Hedge Funds Slash Risk as Trump’s Trade War Triggers Market Volatility
Hedge funds are drastically reducing leveraged positions as they struggle to navigate market turbulence triggered by President Trump’s aggressive trade policies.
Since February 19, when the S&P 500 reached its peak, Goldman Sachs’ Hedge Industry VIP index has plummeted 12.5%—significantly underperforming the broader market’s 8.6% decline.
The reduction in gross positions observed last Friday and Monday marked the largest deleveraging event in four years, according to Goldman Sachs.
“There’s a lot of suffering out there,” noted one major fund executive. “The only way to defend yourself in today’s environment is to cut your leverage.”
High-profile funds are feeling the pressure. Millennium Management lost 1.4% in a single week after already being down 0.8% for the year. Citadel reported a 0.3% year-to-date decline, while Balyasny’s main fund managed a 3.5% gain.
The catalyst for this volatility is Trump’s unpredictable approach to tariffs, combined with immigration crackdowns and public sector cuts, fueling fears of accelerating inflation and slowing economic growth. The VIX—Wall Street’s “fear gauge”—has surged to its highest level since August 2024.
Bank of England Governor Andrew Bailey recently warned that rapid deleveraging by hedge funds can amplify market declines. This phenomenon is currently playing out as funds struggle to assess which stocks will perform well in the short term.
Long-short equity funds have lost nearly 6% on average since February 18—their largest peak-to-trough loss on a rolling 14-day basis since May 2022.
“These policy changes have been massive and rapid,” one executive noted. “It’s a different environment today. We’ve never seen anything like this before.”
This article was produced by The Rio Times’ automated newsroom system. How we use AI · Report an error · Editorial responsibility: Matthias Camenzind, Editor-in-Chief