The final scorecard for 2025 is in, and while the returns are robust, the risk profile has spiked.
According to Goldman Sachs’ latest prime brokerage report, hedge funds largely kept pace with the S&P 500’s ~16% rally, but they used near-record amounts of borrowed money to do it.
🏆 THE 2025 PERFORMANCE BREAKDOWN:
- 🤖 Systematic/Quant Funds: +19.11% (The clear winners).
- 🧠 Fundamental Stock-Pickers: +16.24% (Roughly matching the S&P 500).
- 🏥 Healthcare L/S: +27.2% (The standout sector alpha, despite a December dip).
- 💻 TMT (Tech/Media/Telecom): +13.5% (Underperformed the broader market).
⚠️ THE RISK METRIC: “Leverage to the Moon” The most startling data point is the aggression in the system.
- Gross Leverage (Overall Prime Book): Jumped to 292.8%.
- Translation: For every $100 of investor capital, funds are running nearly $300 in long/short exposure.
- Global L/S Leverage: Hit an all-time high of 213.2%.
🔄 DECEMBER FLOWS (The Great Unwind): Despite the yearly gains, December signaled caution.
- Funds unwound North American positions at the fastest pace in 4 months.
- Tech Sell-Off: Managers were net sellers of Software and Tech Hardware, while rotating into IT Services.
💡 ANALYST TAKEAWAY: 2025 was a “Risk-On” year fueled by debt. The fact that Quants (+19.1%) outperformed Fundamental Pickers (+16.2%) suggests that capturing volatility and momentum was more profitable than deep-dive valuation work. However, with gross leverage near 300%, the ecosystem is incredibly sensitive to shocks. The massive 27% gain in Healthcare—quietly beating the AI-driven TMT sector—shows where the real contrarian alpha was found.
👇 Risk Managers: With leverage at 3x capital, does a small spike in volatility force a systemic deleveraging event in Q1?