Hedge fund assets experienced the largest historical growth last quarter, reaching $5.6 trillion under management. This surge is attributed to the AI-driven stock market rally and a significant investor shift away from private equity and credit funds.

Positive investment performance contributed substantially to the growth, with HFR data indicating a $409 billion increase in assets. While hedge funds saw some losses in March due to geopolitical tensions, they subsequently benefited from a strong equity rally, particularly in chip stocks. Investor demand has also been robust, with $134 billion in inflows over the past three quarters, the highest since 2007. This demand is partly fueled by dissatisfaction with private equity's slower capital return timelines compared to hedge funds' typical one-to-six-month redemption periods.

Mao strategies are currently the most sought-after, as large investors aim to hedge against market volatility stemming from geopolitical risks. However, the high correlation between hedge funds and stock markets, which reached a five-year high in January, suggests that a market reversal could pose a risk to many funds. This follows a period in 2022 when hedge funds saw over $100 billion withdrawn due to their failure to protect investors during a market crash.