Hedge funds hammered by market turbulence triggered by Iran conflict

Hedge funds posted their worst collective drawdown in over four years during March as the U.S.-Israeli war against Iran unleashed volatility across equities, bonds, energy and currencies. Macro funds shed up to 7.3%, Europe-focused strategies lost 6.3% and U.S. multistrats averaged 4.3% declines the steepest monthly hit since January 2022 erasing YTD gains for many. Goldman Sachs tracked global equity sales at fastest pace in 13 years amid basis trade liquidations and energy risk premia spikes.

Balyasny Asset Management's flagship multistrategy fund dropped 4.3% in March after 2% weekly losses during peak conflict escalation. ExodusPoint Capital's main book surrendered prior two-month profits while Millennium Management faced significant mark-to-market hits from leveraged positions. Coatue Management plunged 3.8% in one week alone, with Citadel's Wellington macro strategy posting 2% declines. Asia long/short funds led carnage at 7.3% average amid Nikkei correction and yuan depreciation.

Iran conflict sparked by U.S. strikes on nuclear sites—drove Brent crude 28% higher to $116 before partial retreat, shattering rate cut expectations and igniting Treasury selloff. S&P 500 entered correction territory down 5.3%, Nasdaq shed 7.8% and Stoxx 600 logged worst month since COVID onset. VIX spiked above 30 while MOVE index hit 2024 highs, amplifying basis trade stress where hedge funds borrowed $1 trillion short-term to fund long Treasuries.

Crowded trades imploded: AI/tech longs reversed amid Nvidia's 12% plunge, gold positioning flipped from most-crowded bullish bet, and emerging equities cratered. Systematic funds outperformed discretionary macro strategies like Caxton and Brevan Howard through diversified volatility capture. Kepos Capital's Alpha Fund and ADAPT Investment Managers bucked trends with gains.

Financial advisors brace for Q2 risks including Strait of Hormuz closure threats and sequential oil shocks propagating inflation. Trump tariff extensions compound stagflation fears, anchoring Fed funds above 4.25% and widening credit spreads. Hedge fund AUM outflows hit $45 billion in March, fastest since 2022 rate hikes.

Industry consolidation accelerates as mid-tier managers shutter amid 15% performance dispersion. Survivors pivot to tail-risk overlays and energy derivatives while central banks monitor leverage amplification.