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How the Donald Trump administration’s policy-and-market backdrop created a rare window of outperformance for active managers and hedge funds
In recent years, the interplay between politics, regulation and market structure has created fertile ground for non-traditional asset-managers—especially hedge funds and active investment strategies—to gain relative outperformance. Under the Trump administration (and the attendant policy shifts that accompanied it), a number of dynamics converged that seem to have helped certain hedge funds and active managers perform better than what many thought possible. Yet the headline claim that the administration outperformed hedge funds (or vice-versa) requires nuance.
What follows is a breakdown of: (1) what the data show about hedge funds’ performance; (2) the Trump-era policy/regulatory/regime changes that matter; (3) how these changes may have produced opportunities (and risks) for hedge funds and active managers; and (4) a sober look at limitations and caveats.
1. What does the data say about hedge funds under Trump?
Underperformance historically
– According to the indexation firm HFR, Inc. (HFR), hedge funds underperform the broad equity market regardless of the party in the White House—but the degree of underperformance has varied. During Democratic administrations, hedge funds delivered annualised returns of ~10.16% versus ~11.99% for the S&P 500; during Republican administrations the under-performance gap was larger (≈331 basis points).
– A survey of hedge fund managers at the time of Trump’s 2016 election showed optimism: >50% of managers believed a Trump presidency would benefit their assets over the next 12 months.
Moves in AUM and gains in 2024/early-2025
– HFR data show that global hedge fund assets rose to an estimated US$4.51 trillion at the start of 2025 (a record) as managers and institutional investors repositioned around the Trump administration’s programme of “sweeping policy changes.”
– The HFRI Fund Weighted Composite Index gained +9.8% in 2024; the HFRI Equity Hedge index gained +12.0% and the HFRI Event-Driven index +11.6%.
– Meanwhile, the fund-manager comparison from AJ Bell’s “Manager vs Machine” report noted that in H1 2025, 51% of global active funds out-performed passive alternatives—a high watermark in their data. Their analysts attributed this to the backdrop created by the Trump-era regime.
So: Did hedge funds beat the administration or the market?
Not quite in the blanket sense. The data show that hedge funds continue to face challenges relative to broad indices over long time-horizons. Under Trump, some active funds and hedge funds found tailwinds and stronger relative performance. But the statement “Trump administration out-performing hedge funds” is misleading: it’s more accurate to say the administration’s environment helped some hedge funds perform, rather than the administration itself being a portfolio which beat hedge funds.
2. What about the Trump administration’s policies & regime changes?
Several policy/regulatory shifts during the Trump years (and lingering into early 2025) appear to have influenced markets and opportunity sets for active/hedge managers:
• Deregulation & tax cuts: The 2017 Tax Cuts and Jobs Act, rollback of certain financial-regulation provisions, and promised deregulation across sectors boosted corporate earnings potential and changed risk/reward profiles for firms.
• Trade & tariff regime changes: Tariffs and trade tensions with China (and others) increased volatility, created winners/losers by industry, and changed global supply-chain dynamics—creating potential for event-driven strategies and directional bets.
• Shift in monetary policy backdrop & inflation concerns: Although the Federal Reserve is independent, the broader macro regime—including inflation, rate-hike expectations and currency moves—was influenced by the administration’s posture. That can create macro-hedging opportunities for hedge funds.
• Corporate behaviour & M&A cycle: As one HFR commentary noted, hedge funds were positioning for “a powerful and broad expansion of cryptocurrency acceptance, a robust strategic M&A cycle, falling (albeit shifting) geopolitical uncertainty, and an evolution in oversight and regulation of financial institutions” under the incoming Trump administration.
These shifts produced both increased volatility and structural change—two things hedge funds typically thrive on (if managed well).
3. Why might hedge funds/active funds have been able to outperform more than usual in this regime?
Here are some hypothesised mechanisms:
a) More dispersion and regime-change = more alpha opportunities
When markets are stable and trends are well-understood, many active strategies struggle to beat passive indices. But when you have big policy shifts, regulatory regime change, trade shocks, currency or interest-rate shocks—then the cross-section of returns widens, enabling well-positioned hedge funds to exploit mispricings, event-driven situations, macro bets and rapid rotation. This is consistent with the AJ Bell finding of 51% of global active funds beating passives in H1 2025.
b) Directional strategies benefit from structural tailwinds
For instance: equity hedge strategies gaining +12% in 2024 (HFR data) suggests directional managers were able to pick up on structural winners (e.g., deregulated sectors, M&A targets) and avoid some losers (tariff-exposed firms).
c) Event-driven / distressed / restructuring strategies get more opportunities
Change in regulation, tax policy, M&A environment and global supply-chains can generate corporate “events”—spinoffs, restructurings, special-situations—that event-driven hedge funds can exploit. The +11.6% gain in HFRI Event-Driven index in 2024 supports this.
d) Active funds profit from volatility
Volatility tends to be an enemy of passive broad indexing (which assumes more stable, trending markets) and a friend of well-managed hedge funds that can short, hedge, go long opportunistically. The trade-policy uncertainty and macro shifts under the Trump regime raised volatility and created richer opportunities for hedge funds.
4. But there are important caveats & limitations
Not all hedge funds or active managers out-performed
Despite the positive signals, hedge funds as a group still face hurdles. For example, the historical under-performance under Republican administrations remains meaningful.
Performance skew and selection bias
As always, standout results tend to get attention while the numerous “average” or under-performing funds are less visible. Aggregate indexes hide that many funds did not outperform.
The Trump “edge” may not persist indefinitely
Structural tails (policy shifts, deregulation, tariff shocks) may create a temporary window of opportunity—but once the regime becomes “known” and priced in, advantage may shrink. Also, reversal risks (e.g., regulatory rollback, trade war blowback) are real.
Attribution is fuzzy—politics is one of many factors
It’s tempting to attribute the outperformance solely to the Trump administration’s policies—but active fund performance depends on many variables: manager skill, sector exposure, capital flows, fee structures, risk management, macro regime. The administration created a backdrop, but funds still needed to execute well.
The broad markets still matter
Even in favourable regimes, many active funds may still underperform simple passive benchmarks depending on fee drag, leverage, cost of hedging, and asset inflows (which erode nimbleness).
5. Conclusion
In sum: the Trump administration’s policy-regime (deregulation, tax cuts, trade shocks, macro volatility) appears to have created a “sweet spot” for some hedge funds and active managers to generate stronger relative returns than they usually do—particularly in 2024/early 2025. While it would be inaccurate to claim that the administration out-performed hedge funds, it is fair to say that the regime under Trump provided extra tailwinds that many nimble active managers were able to exploit.
For investors or writers (such as yourself) the story has attractive drama: how political/regulatory shifts disrupt market structure, creating opportunities (and risks) for active strategies. If you’re writing an article on this topic, you might emphasise: the regime shift, the widening of return opportunities, case-studies of funds that succeeded, and the caution that these windows are not eternal.
Attached is a news article regarding trump administration over performing nearly every hedge fund
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