Global hedge funds recorded their most severe monthly decline since January 2022, Goldman Sachs said in a client note, as market volatility linked to the Iran war pressured equity markets and dented performance across major hedge fund strategies.
Hedge funds typically aim to outperform public markets and to generate returns that offset their fee structure. That promise was challenged in the first quarter, during which the S&P 500 fell 4.63% and the Nasdaq 100 dropped 4.87%.
March 2026, Goldman said, stands out as one of the more difficult months for the industry in recent years. Bruno Schneller, managing partner at multi-family office Erlen Capital Management, commented on the industry more broadly when he noted that elevated volatility emerged from a combination of geopolitical tensions - particularly the escalation in the Middle East involving Iran - along with rapid moves in interest rates, currencies, commodities and equity factor rotations.
Goldman's note defined the recent drawdown as the largest since January 2022, a period when investor attention centered on concerns about a more hawkish Federal Reserve and earlier geopolitical frictions.
Stockpickers and regional performance
Fund managers that follow fundamental long/short equity strategies underperformed across all regions in March. Asia-focused long/short funds led the declines, falling 7.3% for the month. European long/short managers were down 6.3%, while U.S. funds lost 4.3% on average in March.
Year-to-date through March 31, Goldman reported that Asia long/short managers are up 6.5%, European managers are down 1.8% and U.S. managers are down 2.4%.
At the sector level, technology, media and telecommunications (TMT) was particularly hard hit: long/short funds focused on TMT fell 7.8% in March and declined 11.8% over the quarter. Healthcare-oriented long/short strategies were less affected, with a roughly 0.9% drop in March.
Flows, leverage and fund-level dispersion
The Goldman note also highlighted sustained net selling of global equities by hedge funds for a fourth consecutive month, occurring at the fastest pace seen in 13 years. The equally weighted average and the median long/short returns for March finished down 3.96% and down 4.77%, respectively, a divergence that implies larger multi-manager funds fared worse during the month.
Gross leverage across funds was reported at more than three times their books, or 312.5, an increase of about 3.9 percentage points month-over-month and close to record levels, Goldman said. In North America, the scale of net selling was the largest since April 2020, as short positions outpaced long buys.
Systematic strategies buck the trend
Not all approaches were negative. Long/short hedge funds that deploy systematic stock trading strategies rose 1.07% in March. Goldman attributed these gains to alpha returns - profits derived from trading edges rather than broad market moves. The note added that index-tracking products, such as ETFs, and single stocks were both net sold during the month.
Large funds and specific performances
Major multi-manager and multi-strategy funds recorded substantial drawdowns in March and over the quarter. Balyasny Asset Management's flagship multi-strategy fund fell 4.3% in March and was down 3.8% for the quarter, according to a person familiar with the matter. ExodusPoint experienced a 4.5% drop in March and was down 2% overall for the quarter.
In Asia, results among multi-strategy managers were mixed. Hong Kong-based Pinpoint Asset Management's multi-strategy fund declined 2.45% in March but returned 4.02% for the quarter. Singapore's Dymon Asia multi-strategy fund was down 4.3% for the month and up about 6% for the March quarter.
Schneller observed that the market environment exposed vulnerabilities associated with crowded positioning. He warned that sudden correlation spikes, when combined with leverage, can force de-risking and can quickly affect even diversified pod-shop models.
Disclosure: The article summarizes data and observations reported in a Goldman Sachs client note and comments from industry participants; it does not offer investment advice.