Hedge funds are dialling down risk and pulling back from aggressive positioning as the shock of sweeping new US tariffs ripples through global markets, leaving even seasoned managers questioning whether it’s time to sit on the sidelines, according to a report by Bloomberg.
Following President Donald Trump’s abrupt move to impose the steepest trade levies in nearly a century, a wave of volatility has gripped markets, prompting a strategic reset across the hedge fund landscape. What was previously a flurry of opportunity-rich trading has morphed into a game of defence and damage control.
“There’s been a clear pivot to risk management: lower gross and net exposures, more cash on the sidelines,” said Bruno Schneller, managing partner at Zurich-based Erlen Capital Management, which allocates to hedge funds. “Managers are prioritising portfolio protection over chasing directional trades.”
While initial market reaction saw a spike in activity — Goldman Sachs’ trading desk described the volume as a “9.5 out of 10” — much of the movement behind the scenes hasn’t been about bold bets. Instead, hedge fund teams have been focused on deleveraging, hedging existing exposure, and building liquidity cushions in anticipation of further headline shocks.
Several multi-strategy giants, including Citadel, Millennium Management, and Balyasny Asset Management, reportedly absorbed losses in March amid failed positioning around tariff developments. Now, a growing number of funds are treating flat monthly performance as a win.
“The challenge is that market moves are no longer tied to fundamentals — they’re increasingly tied to one person’s unpredictable decisions,” said one hedge fund executive, speaking on condition of anonymity. “There’s a creeping realisation that any position can be invalidated overnight.”
That realisation has splintered internal strategy discussions. At many firms, investment committees are now divided between those betting that political and corporate pressure will force a tariff rollback and those bracing for prolonged trade hostilities. In both camps, caution is prevailing.
“It’s always tricky when markets are reacting not just to policy, but to personality,” Schneller added. “Most managers we speak to are trying to stay nimble and avoid binary, headline-driven exposures.”
The shifting sentiment has not only disrupted trading floors but has also spilled into the wider asset management ecosystem. One hedge fund recruiter reported that a client placed an indefinite freeze on hiring, while some institutional allocators have begun reassessing drawdown limits.
