Hedge fund assets hit a record $5 trillion. What's driving it?

Core Insights - The hedge fund industry has reached a record asset level of $5 trillion, driven by significant net inflows and strong performance [1][2] - The third quarter of 2025 saw net inflows of nearly $34 billion, marking the largest quarterly inflow since 2007, with average returns of 5% encouraging renewed interest [2] - The hedge fund sector has been recovering from skepticism since the 2008 financial crisis, with assets under management regaining pre-crisis levels around 2013 and experiencing steady growth since [3] Industry Dynamics - Institutional investors are increasingly seeking to diversify their portfolios away from the bull market, leading to a resurgence in demand for hedge funds [4] - The largest hedge funds, those with over $5 billion in assets under management, are capturing the majority of inflows, highlighting a "winner-takes-all" dynamic within the industry [4] - The hedge fund industry is becoming more mainstream, reflecting a split in the U.S. economy where a wealthy segment seeks to protect and grow their wealth while a larger segment faces financial strain [5][6] Investor Profile - Hedge funds are primarily accessible to accredited investors, defined as individuals earning at least $200,000 annually or possessing a net worth of $1 million [7] - A significant portion of hedge fund assets under management comes from wealthy institutions such as pensions, endowments, and sovereign entities, which are looking to enhance their investment strategies [7]