Global hedge funds experienced their most substantial monthly drawdowns since January 2022 last month, according to Goldman Sachs. Market volatility, exacerbated by geopolitical tensions involving Iran, significantly impacted stock performance and weighed heavily on the performance of major money managers. Hedge funds aim to outperform the market and deliver substantial returns justifying their fees; however, several strategies faltered during the first quarter.
According to a Reuters report, fundamental long/short stock pickers encountered negative returns across all regions, with Asia-focused funds declining 7.3% and European fund managers experiencing a 6.3% decrease. Funds focused on U.S. markets fared slightly better but still finished March down 4.3%. For the year up to March 31, Asia long/short fund managers were up 6.5%, while their European and U.S. counterparts were down 1.8% and 2.4%, respectively.
The technology, media, and telecommunications (TMT) sector was particularly hard-hit, with long/short funds dropping 7.8% in March and 11.8% for the quarter. Goldman Sachs also noted that hedge funds had been net sellers of global equities for the fourth consecutive month, marking the fastest rate of selling in 13 years. Dmitry Balyasny’s Balyasny Asset Management, a multi-strategy fund, experienced a 4.3% decline in March and a 3.8% decrease for the quarter. Similarly, Michael Gelband’s ExodusPoint, another large multi-manager fund, saw declines of 4.5% in March and 2% for the quarter.
In contrast, long/short hedge funds employing systematic stock trading strategies saw a 1.07% increase in March, driven by alpha returns. This suggests that while many hedge funds struggled amid market volatility, those with specific trading advantages managed to navigate the challenging environment more effectively. The Goldman Sachs prime brokerage report highlights vulnerabilities in crowded positioning and the impact of rapid factor dislocations, especially when leverage coincides with sudden correlation spikes.
