, reminiscent of 2024’s niche wins. ‘Esoteric alpha’ involves achieving superior investment returns by investing in unconventional and niche assets that are less competitive, leveraging specialized knowledge to capitalize on illiquidity and market inefficiency. Overall, 2025’s “chaos” — from subprime-like fringes to mainstream mayhem — replayed 2009 dynamics.