Recent data highlights a continued trend of smaller and mid-sized hedge funds outperforming their larger counterparts across several performance metrics. In 2023, funds managing under $1 billion posted strong double-digit gains, with macro and event-driven strategies delivering particularly strong results. This performance has drawn attention to the agility of smaller managers and their ability to exploit niche opportunities.
Year-to-date in 2025, mid-sized hedge funds—those with assets under administration (AUA) between $500 million and $3 billion—have led industry returns. According to Citco, these funds returned 0.3% in February 2025, while larger funds managing over $3 billion posted a weighted average return of -0.6%, highlighting increased volatility among the largest players.
Investor sentiment appears to be shifting in favor of smaller funds. IG Prime reports that 40% of investors exploring reallocations expressed interest in smaller managers, citing concerns over performance and risk management at larger firms.
Despite net outflows of $1.4 billion in January 2025, sub-$1 billion funds continue to attract attention due to their strategic flexibility and focus. Meanwhile, some large multi-strategy firms maintain their dominance through scale, allocating billions to external managers.
Overall, the performance and positioning of smaller hedge funds underscore a broader shift in industry dynamics, with adaptability becoming a key competitive advantage.