The conflict in Iran continues to escalate, with oil prices soaring sharply and a synchronized sell-off in global markets, pulling hedge funds into a comprehensive loss storm.
According to Nikolaos Panigirtzoglou, head of JPMorgan's global market strategy team, in a recent report, &#34;Since the outbreak of the conflict, hedge funds have experienced the most severe drawdown since April of last year.&#34; Data shows that since the conflict erupted on February 28, the MSCI Global Index has fallen by more than 3%, significantly retreating from the historical high reached in early February this year; the dollar index has strengthened by about 2% during the same period.
The synchronized turbulence across multiple asset classes makes this round of sell-off particularly tricky. According to the latest data from Hedge Fund Research (HFR), the overall industry has declined by about 2.2% since March, with long/short equity strategies highly correlated with stock movements dropping by about 3.4%, making it one of the worst-performing strategies; global macro strategies and commodity trading advisor (CTA) strategies, typically seen as beneficiaries of rising volatility, have also fallen by about 3%. This round of sell-off marks a rare moment—traditional diversification in the hedge fund space has almost failed to provide effective protection.
The root of this loss lies in the fact that many hedge funds had established concentrated exposures to global economic growth before the conflict, including an overweight in stocks and emerging markets, and had bet on a weaker dollar. These positions are now being forced to close rapidly.
<h2>Liquidation Wave Hits Risk Assets</h2>
Before the outbreak of the conflict, shorting the dollar was one of the most crowded trades in the hedge fund world, particularly focused on emerging markets. JPMorgan points out that the rapid reversal of these positions has withdrawn a significant source of support for risk assets.
Kathryn Kaminski, chief research strategist at AlphaSimplex, stated, &#34;The market is generally in risk-off mode, with many traders pricing in inflation risks and the negative growth shocks that rising oil prices could trigger.&#34; &#34;Given that most hedge funds have a considerable exposure to growth risks and the stock market, it is expected that they would come under pressure in the current environment,&#34; she added.
JPMorgan noted in its report that from a positioning perspective, the downward pressure on stocks is greater than that on bonds, whether in developed or emerging markets, indicating that investors have not yet fully liquidated their risk positions. HFR President Ken Heinz summarized the current sentiment in the industry with one sentence:
<blockquote>
&#34;If we were to summarize the sentiment across the hedge fund world, it would be—at this moment, we are all oil traders.&#34;
</blockquote>
<h2>Oil Price Shock Disrupts Conventional Transmission Logic</h2>
The reason this round of oil price shock has caught the market off guard lies in its key differences from the historical transmission paths of previous energy crises. Disruptions to tanker passage through the Strait of Hormuz have broken the conventional mechanism by which oil-exporting countries reinvest their oil revenues into global assets.
&#34;Typically, rising oil prices increase the revenues of oil-producing countries, and these funds are reinvested in overseas assets,&#34; JPMorgan strategists wrote in the report. However, this time, the disruption of shipping routes is blocking this capital return mechanism, reducing the total amount of funds flowing into financial markets and removing a key source of liquidity.
What surprised the industry is that global macro and CTA strategies failed to maintain their traditional advantages during periods of market turmoil. Don Steinbrugge, founder and CEO of Agecroft Partners, told CNBC, &#34;Typically, these strategies perform well when volatility rises and have a low correlation with the stock market.&#34; The simultaneous damage to multiple strategies reflects the unusual nature of the current shock—where inflationary pressures coexist with risks of global economic slowdown, leading to a chaotic pricing logic across various assets.
<h2>Multi-strategy platforms show relative resilience</h2>
Although this round of turmoil has swept through most strategies, the pressure faced by different funds varies. Large multi-strategy platforms, relying on risk diversification across trading styles, currently exhibit relative robustness.
Don Steinbrugge pointed out, &#34;Large multi-strategy platforms should be able to maintain relative stability amid a slight industry downturn, as they typically have very little directional exposure to the market.&#34; In contrast, directional strategies are the first to bear the brunt, experiencing the greatest pressure.
It is noteworthy that these losses occurred just after hedge funds achieved their best annual performance in 16 years—2025 saw the industry rise to a 16-year high, with equity strategies and thematic macro funds reportedly contributing the majority of the gains.
<h2>Future market direction depends on the duration of the conflict</h2>
Industry insiders generally believe that the fate of hedge funds in the near future will largely depend on the duration of the Iran conflict and the depth of its impact on energy supplies.
If the situation eases and shipping routes return to normal, the market is expected to stabilize, and the current losses may only represent a short-term correction. However, if the conflict drags on, high energy prices will continue to exert pressure on global consumers, dragging down economic growth and extending the duration of market pressure. Noah Hamman, CEO of AdvisorShares, warned, &#34;If geopolitical risks persist, as some investors turn to safe-haven assets, redemption pressure is likely to increase.&#34;
JP Morgan currently maintains its judgment— from a positioning perspective, stocks in both developed and emerging markets are more vulnerable than bonds. Ken Heinz, president of HFR, admitted, &#34;The overall situation is changing too rapidly, and it is currently impossible to determine whether we are in a short-term fluctuation or at the beginning of a longer-term trend.&#34;

JP Morgan's report shows that since the outbreak of the conflict, the asset drawdown of global hedge funds has reached the highest level since the tariff shock in April last year. With inflation and growth risks coexisting, traditional hedging strategies such as macro funds and CTAs have rarely performed well, and diversification has failed to provide protection. Industry sentiment is highly focused on oil trends; if the conflict continues, not only will risk assets remain under pressure, but the redemption pressure on funds will also further increase

- The ongoing conflict in Iran has led to a sharp rise in oil prices and a global market sell-off, causing significant losses for hedge funds.  
- According to a report by JPMorgan, hedge funds are experiencing their worst drawdown since April 2022, with a collective decline of about 2.2% since March.  
- The impact of the conflict on energy supply is crucial; a prolonged situation could lead to sustained pressure on global consumers and economic growth.

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The situation in Iran has severely impacted the market, with global hedge funds suffering their worst losses since "Tariff Day."