Hedge funds experienced a robust rebound in the first half of 2026, marking their strongest performance since 2021. This recovery followed a challenging March and was largely fueled by a broad market rally after an anticipated resolution to the Iran-war at the end of March. The S&P 500 rose by 15% in the second quarter and nearly 10% for the first half of the year, while the tech-heavy Nasdaq 100 surged 28%. SpaceX's record IPO also contributed to the market's bullish sentiment.
Smaller, specialized hedge funds particularly shined, with many outperforming their larger multistrategy counterparts. For instance, CastleKnight's event-driven fund returned an impressive 42.3% through June, and Melqart Opportunities gained 29.1%. Asia-focused equity managers posted some of the highest returns, with TAL China Focus returning 95.1% and Keystone gaining 62.7%. Equity long/short managers like Whale Rock and Coatue also saw significant gains of 72.5% and 24.5% respectively.
While large multistrategy firms generated more measured returns, they still performed well. Millennium Management was up 10.5% for the first six months, including a 4.1% gain in June. Point72, led by Steve Cohen, returned 14.5% year-to-date, with a 3.4% gain in June. Schonfeld's flagship fund posted an 8.4% gain for the first half, while its Fundamental Equities fund was up 12.3%. Citadel's Wellington fund gained 5.7% through June, and Qube Research & Technologies' Torus fund returned 18.6%, including a 7.8% gain in June. Overall, fundamental long-short equity funds, according to a Goldman Sachs note, delivered 17.4% year-to-date, with an 18.4% return in Q2, their strongest on record.
The strong performance in the first half of 2026 also reflected a highly fragmented market where stock selection and positioning around crowded trades proved more effective. Areas like healthcare and other momentum-linked trades benefited stock pickers. However, performance was uneven across strategies, with commodities proving to be a drag due to losses across oil, metals, and agricultural markets. Systematic strategies delivered more modest gains, around 11.3% year-to-date, impacted by reversals in large U.S. technology and Chinese equities, and losses from shorting long-dated U.S. Treasuries.
Investor appetite for hedge funds is growing, with a Bank of America poll indicating that over half of surveyed investors plan to increase their hedge fund allocations, making it the most popular asset class for the year. This strong interest, coupled with the impressive first-half returns, positions the industry for continued growth and capital inflows, despite some regulatory warnings about leverage and concentration in AI investments.
