Just saw the Goldman Sachs report on hedge fund performance: they delivered robust double-digit gains in 2025, riding the buoyant stock market and the AI boom. But here's the question everyone's asking: can they do it again in 2026?
2025 Performance:
• Hedge funds: Double-digit gains (exact number varies by strategy)
• S&P 500: 16.65% gain
• FTSE 100: 21.5% gain
So hedge funds actually underperformed the broad market, which is interesting. This suggests that:
1. Diversification hurt returns (they hold bonds, alternatives, etc.)
2. The simple "buy and hold" strategy worked better than active management
3. Hedge funds are becoming less relevant in a bull market
What's changing in 2026:
Quantitative strategies are getting more attention as a way to enhance returns while reducing tail risk. The theory is that quant funds can identify mispricings and market inefficiencies that traditional active managers miss.
But here's the catch: if everyone's using the same quant models, the edge disappears.
My take: 2026 will be a year where active management has a chance to shine, but only if the market becomes more volatile and less correlated. If it's another "Mag7 carries the market" year, then passive indexing will continue to win.
For those considering hedge funds or quant strategies: Be very careful about fees. A 2% management fee + 20% performance fee is a lot to overcome, especially if the market is going up 15%+ per year.