Global hedge funds suffer worst losses since 'liberation day' on Iran war turmoil

Hedge funds are getting battered by the fallout from the escalating conflict with Iran, as a sharp spike in oil prices and a broad market selloff unravel crowded trades. "Since the start of the conflict, hedge funds have experienced their worst drawdowns since Liberation Day," JPMorgan's global markets strategists led by Nikolaos Panigirtzoglou wrote in a recent note. "Liberation Day" was a phrase used by U.S. President Donald Trump to roll out a set of tariffs on various countries last April. This comes as rapid shifts in equities, currencies and commodities forced investors to unwind positions across global markets. The selloff marks a rare moment when traditional diversification within the hedge fund universe has offered little protection. In the run-up to the conflict, many hedge funds had built up exposure to global growth, including overweight positions in equities and emerging markets, alongside bets against the U.S. dollar. Those trades are now unwinding quickly. "Markets have generally been risk-off, with many trading on inflation fears or even the potential for a negative growth shock from increased oil prices," said Kathryn Kaminski, chief research strategist at AlphaSimplex. JPMorgan noted that previously crowded bets against the dollar, particularly in emerging markets, have been rapidly unwound, removing a key source of support for risk assets. The MSCI World Index saw a decline of over 3% since the start of the war on Feb. 28 after striking a record high in early February. The U.S. dollar index strengthened around 2% across the same period of time. The MSCI World Index's performance since the start of the year "Since most hedge funds have reasonable exposure to growth risk and equity markets they should be expected to struggle in this environment," Kaminski added. So far, strategies tied closely to stocks have been hit the hardest. JPMorgan said equities appear "more vulnerable than bonds from a positioning perspective," suggesting that investors have...