Hedge funds post best quarter of the decade with 12.3% Q2 return

Hedge funds delivered their strongest quarterly performance of the decade in the second quarter of 2026, posting a weighted average return of 12.3% as artificial intelligence drove a powerful rebound in equity markets, according to data from Citco's Quarterly Hedge Fund Report released this week.Citco

The result marks a sharp recovery from a weaker first quarter and far exceeded the previous recent quarterly high of 8.3% recorded last year. Net inflows of $39.2 billion during the quarter also set a new decade high, underscoring a sustained rush of capital into the sector.Citco

AI Powers the Rebound

The quarter's gains were propelled by a technology-led surge, with equity, global macro, and multi-strategy funds leading the way. The Morningstar US Market Index ↘ 1.98% climbed 15.5% in Q2 after falling 4.2% in the first quarter, while the semiconductor sector surged 47.3% as demand for AI infrastructure accelerated. Global fundamental long/short hedge funds posted an even more striking 18.4% return for the quarter, according to a Goldman Sachs ↗ 1.22% prime brokerage report.Goldman Sachs+2

The rapid adoption of AI has created what Morningstar described as "a sharp divide in equity markets," with companies supplying AI infrastructure outperforming while many software firms face disruption concerns.Morningstar, Inc.

Record Assets and a Shift From Private Markets

Global hedge fund assets reached a record $5.22 trillion in the first half of 2026, according to data from HFR and Opalesque. The industry has now posted 14 consecutive quarterly gains in total capital. Nearly $90 billion in new capital flowed into hedge funds over the past two quarters, the highest two-quarter total since 2007, as investors favored their liquidity and uncorrelated returns over private equity and credit.Hedge Fund Research+1

Blackstone ↗ 0.18%, the world's largest alternative asset manager, reported Q2 results on Wednesday showing assets under management reached a record $1.35 trillion, up 11% year over year, with $68.3 billion in quarterly inflows. Distributable earnings rose 26% to $1.52 per share, beating analyst estimates.Investing.com+1

Outlook

The momentum follows a broader trend: allocators surveyed by Goldman Sachs at the start of 2026 indicated that nearly half planned to increase their hedge fund exposure, the highest share on record. With volatility persisting and AI investment continuing to reshape markets, the hedge fund industry enters the second half of 2026 from a position of historic strength.2026 Hedge Fund Industry Outlook Generation Alpha+1