Hedge funds were off to a roaring start this year, overcoming market fears about artificial intelligence, tariffs, and private credit to post two straight months of solid gains. Then came the U.S.-Israeli strikes on Iran.
The Losses
Big-name multi-strategy hedge funds including Citadel, Millennium Management, and Point72 Asset Management have been hit by significant dollar-figure losses amid the market upheaval triggered by the Iran conflict. While the funds have declined to disclose specific figures, sources familiar with their positions indicated losses in the range of hundreds of millions to over a billion dollars across the industry.
The losses stem from a combination of factors:
- Energy positioning: Funds with short oil positions were caught off-side when crude spiked to its highest level since 2022.
- Equity volatility: Defence stocks surged while energy-consuming sectors like airlines, chemicals, and consumer discretionary fell sharply — cutting through multi-leg spread positions.
- Fixed income: Safe-haven flows pushed treasury yields lower even as inflation expectations rose, creating unusual cross-market correlations that disrupted risk models.
- FX: The dollar weakened — counterintuitively — as markets priced in economic damage to the U.S. economy from sustained high oil prices.
Broader Industry Context
Through February 2026, the HFRI Fund Weighted Composite Index was up approximately 4.2% for the year. The Iran conflict losses wiped out a significant portion of those gains in a matter of days.
Unlike the March 2020 pandemic shock — where central bank intervention rapidly stabilised markets — the Iran conflict creates a supply-side inflation shock that constrains how aggressively the Federal Reserve can respond with rate cuts, leaving hedge funds in a more difficult environment to navigate.
What Comes Next
Portfolio managers are now focused on two key questions: How long will the conflict last? And will strategic oil reserve releases be large enough to meaningfully cap energy prices? Until both questions have clearer answers, volatility across asset classes is likely to remain elevated, sources said.
