London-based macro hedge funds are scaling back risk in UK government bond markets after sharp losses during March’s volatility reduced appetite for aggressive directional trades, rather than laying off portfolio managers, according to a report by eFinancial Careers.
Several multi-strategy firms reportedly endured losses during March, including Citadel and Millennium Management, which were reported to have lost roughly $1.5bn each during the period. Other firms said to have been affected included Balyasny Asset Management, Marshall Wace, ExodusPoint Capital Management and Taula Capital Management.
Despite the drawdowns, hedge funds have largely avoided widespread portfolio manager layoffs. The most notable retrenchment has come from SPX Capital, which is reportedly shutting its London office following weaker performance earlier in the year.
Industry recruiters say firms have shown unusual patience with underperforming macro traders, partly because March’s volatility was viewed as an industry-wide event rather than the result of isolated risk management failures.
Instead of cutting staff, many hedge funds appear to have responded by reducing overall risk exposure and limiting contrarian trades in UK rates markets — a shift that could further dampen liquidity and reinforce one-way positioning in gilts.
Market participants say liquidity and trading activity in short-dated gilts have deteriorated significantly in recent weeks, with hedge funds becoming increasingly cautious following abrupt moves in inflation and interest-rate expectations triggered by geopolitical shocks earlier this year and mounting political and fiscal uncertainty in the UK.
The report cites unnamed market sources as saying that hedge funds have become particularly reluctant to hold unhedged overnight positions amid fears that geopolitical headlines and central bank communication could trigger further sharp market swings.
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