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Hedge funds were blindsided by the onset of the US and Israeli war with Iran last month, suffering their biggest losses since the lockdowns in March 2020 shuttered the global economy at the start of the Covid-19 pandemic.
The flagship hedge fund performance index of data provider HFR recorded a 3.1 per cent fall last month, more than any month since a 9.1 per cent drop six years ago.
Hedge funds have struggled to get to grips with violent market swings, often provoked by US President Donald Trump’s social media posts. Oil prices soared above $110 a barrel in recent weeks as Iran has closed the Strait of Hormuz, a vital oil shipping route.
Having threatened to “end” Iranian civilisation earlier this week, Trump announced a 14-day ceasefire this morning, which sent Brent crude oil prices tumbling below $95 a barrel and sparked big rallies in stocks and bonds.
“I’ve been managing money for 40 years and I’ve never been less certain on how things are going to turn out,” said one macro hedge fund manager.
Major multi-manager hedge funds such as Ken Griffin’s Citadel, Izzy Englander’s Millennium Management and Dmitry Balyasny’s eponymous firm were down 1.9 per cent, 1.2 per cent and 4.3 per cent in their flagship funds for March respectively, according to people familiar with the returns.
But the pain was most acute among macro hedge funds that trade assets such as bonds and currencies to make bets on economic trends.
After anticipating interest rate cuts before the war, markets quickly became far more pessimistic about inflation and priced in several rate increases.
That shift inflicted big losses on so-called steepener trades, bets that shorter-dated bonds will perform better than longer-dated ones.
“Rates got hit particularly hard right at the beginning and that was where most of the losses were concentrated,” said one person at a big multi-manager hedge fund. “Just brutal.”
Gold, a traditional safe haven during times of intense volatility, did not protect hedge funds from the intense volatility in markets either.
The macro fund of London-based Caxton fell 15 per cent to March 20, while Citadel’s fixed income fund GFI was down 8.2 per cent in March. ExodusPoint, a multi-manager hedge fund that specialises in macro bets and bond trading, was down 4.5 per cent for the month while macro hedge fund Brevan Howard’s master fund was down 6.6 per cent.
Citadel, Millennium, Balyasny, ExodusPoint and Brevan all declined to comment. Caxton did not respond to a request for comment.
Kenneth Heinz, president of HFR, said that many large hedge funds actually made money on oil wagers; the trouble was they lost even more on other positions including bonds.
“There were not enough long oil to offset the rapid repricing of the dovish interest rate and positive growth scenario that people had priced in for 2026,” he said.