Why small hedge funds ruled in 2025

Core Insights - Hedge funds achieved a gain of 10.8% through November 2025, indicating a strong performance that is set to surpass 2024 [1] - Small hedge funds, particularly those managing less than $500 million, outperformed larger funds, with the smallest funds (under $100 million) returning 14.6% [2][3] - The strong stock market, with the S&P 500 up 18% and the Nasdaq up 21%, provided a favorable environment for long-short equity strategies favored by smaller funds [4] Performance Analysis - Small hedge funds led the performance in 2025, benefiting from a robust stock market that favored their investment strategies [3][4] - Smaller funds typically utilize long-short equity strategies, which require less capital and infrastructure, allowing for greater flexibility in trading [5] - The performance of smaller funds is often correlated with equity market conditions, as they tend to outperform during market upswings [6] Market Conditions - The stock market's strong performance in 2025 was a significant tailwind for hedge funds, particularly benefiting smaller firms [4] - The ability of smaller funds to trade nimbly and take advantage of stock selection was enhanced by the market conditions, with stocks near all-time highs [6]