Hedge-fund industry assets soar to record $5 trillion. Why the biggest firms are getting even bigger.

By Joseph Adinolfi

Most of the new capital flowed to firms with more than $5 billion under management, according to HFR data. Trendy pod-shop funds were particularly popular.

Hedge-fund assets surge to nearly $5 trillion.

The hedge-fund industry saw its assets under management swell to a record $4.98 trillion during the third quarter, with funds taking in their biggest quarterly haul since before the financial crisis.

Data from HFR showed that capital allocators - the pension funds, endowments, sovereign wealth funds and other large asset owners that dole out much of the money managed by hedge funds - poured $33.7 billion into hedge funds around the world during the third quarter. It was the biggest take for the industry since the third quarter of 2007.

Not all hedge funds received an equal share of these inflows, however. According to Kenneth Heinz, the president of HFR, nearly all of the new money flowed into firms with $5 billion in assets or more. These funds took in more than $32 billion of new money deployed in the space during the quarter and have hoovered up more than $62 billion of the nearly $71 billion that the industry has taken in since the start of the year.

So-called pod-shop firms, such as Millennium Management and Point72 Asset Management, have been some of the biggest beneficiaries of the latest blitz of fundraising, Heinz said. These firms already had a large pile of capital under management. They are known for employing a large number of teams that essentially operate independently, pursuing different strategies.

"When you're allocating to these funds, you're allocating to the best traders," Heinz said. They are "overseen by the best risk managers, the best chief investment officers, and you really think you have a specialized access to not only trades that everybody might have heard of, but you're expecting that they're accessing specialized trades that are more obscure." The thinking goes that you might make money in ways that not everyone else is trying to tap, he said.

Strong financial-market performance also helped boost hedge-fund assets, as prices of stocks, bonds and gold climbed during the third quarter, while the U.S. dollar stabilized. This helped lift the HFRI Fund Weighted Composite Index, a broad gauge of hedge-fund performance, by 5.4%. Between performance gains and new inbound money, assets across the industry increased by $238.4 billion during the three-month period, HFR data showed.

Sophisticated investors have increasingly been turning to hedge funds to add a dash of diversification to their portfolios at a time when traditional assets increasingly have been moving in the same direction. Global stocks and gold (GC00) rallied side by side this year, in a departure from their usual relationship.

And back in 2022, stocks SPX and bonds BX:TMUBMUSD10Y tumbled together as the worst wave of inflation in decades inspired a series of aggressive interest-rate hikes by the Federal Reserve. The result was the worst calendar-year performance for a 60/40 portfolio of stocks and bonds since the 1970s.

"Sources of return that are truly less correlated or even hedged to passive indices are getting harder and harder to find," said Joe Hegener, founder and CIO of Asterozoa Capital, an Arizona-based hedge fund. Asterozoa has $150 million in assets under management. Despite its smaller size, Asterozoa had some inbound interest from investors during the third quarter, Hegener said.

-Joseph Adinolfi

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10-24-25 1040ET