Why small hedge funds ruled in 2025

• Small hedge funds outperformed larger peers successful 2025.

• Funds overseeing little than $100 cardinal led the pack, returning 14.6%, per PivotalPath data.

• Strong stock-market gains successful 2025 favored long-short equity strategies utilized by smaller funds.

Hedge money managers delivered different beardown twelvemonth successful 2025, rewarding investors who poured hundreds of billions of dollars into the industry.

Through November, hedge funds gained 10.8% successful 2025, according to manufacture probe steadfast PivotalPath's composite index, putting the manufacture connected gait to eclipse 2024. Nearly each large strategy posted affirmative returns.

But it wasn't the aforesaid communicative arsenic 2024, erstwhile ample hedge funds led the mode to a stellar twelvemonth for the industry. This year, it's the tiny hedge funds that person ruled.

Funds managing little than $500 cardinal outperformed their larger peers done November, according to PivotalPath data. The smallest firms — those overseeing little than $100 cardinal — led the pack, returning 14.6%.

Even astatine large, multistrategy firms, it was their smaller funds that shone passim astir of the year.

Small funds aren't predestined to win, but respective forces worked successful their favour successful 2025. A scorching banal marketplace was the biggest tailwind. With the S&P 500 up 18% and the Nasdaq up 21% done November, it was an particularly beardown situation for banal pickers.

Smaller firms thin to thin much heavy connected long-short equity strategies, which necessitate little superior and infrastructure to deploy.

"Typically, smaller funds outperform erstwhile equity markets outperform," Jon Caplis, CEO of PivotalPath, said. "When determination are large selloffs, smaller managers underperform."

Their size besides gives them greater flexibility astir the stocks they wager connected and successful what size, Caplis said, allowing them to commercialized much nimbly.

With stocks adjacent all-time highs and investors progressively wary of crowding, there's nary warrant the small-fund winning streak volition widen into 2026.

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