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Matthias Knab, Opalesque for New Managers:

Hedge funds suffered their worst monthly performance since June 2022 in March, as the escalating Iran military conflict triggered a surge in oil prices and a historic spike in volatility, forcing a broad repricing of risk across equity and fixed income markets globally.

The HFRI Fund Weighted Composite Index (FWC) declined -2.81% in March 2026, according to data released by HFR, the global leader in hedge fund indexation and research. The monthly loss - the first since April 2025 - trimmed the first-quarter 2026 gain for the benchmark index to +0.93%.

"Financial markets performance whipsawed throughout March as a result of the Iran military conflict, resulting in historic spikes in volatility and oil prices, as well as significant disruptions and dislocations across global markets," said Kenneth J. Heinz, President of HFR. "March was dominated by rapidly changing news headlines and daily shocks leading to significant intra-month and intra-day reversals in asset prices."

Heinz added that while growth and equity strategies bore the brunt of the turbulence, hedge funds remain positioned "both tactically and opportunistically to operate as liquidity providers and monetize opportunities created by these extreme market conditions and dislocations."

Equity Hedge Posts Worst Month Since March 2020

Equity Hedge funds recorded the steepest decline of any main strategy, with the HFRI Equity Hedge (Total) Index falling -4.33% in March - the sharpest drawdown since the onset of the Covid-19 pandemic in March 2020. For the full first quarter of 2026, the index is down -0.47%.

Sub-strategy losses were broad and severe. The HFRI EH: Fundamental Growth Index slumped -6.79% for the month, while the HFRI EH: Multi-Strategy Index lost -6.36%. The HFRI EH: Fundamental Value Index declined -4.58%, and the HFRI EH: Quantitative Directional Index fell -3.01%.

Not all equity sub-strategies capitulated. The HFRI EH: Sector - Energy/Basic Materials Index, which had gained strongly earlier in the quarter on rising oil prices, gave back only -1.19% in March - leaving it up a robust +7.74% for the first quarter. The HFRI EH: Sector - Healthcare Index lost -1.38%, while the HFRI EH: Equity Market Neutral Index fell -1.20%.

Macro Falls in March but Leads Strategy Performance for Q1

Macro strategies were not spared the March turbulence, though their first-quarter performance remains the strongest of any main strategy. The HFRI Macro (Total) Index declined -2.35% in March but retained a gain of +4.44% for the first quarter of 2026.

Discretionary Thematic managers led monthly losses within the strategy, with the HFRI Macro: Discretionary Thematic Index falling -5.07%. The HFRI Macro: Multi-Strategy Index lost -3.65%, while the HFRI Macro: Systematic Diversified Index declined -1.42%, as gains in oil and currency exposures were more than offset by losses in equity and fixed income positions.

The HFRI Macro: Currency Index was the sole Macro sub-strategy to post a positive return in March, rising +3.32% as the dollar and other currencies moved sharply on geopolitical developments. For the first quarter, the HFRI Macro: Systematic Diversified Index leads all Macro sub-strategies with a +6.01% gain.

Relative Value Generates Mixed Results Despite Rate Spike

Fixed income-based Relative Value strategies demonstrated resilience relative to directional strategies, though performance was mixed as investors repositioned for higher interest rates - and potentially fewer or no rate cuts in 2026 - in response to the inflationary impact of sharply higher oil prices.

The HFRI Relative Value (Total) Index posted a modest decline of -0.68% in March, leaving it up +1.28% for Q1 2026. Within the strategy, volatility-focused funds stood out as clear beneficiaries of the market turmoil. The HFRI RV: Volatility Index advanced +2.63% in March and is up +4.92% year-to-date - among the strongest performers across all sub-strategies.

Losses within the strategy were concentrated in sovereign and convertible bond exposures. The HFRI RV: Fixed Income-Sovereign Index declined -2.47%, while the HFRI RV: Fixed Income-Convertible Arbitrage Index lost -1.57%. The HFRI RV: Yield Alternatives Index gave back -2.16% in March but remains the top-performing Relative Value sub-strategy for the year at +9.06%.

Event-Driven Strategies Retreat on Geopolitical Uncertainty

Event-Driven funds also fell in March as geopolitical risk eroded confidence in M&A and IPO deal flow, which had been a key source of optimism entering 2026. The HFRI Event-Driven (Total) Index declined -1.42% in March and is down -0.05% for the first quarter.

Activist and Special Situations funds led declines, with the HFRI ED: Activist Index losing -4.92% and the HFRI ED: Special Situations Index falling -3.47%. On the positive side, Distressed/Restructuring strategies advanced +1.04% as credit dislocations created opportunities, while the HFRI ED: Merger Arbitrage Index added +0.52%.

Emerging Markets Hardest Hit; India Leads Losses

Emerging Markets funds absorbed the sharpest monthly decline of any regional category, with the HFRI Emerging Markets (Total) Index losing -4.52% in March. The HFRI Emerging Markets: Asia ex-Japan Index fell -6.57%, while the India-focused index collapsed -12.69% for the month, extending its year-to-date loss to a painful -21.47%.

By contrast, MENA-focused funds have been a standout in 2026, with the HFRI Emerging Markets: MENA Index up +7.68% year-to-date - benefiting from regional dynamics tied to elevated oil revenues. Latin America also remains in positive territory for the year at +4.94%.

Among regional indices, Japan-focused funds gave back -8.40% in March after a strong February (+5.91%), trimming the year-to-date return to +1.18%. The HFRI North America Index is down -0.23% for the first quarter.

Performance Dispersion Widens Sharply

The March volatility environment produced a pronounced widening in performance dispersion among hedge funds. The top decile of HFRI FWC constituents gained an average of +5.9% during the month, while the bottom decile fell an average of -13.7% - a top-to-bottom dispersion of 19.6 percentage points. This compares with a dispersion of 15.2 percentage points in February.

Over the trailing 12 months to March 2026, the top decile gained +68.2% while the bottom decile declined -9.4%, reflecting a dispersion of 77.6 percentage points. Approximately 30% of all hedge funds generated positive performance in March.

HFR Launches Co-Investment Index

Against the backdrop of market volatility, HFR used the occasion to announce the launch of the HFR Co-Investment Index (HFRCINV), a new high-conviction benchmark designed to capture the aggregate performance of curated fund managers offering Best Ideas and Co-Investment opportunities to institutional investors.

The index is investable and carries a five-year annualized return of +18.09% and a five-year Sharpe ratio of 1.02 as of March 2026 - metrics that position it as a compelling vehicle for allocators seeking concentrated exposure to top-tier managers.

Liquid Alternatives Also Decline; Macro/CTA Holds Ground

Liquid alternative UCITS strategies tracked by HFR's HFRX indices followed the broader pattern of risk-off selling in March. The HFRX Global Hedge Fund Index fell -2.95%, while the HFRX Absolute Return Index lost -1.16%. The HFRX Equity Hedge Index led strategy declines at -4.4%.

For the first quarter of 2026, the HFRX Macro/CTA Index is the sole main HFRX category in positive territory, gaining +1.56%. The HFRX Global Hedge Fund Index is down -0.57% year-to-date, and the HFRX Absolute Return Index is off -0.23%.

Industry Assets Reach Record $5.16 Trillion at End of 2025

Looking beyond the turbulence of March, the structural backdrop for the hedge fund industry remains robust. Total estimated hedge fund industry assets reached a record $5.157 trillion at year-end 2025, according to HFR data - up from $4.514 trillion at year-end 2024 and representing the highest level in the industry's history.

Net asset flows into the industry totaled an estimated $115.8 billion in 2025 - the strongest annual inflow since 2007's $194.5 billion - reflecting growing institutional conviction in alternatives amid uncertain market conditions. On a quarterly basis, Q4 2025 saw $44.8 billion in net inflows to the industry overall.

Equity Hedge remains the largest strategy by assets at 30.41% of industry AUM, followed by Event-Driven at 28.09%, Relative Value at 26.25%, and Macro at 15.25%, based on Q4 2025 data. Fund of Funds assets stand at $818 billion as of Q4 2025, recovering strongly from a post-2008 trough.

Concentration at the Top Persists

Asset concentration among large managers continues to define the industry's competitive landscape. Firms managing more than $5 billion account for just 8.9% of all hedge fund firms by number, yet control 75.8% of total industry assets. By contrast, the 74.4% of firms managing below $1 billion collectively account for only 7.0% of AUM.

The total number of hedge funds and funds of funds stood at approximately 9,486 as of Q4 2025, a modestly higher level than recent prior quarters, as new fund launches outpaced liquidations. In 2025, an estimated 562 new funds were launched against 287 liquidations - the lowest liquidation count since the mid-1990s and a signal of improving fund viability across the industry.

HFR Cryptocurrency Index Down 12.5% Year-to-Date in 2026

Digital asset strategies have had a difficult start to 2026. The HFR Cryptocurrency Index has declined -12.42% in the first three months of the year, with losses of -5.12% in January, -7.12% in February, and a modest -0.62% in March. This follows a gain of +13.51% for the full year 2025 and a +59.23% return in 2024.

Source: HFR. All data cited in this article is sourced from the HFR Media Reference Guide dated April 8, 2026. Data is for non-commercial use only. All HFR data references must be attributed to HFR.