Hedge Funds Face Worst Monthly Drawdown in Over Four Years, Goldman Sachs Tells Clients

Goldman Sachs: Hedge Funds Suffer Worst Monthly Drawdown Since 2022

Hedge Fund Performance Amid Market Volatility

By Anirban Sen and Summer Zhen

NEW YORK/HONG KONG, April 1 (Reuters) - Global hedge funds last month faced their worst monthly drawdowns since January 2022, Goldman Sachs said in a client note on Wednesday, as market volatility triggered by the Iran war battered stocks and weighed on the performance of the world's biggest money managers.

Hedge funds typically target beating the market and deliver outsized returns which justify their fees, but several strategies suffered in the first quarter of the year, during which the S&P 500 slid 4.63%, while the Nasdaq 100 declined 4.87%. It was a tumble down to earth for hedge funds which had a blockbuster year in 2025.

Volatility and Geopolitical Tensions

"March 2026 stands out as one of the more demanding months for the hedge fund industry in recent years," said Bruno Schneller, managing partner at multi-family office Erlen Capital Management, commenting in general on the industry and not specifically on the Goldman data. "Elevated volatility was driven by a combination of geopolitical tensions — particularly the escalation in the Middle East involving Iran — alongside rapid shifts across interest rates, currencies, commodities, and equity factor rotations."

The Goldman note said that the drawdown - which represents a drop in a fund’s value from its highest to lowest point - was the biggest since January 2022 when investors focused on concerns about an increasingly hawkish Federal Reserve and geopolitical tensions.

Stockpickers Face Negative Returns

Regional Performance of Hedge Funds

Fundamental long/short stockpickers faced negative returns across all regions, led by Asia-focused funds which were down 7.3% while European fund managers witnessed a decline of 6.3%, according to the Goldman prime brokerage report seen by Reuters. U.S. funds on average finished March down 4.3%. For the year till March 31, Asia, Europe, and U.S. long/short fund managers are up 6.5%, down 1.8%, and down 2.4%, respectively, Goldman said.

Sector-Specific Impact

Technology, media, and telecommunications (TMT) was one of the worst-hit sectors, with long/short funds declining 7.8% in March and 11.8% during the quarter, Goldman said. Healthcare-focused funds were down about 0.9% in March.

Equity Selling and Fund Performance

The Goldman note also said that hedge funds sold global equities for a fourth straight month and at the fastest pace in 13 years. In addition, the equally weighted average and median long/short returns for March finished down 3.96% and down 4.77% respectively, which suggests that larger multi-manager funds underperformed during the month.

Systematic Strategies Buck Trend

Systematic Hedge Fund Performance

Long/short hedge funds that employ systematic stock trading strategies rose 1.07% in March, driven by so-called alpha returns, or profits that come from a trading edge rather than from broader market gains, Goldman said.

Trading Activity and Leverage

Index-tracking products, like ETFs, as well as single stocks were both net sold, it said. Gross leverage levels stood at more than three times their books, or 312.5, up about 3.9 percentage points month-over-month, which is close to a record.

Regional Net Selling

In North America, the largest percentage of net selling occurred since April 2020, as "short" positions outpaced "long" buys, Goldman said. Short bets generate profits when asset values decline.

Performance of Major Multi-Manager Funds

U.S. and Asia-Based Funds

Large multi-manager funds, including Dmitry Balyasny's flagship multi-strategy fund and Michael Gelband's ExodusPoint, faced big drawdowns during the month and quarter. Balyasny Asset Management was down 4.3% in March, and declined 3.8% during the quarter, according to a person familiar with the matter. ExodusPoint witnessed declines of 4.5% in March, and was down 2% overall for the quarter.

In Asia, Hong Kong-based Pinpoint Asset Management's multi-strategy fund was down 2.45% in March, while posting a return of 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.

Industry Vulnerabilities Exposed

"This environment exposed vulnerabilities in crowded positioning, highlighting how quickly factor dislocations and forced de-risking can impact even highly diversified pod-shop models when leverage coincides with sudden correlation spikes," added Schneller of Erlen Capital.

(Reporting by Anirban Sen in New York, Summer Zhen in Hong Kong; Additional reporting by Utkarsh Shetti in Bengaluru; Editing by Megan Davies and Matthew Lewis)