Global hedge funds recorded their largest monthly drawdown since January 2022 as market turbulence linked to the Iran conflict weighed heavily on equities, according to a report by Reuters citing a recent client note from Goldman Sachs.
March proved especially challenging for long-short strategies. The S&P 500 fell 4.63% and the Nasdaq 100 dropped 4.87% in Q1, marking a sharp reversal after a strong 2025 for many funds. Bruno Schneller of Erlen Capital Management noted that volatility was fueled by geopolitical tensions and rapid shifts across rates, currencies, commodities, and equity factors.
Asia-focused long-short funds fell 7.3% in March, European managers 6.3%, and US funds 4.3%. Year-to-date through March, Asia long-short managers are up 6.5%, while European and U.S. funds lag at -1.8% and -2.4%, respectively. The technology, media, and telecom sector was hit hardest, down 7.8% for the month and 11.8% over the quarter.
Hedge funds sold global equities for a fourth consecutive month at the fastest pace in over a decade, with average long-short returns at -3.96% in March, reflecting weaker performance among larger multi-manager funds. Systematic long/short strategies bucked the trend, gaining 1.07% from alpha-driven trades.
Gross leverage reached 312.5%, near record levels, while North American funds saw their largest net selling since April 2020, with shorts exceeding longs. Large US multi-strategy firms posted significant monthly and quarterly losses, while some of their Asian counterparts howed resilience, posting modest quarterly gains despite monthly declines.
Schneller observed that recent market stress highlighted the risks of crowded positions, showing how factor dislocations and rapid deleveraging can impact even diversified hedge fund models.
