Multi-strategy hedge funds are grappling with their most significant challenge since the early days of the pandemic as a sharp market selloff forces firms to rapidly unwind crowded trades, according to a report by Bloomberg citing sources familiar with the matter.
The recent downturn has tested even the largest players in the space, including Citadel and Millennium, which both faced significant losses in February and saw continued underperformance through the first week of March.
Citadel, led by Ken Griffin, dropped 1.7% in February – the fund’s largest monthly decline since May 2021 – and lost another 1.7% in the first days of March. The fund’s struggles align with broader turbulence among major multi-strat firms, including Point72 Asset Management and Balyasny Asset Management.
Despite these setbacks, sources report Griffin urged his team to capitalise on the market’s volatility.
Millennium, managing roughly $75bn across more than 340 teams, saw a 1.3% decline in February and was down about 1.4% through the first week of March.
Notably, two teams focused on index rebalancing have incurred losses of approximately $900m this year. The firm is also in the process of liquidating a $1bn financial-sector trading book run by Jonathan Philpot, alongside an energy-sector pod overseen by Justin Grant.
Balyasny, which posted strong returns earlier this year, has already given back some of its gains. The firm’s flagship fund had a solid 3.5% gain through February but suffered a decline in March. Meanwhile, DE Shaw’s Oculus fund, which surged 36% in 2024, has also faced significant losses, down 4.4% as of March 7.
The wave of deleveraging has particularly impacted equity-focused pods in healthcare and technology, as well as strategies based on index arbitrage and equity rebalancing. The rapid liquidation of positions in the face of mounting pressure has exacerbated the market selloff.
The current stress in the multi-strat hedge fund space underscores broader systemic concerns about the growing dominance of multi-manager funds, or ‘pod shops.’
Bank of England Governor Andrew Bailey warned last month that the rapid deleveraging of these funds during market stress could amplify volatility and pose a risk to financial stability.
The broader equity market selloff, particularly within the technology sector, has only deepened the woes for hedge funds. On 6 March, tech stocks experienced their largest one-day decline since 2022, erasing over $1tn in value from the Nasdaq 100, as investors adjusted their positions in anticipation of a potential recession.
Firms like Millennium are also making adjustments to their portfolios, with significant cuts to positions in sectors like finance and energy.
Meanwhile, Balyasny has been forced to stop out several portfolio managers, signalling broader struggles in maintaining consistency amid the turbulence.
