Q2 2018 Hedge Fund Industry Data
The second quarter of 2018 was characterized by a tug-of-war between exceptionally strong U.S. corporate earnings and escalating geopolitical headwinds. Qualifying Hedge Fund NAV grew modestly by 0.9% to $3.350 trillion. Despite brewing trade wars, massive corporate buybacks funded by the recent tax cuts provided a strong floor for U.S. equities, allowing funds to selectively deploy capital.
Key findings this quarter:
- 1Qualifying Hedge Fund NAV reached $3.350 trillion amid a highly divergent global market.
- 2Escalating U.S.-China trade tensions severely impacted emerging market strategies.
- 3Gross Notional Exposure expanded to $20.6 trillion.
- 4A flattening U.S. yield curve prompted increased hedging among fixed-income macro funds.
Macro Environment
The narrative in Q2 was dominated by the rapid escalation of tariff threats between the U.S. and China. This caused significant divergence in global markets: U.S. equities (particularly technology stocks) performed well, while emerging markets and European equities suffered. The Federal Reserve hiked rates again in June, contributing to a noticeably flattening U.S. Treasury yield curve—a classic late-cycle indicator.
Regulatory Context
With gross exposures continuing to climb, regulatory bodies focused on the liquidity mismatch within open-ended funds investing in less liquid assets (such as emerging market debt and high-yield credit). The OFR highlighted that a strengthening U.S. Dollar and rising rates were applying severe pressure to emerging market borrowers, potentially threatening funds strictly constrained to those sectors.
Future Outlook
Entering the second half of the year, hedge funds were highly bifurcated. Long/short equity funds heavily concentrated in U.S. tech "FAANG" stocks were highly profitable, while global macro funds betting on synchronized global growth were forced to rapidly unwind positions. The flattened yield curve increasingly signaled caution.
What moved most this quarter
Qualifying Hedge Funds Net Assets
Significant quarter-over-quarter change based on OFR Form PF data.
Estimated Gross Notional Exposure
Significant quarter-over-quarter change based on OFR Form PF data.
Industry Size
Qualifying Hedge Funds Net Assets
Net assets exhibited modest growth of 0.9%, ending the quarter at $3.350 trillion.
Leverage
Estimated Gross Notional Exposure
Gross notional exposure rose nearly 2% to an estimated $20.6 trillion.
Complete Metric Changes
| Metric | Prior Q | Current Q | Change |
|---|---|---|---|
| Qualifying Hedge Funds Net Assets | 3,320 | 3,350 | +0.90% |
| Estimated Gross Notional Exposure | 20,200 | 20,600 | +1.98% |
Frequently Asked Questions
Did industry NAV grow in Q2 2018?
Yes, Qualifying Hedge Fund NAV grew 0.9% to $3.350 trillion.
How did trade wars impact hedge funds?
Trade tensions caused a major divergence, punishing emerging market strategies while U.S. technology-focused funds remained resilient.
What was the gross leverage trend?
Gross notional exposure grew nearly 2% to $20.6 trillion, driven by specific localized risk-taking in U.S. markets.
Methodology & Source Notes
Data is sourced from the definitive OFR Form PF aggregated releases. Comparisons are made quarter-over-quarter. All financial values are estimates based on aggregated filings and subject to reporting lags.
Data Provider: U.S. Office of Financial Research Hedge Fund Monitor. We fetch the latest publicly available aggregated data releases representing SEC Form PF submissions.
Reported values can be subject to revision by the OFR in subsequent quarters. We update historical tables to reflect these revisions where available. This analysis is provided for informational and educational purposes only and does not constitute investment advice.
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Previous Reports
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