Agecroft Partners’ 16th annual predictions highlight key trends shaping the hedge fund industry in 2025. Reinsurance strategies and collateral-based approaches are gaining traction, while internal marketing teams and advanced technology adoption remain critical.
Agecroft Partners, a global leader in hedge fund consulting and marketing, has unveiled its highly anticipated 16th annual predictions for the hedge fund industry. Based on insights gathered from discussions with over 2,000 institutional investors and hundreds of hedge fund organisations worldwide, the report outlines the key trends shaping the industry in 2025.
As the hedge fund sector navigates dynamic shifts in global markets, the trends identified by Agecroft Partners provide valuable foresight for managers and investors. The predictions emphasise changes influenced by macroeconomic factors, evolving technologies, and shifting investor preferences.
Donald A. Steinbrugge, CFA, Founder and CEO of Agecroft Partners, commented:
“The hedge fund industry is at a pivotal point, shaped by macroeconomic shifts, technological advancements, and evolving investor preferences. These trends are not just predictions but an opportunity for the industry to adapt and thrive in the face of change.”
1. Increased market volatility
Positives: Market volatility can benefit hedge funds by creating more chances to generate profits. Large price swings offer skilled fund managers better opportunities to select investments and take advantage of price distortions. This can result in quicker performance improvements as prices reach their targets faster. Strategies like long volatility, used by Commodity Trading Advisors (CTAs), directly benefit from market fluctuations.
Negatives: However, higher volatility can also lower the value of stocks and bonds. Investors may demand higher returns due to increased risk, which can negatively affect high-risk strategies. This is especially problematic in fixed-income markets with narrow credit spreads and in stocks with high valuations.
2. Blockchain and crypto evolution
The blockchain and cryptocurrency sector is set for rapid growth and innovation in the next decade. Supported by crypto-friendly policies, the industry is expected to expand significantly. Beyond cryptocurrencies, blockchain technology offers new investment opportunities. Success will favour investors who adapt to changes and identify market leaders.
Key Trends:
- More capital for crypto funds: Dedicated cryptocurrency funds are growing rapidly, showing strong confidence in the sector’s future.
- Crypto in hedge fund strategies: Strategies like CTAs and global macro funds are increasingly adding cryptocurrencies, making them more widely accepted.
- Bitcoin share classes: Some funds are introducing Bitcoin-denominated options, making it easier for investors to allocate capital to digital assets.
3. U.S. Value Stocks
New trade policies aim to improve the global competitiveness of U.S. companies, which could benefit value stocks. In 2025, the gap between value and growth stocks (based on price-to-earnings ratios) is at historic highs. Most hedge funds are currently focused on growth stocks, creating an imbalance. A shift to value stocks could lead to significant gains, similar to patterns seen in the early 2000s.
4. ESG investing diverges globally
ESG (Environmental, Social, Governance) investing seeks to encourage responsible company behaviour but faces challenges. U.S. investors are losing interest in ESG strategies due to their complexity and unclear benefits. For example, inconsistent ESG ratings, like Tesla scoring lower than oil companies, raise doubts.
With new leadership in the U.S., ESG investing may decline further. However, it remains a priority for some investors in Europe and Asia.
5. Decline in demand for large multi-strategy hedge funds
Large multi-strategy hedge funds are seen as overcapitalised, raising concerns about lower returns. Overlapping trades and high leverage in these funds could increase systemic risk during sell-offs.
Smaller multi-strategy funds, which work with external managers, are gaining appeal. These funds use market-neutral or low-risk strategies for better risk management. Single-manager market-neutral funds are also drawing interest, highlighting a shift away from large, complex platforms.
6. Rising demand for reinsurance (ILS) managers
Reinsurance hedge funds are regaining popularity after years of underperformance. Prices in the industry have doubled from their lows, creating strong returns. In 2025, high stock valuations and narrow credit spreads are making traditional investments less appealing. This shift is increasing interest in reinsurance-linked strategies, which offer uncorrelated returns and attract institutional investors.
7. Higher demand for strategies with excess collateral
Strategies holding large collateral reserves are becoming more attractive as short-term interest rates remain around 4%. These reserves, often invested in cash or short-term fixed income, improve overall returns.
Examples include:
- CTAs: They trade futures but keep most capital in cash or short-term investments.
- Reinsurance Funds: These funds hold reserves to cover claims, invested in highly rated, short-term securities.
- Market-Neutral Equity Funds: They balance long and short positions, earning extra returns from cash collateral.
8. Importance of internal marketing teams
Hedge funds increasingly rely on skilled internal marketing teams. These professionals provide clear, tailored responses to investor queries, boosting the chances of securing investments.
Marketing teams also create advanced performance analyses and explain results to investors. This feedback can help fund managers refine their strategies, making these teams essential.
9. Arms race for alpha
The hedge fund industry is in a race to gather and process information faster. Short-term information advantages drive managers to invest in technology like data analytics, artificial intelligence, and alternative data.
Data scientists now play a crucial role, using sources like web traffic, social media sentiment, and satellite imagery to make accurate predictions about industries and companies.
10. Capital introduction events surge in demand
Capital introduction (cap intro) events are becoming more popular as the hedge fund industry grows increasingly competitive. These events allow investors to efficiently screen managers and identify those who meet their needs.
More investors are opting for virtual participation to engage globally and conduct initial meetings before committing to in-person events. This shift increases accessibility and streamlines the selection process.
Shikha Negi is a Content Writer at ztudium with expertise in writing and proofreading content. Having created more than 500 articles encompassing a diverse range of educational topics, from breaking news to in-depth analysis and long-form content, Shikha has a deep understanding of emerging trends in business, technology (including AI, blockchain, and the metaverse), and societal shifts, As the author at Sarvgyan News, Shikha has demonstrated expertise in crafting engaging and informative content tailored for various audiences, including students, educators, and professionals.
