(HedgeCo.Net). Hedge funds are ending 2025 on a high note — buoyed by a biotech-driven surge in equity markets that has turned what once looked like a middling year into a standout performance period for many discretionary equity and event-driven managers. According to the latest industry data, hedge funds globally are on track to deliver double-digit returns this year, significantly outpacing major traditional benchmarks. The Economic Times

A standout theme fueling this strength has been the resurgence of biotechnology stocks and deep healthcare M&A activity. Firms with concentrated bets on biotech equities — particularly those involved in merger and acquisition arbitrage and long/short healthcare strategies — have reported exceptional results, with some well-known specialist funds posting returns well into double digits through November. Financial Times

Why Biotech Is Driving Hedge Fund Alpha

Several factors explain the outsized impact of biotech on hedge fund returns this year:

• Accelerated M&A and deal flow: Large pharmaceutical players have stepped up acquisitions of emerging biotech innovators, creating powerful catalysts for hedge fund positions. These moves helped lift the Nasdaq Biotechnology Index, which outpaced general equities in 2025. Financial Times
• Volatility creating opportunity: Even amid broader macro uncertainty, biotech’s idiosyncratic risks and frequent stock-specific news events have allowed hedge funds to generate alpha through dispersion trading.
• Returns for savvy stock pickers: Funds that combined careful fundamental work with tactical hedges navigated both rallies and pullbacks, resulting in strong net performance relative to long-only peers.

Performance by Strategy

While performance varies widely across types of hedge funds, risk-taking strategies such as equity long/short, event-driven, and healthcare-specialist funds delivered some of the highest returns this year. Macro-oriented funds, meanwhile, benefited from volatility and currency opportunities but lagged equity-focused peers. The Full FX

Industry indexes show that almost 60% of hedge funds posted positive performance in November alone, contributing to elevated year-end figures and renewed investor confidence in alternatives as a core portfolio diversifier. The Full FX

Investor Allocations and Outlook

Institutional investors — including pension plans and endowments — are reported to be reallocating capital back into hedge funds, particularly for specialized strategies that excelled in sectors like biotech, healthcare technology, and niche arbitrage plays. Some allocators have cited improved risk-adjusted performance and reduced correlation with traditional markets as reasons for increased hedge fund allocations. Investment Executive

As 2026 approaches, firms are also preparing for shifts in market dynamics, including potential inflation persistence, central bank policy changes, and geopolitical volatility — all forces that historically shape hedge fund strategy and performance.

Bottom line: After a rocky start, hedge funds have rallied to deliver meaningful returns for investors in 2025, with biotech holdings and nimble stock selection emerging as key success drivers.