In 2025, the global hedge fund industry saw high net inflows with long/short (L/S) equity strategies continuing to form the largest sub-asset class in assets under management (AuM) terms.

Long/short equity strategies may help diversify traditional portfolios, reduce volatility and enhance downside protection, also providing a degree of portfolio management flexibility that can allow gains from both rising and falling markets.

In this PERSPECTIVES Viewpoint Alternatives – Hedge funds: Long/short equity strategies, we discuss the opportunities and risks that can accompany these investments..

 

Key takeaways

  • In 2025 global hedge fund industry assets under management (AuM) surpassed USD5tn. Long/short (L/S) equity strategies continue to form the largest sub-asset class in AuM terms.
  • L/S equity strategies may help diversify traditional portfolios. In addition, they can offer reduced volatility, enhanced downside protection, and portfolio management flexibility that can gain from both rising and falling markets.
  • However, investors should also be aware of potential L/S risks such as short squeezes, leverage-induced volatility and high dependence on manager skill. Operational complexities can also lead to significant losses if strategies are not properly managed.

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