Goldman Sachs reports that global hedge funds experienced their worst monthly drawdown in over four years during the Middle East crisis.

Goldman Sachs said Wednesday, in a client note, that stock markets were hit hard by the market volatility sparked by the Iran conflict, and that it also dragged down the performance of the world’s largest asset manager, while global hedge funds suffered their worst monthly drawdown since January 2022 last month.

Hedge funds typically aim to outperform the market and generate excess returns to justify their fees. However, in the first quarter this year, several hedge fund strategies ran into setbacks. The S&P 500 fell 4.63%, and the Nasdaq 100 dropped 4.87%. For hedge funds that delivered brilliant results in 2025, this is undoubtedly a heavy blow.

“March 2026 is one of the most challenging months for the hedge fund industry in recent years,” Bruno Schneller, managing partner of multi-family office Erlen Capital Management, said in comments on the industry as a whole rather than Goldman Sachs data. “A worsening geopolitical situation—especially developments in the Middle East involving Iran—along with rapid changes in interest rates, currencies, commodities, and stock factor rotation, have together intensified market volatility.”

Goldman Sachs’ report said the current drawdown—meaning the drop in fund value from the peak to the trough—is the largest since January 2022, when investors’ focus was on the Federal Reserve’s increasingly hawkish stance and geopolitical tensions.

Goldman Sachs’ prime broker report showed that long/short funds across all regions posted negative returns. Among them, the biggest decline was in Asia, down 7.3%, while European managers fell 6.3%. U.S. funds averaged a decline of 4.3% in March. Goldman Sachs said that as of March 31, since the beginning of the year, managers of long/short funds in Asia, Europe, and the United States were up 6.5%, down 1.8%, and down 2.4%, respectively.

Goldman Sachs said technology, media, and telecommunications (TMT) was one of the hardest-hit sectors. Long/short funds fell 7.8% in March and 11.8% in the first quarter. Funds focused on the healthcare sector fell by about 0.9% in March.

Goldman Sachs’ report also noted that hedge funds have been selling global equities for the fourth consecutive month, and that the pace of selling hit the highest level in 13 years. In addition, in March, the equal-weighted average return and median return of long/short strategies fell 3.96% and 4.77%, respectively, indicating that larger multi-manager hedge funds performed poorly that month.

Systematic strategies push against the current

Goldman Sachs said that long/short hedge funds using systematic equity trading strategies rose 1.07% in March, mainly due to so-called alpha returns—profits derived from trading advantages rather than overall market gains.

The report said products tracking indexes (such as ETFs) and individual stocks all saw net selling. Total gross leverage exceeded three times book value, reaching 312.5x, up about 3.9 percentage points month over month, and approaching the all-time high.

Goldman Sachs said that in North America, the net selling ratio reached the highest level since April 2020, with short positions exceeding long positions. Short positions profit when the value of assets declines.

Large multi-manager funds, including Dmitry Balyasny’s flagship multi-strategy fund and Michael Gelband’s ExodusPoint, suffered sharp drawdowns in both the month and the quarter. According to a person familiar with the matter, Balyasny Asset Management fell 4.3% in March and declined 3.8% for the quarter. ExodusPoint fell 4.5% in March and declined 2% for the quarter.

In Asia, Pinpoint Asset Management’s multi-strategy fund headquartered in Hong Kong fell 2.45% in March, but returned 4.02% for the quarter. Dymon Asia’s multi-strategy fund in Singapore fell 4.3% that month, but was up about 6% for the quarter in March.

Schneller of Erlen Capital added: “This environment exposes the fragility of crowded positioning, highlighting how even highly diversified small-portfolio models can be impacted how quickly when leverage and the sudden spike in correlations occur at the same time—through factor misalignment and forced de-risking.”

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