Key Takeaways
- • Hedge funds returned 6.88% from January to September 2026, the best first nine months of a midterm year since 2006 (7.10%), according to HFR research.
- • The second year of a presidential term has historically been the weakest for hedge funds, averaging about 3% to 3.46% versus more than 13% in years one and three of the HFRI Fund Weighted Composite.
- • Pollsters widely expect a Democratic sweep of the House and Senate, which HFR-cited analysis says would bring greater congressional scrutiny of the administration's agenda and potential policy stasis.
- • Equity hedge, event-driven, and relative value strategies are reported to favour a Democratic president, while macro strategies favour a Republican president.
- • Hedge fund AUM grew at roughly 14% a year from 1990 to 2025, averaging 15.1% a year under Republican presidents and 13.1% under Democrats.
Summary
Hedge funds posted their strongest first nine months of a midterm year since 2006, according to the latest HFR research. The HFR fund-weighted composite returned 6.88% from January to September 2026, compared with 7.10% over the same period in 2006. The result runs against the historical pattern: the second year of a presidential term has been the weakest for hedge funds, with the HFRI Fund Weighted Composite averaging 3.46%, against more than 13% in both the first and third years. Normalised annual returns in midterm years were about 3%, according to the HFR index.
The source article notes that the midterm elections, held on Tuesday, carried significant uncertainty across fixed income, commodity, credit, and equity markets, leaving funds searching for havens. Pollsters and forecasters broadly expected a Democratic win in both chambers of Congress, driven by inflation concerns and voter resentment over the data center buildout. A significant Democratic presence in Congress would likely increase scrutiny of the administration's agenda and could lead to policy stasis, with a potential curb on executive power a live consideration for positioning. According to HFR, a unified Congress produces returns roughly double those seen in a divided one, and funds were hoping for a clear outcome rather than a split Congress.
HFR research indicates strategy performance varies with the party in the White House. Equity hedge, event-driven, and relative value strategies favour a Democratic president, while macro strategies prefer a Republican president, which the research attributes to the more interventionist fiscal approach of Republican administrations. Across the four-year presidential cycle, the composite fell from 13.40% to 7.22% as the presidency drew to a close. Equity hedge returns were about 15% in year one and 16% in year three, but fell to just under 4% in year two.
Industry growth has persisted regardless of political cycle. Hedge fund assets grew about 14% a year between 1990 and 2025, despite alternating Democratic and Republican governments. According to the research, assets grew 15.1% a year on average under Republican presidents and 13.1% under Democrats. The article concludes that the election outcome may complicate positioning, but hedge funds have historically adapted to political dislocations.
The source article notes that the midterm elections, held on Tuesday, carried significant uncertainty across fixed income, commodity, credit, and equity markets, leaving funds searching for havens. Pollsters and forecasters broadly expected a Democratic win in both chambers of Congress, driven by inflation concerns and voter resentment over the data center buildout. A significant Democratic presence in Congress would likely increase scrutiny of the administration's agenda and could lead to policy stasis, with a potential curb on executive power a live consideration for positioning. According to HFR, a unified Congress produces returns roughly double those seen in a divided one, and funds were hoping for a clear outcome rather than a split Congress.
HFR research indicates strategy performance varies with the party in the White House. Equity hedge, event-driven, and relative value strategies favour a Democratic president, while macro strategies prefer a Republican president, which the research attributes to the more interventionist fiscal approach of Republican administrations. Across the four-year presidential cycle, the composite fell from 13.40% to 7.22% as the presidency drew to a close. Equity hedge returns were about 15% in year one and 16% in year three, but fell to just under 4% in year two.
Industry growth has persisted regardless of political cycle. Hedge fund assets grew about 14% a year between 1990 and 2025, despite alternating Democratic and Republican governments. According to the research, assets grew 15.1% a year on average under Republican presidents and 13.1% under Democrats. The article concludes that the election outcome may complicate positioning, but hedge funds have historically adapted to political dislocations.
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