Hedge funds suffer worst losses since ‘liberation day’ on Iran war turmoil
A monitor displays stock market information on the floor of the New York Stock Exchange on April 4, 2025.
Michael Nagle | Bloomberg | Getty Images
While a sharp rise in oil prices and a broad selloff in the market unravel crowded trades, hedge funds are being hit by the fallout from the escalating conflict with Iran.
“Since the beginning of the conflict, hedge funds have suffered their worst declines since Liberation Day,” global market strategists led by JPMorgan’s Nikolaos Panigirtzoglou wrote in a recent note. he wrote. “Liberation Day” was a phrase used by US President Donald Trump last April to impose a series of tariffs on various countries.
This comes as rapid changes in stocks, currencies and commodities force investors to unwind their positions in global markets. This sell-off marks a rare moment in the hedge fund universe where traditional diversification provides little protection.
Before the clash, many hedge funds had exposure to global growth, including bets against the US dollar as well as overweight positions in equities and emerging markets. These transactions are now resolved quickly.
“Markets are generally risk-averse, with many trades driven by inflation fears and even the potential for a negative growth shock from rising oil prices,” said Kathryn Kaminski, chief research strategist at AlphaSimplex.
JPMorgan He noted that previously crowded bets against the dollar, especially in emerging markets, were rapidly unraveling, eliminating a major source of support for risk assets.
The MSCI World Index has fallen more than 3% since the war began on February 28, after reaching a record high in early February. The US dollar index strengthened by around 2% in the same period.
Performance of the MSCI World Index since the beginning of the year
“Given that most hedge funds have reasonable exposure to growth risk and equity markets, they should be expected to struggle in this environment,” Kaminski added.
Strategies closer to stocks have been hit the hardest so far. JPMorgan said stocks appear “more vulnerable from a positioning perspective than bonds,” suggesting investors have not yet fully eliminated risk.
Long/short equity funds, a basic hedge fund strategy that bets on whether stocks will move up or down, are among the worst performers this month. It’s down about 3.4% so far in March, compared to an industry-wide decline of roughly 2.2%, according to the latest data provided by Hedge Fund Research (HFR).
Even more surprising, strategies generally viewed as ones that benefit from volatility also struggled.
A different kind of oil shock
“Surprisingly, both global macro and commodity trading advisors (CTAs) are performing poorly,” said Don Steinbrugge, founder and CEO of alternative investment advisory firm Agecroft Partners.
Global macro is down 3 percent, according to HFR data, and the CTA index, which tracks trend-following hedge funds that use algorithms to trade markets like commodities, currencies and bonds, has also fallen nearly 3 percent since the start of the war.
“Typically these strategies are successful when volatility increases and is not correlated with equity markets,” Steinbrugge told CNBC.
Industry veterans said this breakdown in traditional relations reflected the unusual nature of the current shock. During Oil prices rose due to disruptions to tanker traffic in the Strait of Hormuz, with the broader market impact further complicated by inflation fears and concerns that global growth will be hit.
JPMorgan underlined that the oil shock also behaved differently from past cycles. Normally, higher crude oil prices increase the revenues of oil-exporting countries, and some of this money is reinvested in global markets such as stocks and bonds.
“Usually…higher oil prices increased the revenues of oil-producing countries… [and get] “Turned into foreign assets,” JPMorgan strategists said.
This may have helped soften the blow to investors. This time, disruptions to shipping routes have disrupted those flows, reducing the amount of money flowing back into financial markets and eliminating a key source of cash flow, the bank said.
However, turbulence does not affect all funds equally. The major multi-strategy platforms, which spread risk across multiple trading styles, have fared better than more directional funds so far.
“Large platforms with multiple strategies may hold up well given the small sell-off in the sector because they tend to have very little presence in the market,” Steinbrugge said.
What happens next?
Losses come from hedge funds It had its biggest annual gain in 16 years in 2025; Equity strategies and thematic macroeconomic funds led this rise.
For hedge funds, much now depends on how long the conflict and oil disruption lasts, experts say.
If tensions ease and shipping routes return to normal, markets may stabilize and losses may be temporary.
But if the situation continues, higher energy prices could begin to put further pressure on the global economy, harming consumers, slowing growth and keeping markets under pressure.
“If geopolitical risks persist, redemptions are likely to increase as some investors seek safety,” said Noah Hamman, CEO of AdvisorShares.
Meanwhile, JPMorgan believes stocks appear more vulnerable than bonds in terms of positioning in both developed and emerging markets.
