The Iran war triggered major market fluctuations, with the

# Zhao Ying, Li Jia

Source: Wallstreetcn

Top hedge funds including Citadel, Millennium, and Point72 suffered massive collective losses in a single week, with the worst hit losing up to $1.5 billion—nearly erasing their year-to-date profits. Surging oil prices upended inflation expectations, triggering widespread blowouts in bond "steepener" trades. Even the multi-strategy model, renowned for diversified allocation, collapsed entirely under extreme macro shocks. Severe losses could prompt hedge funds to deleverage and trigger irrational selling, potentially indiscriminately hammering high-quality assets like chip stocks.

The U.S.-Iran military conflict triggered violent global market swings, dealing a heavy blow to top hedge funds famed for steady returns. Hit by the dual shocks of soaring oil prices and a massive bond market sell-off, several industry giants recorded losses in the billions to tens of billions of dollars last week alone, sharply eroding year-to-date gains.

According to The Wall Street Journal, citing people familiar with the matter, Citadel, Millennium Management, and Point72 all sustained heavy losses last week. Millennium and Point72 each lost approximately $1.5 billion, while Citadel’s fixed-income and macro businesses lost around $1 billion. Balyasny Asset Management lost roughly $1 billion, and ExodusPoint lost several hundred million dollars.

The direct trigger for this round of losses was the U.S. and Israeli military strikes on Iran. The spike in oil prices quickly reversed market expectations for inflation, sparking a bond market sell-off and widespread blowouts in popular trades betting on falling interest rates. For multi-strategy funds relying on cross-asset diversification, traditional hedging logic failed spectacularly amid this extreme macro shock.

Further analysis suggests that when large hedge funds like Citadel and Millennium start losing money, they enter risk-management mode and reduce positions. This deleveraging process has caused pronounced irrational price behavior, with fundamentally strong popular names like chip stocks being indiscriminately sold off. If the deleveraging cycle nears its end, price action may gradually return to rationality.

## Giant Losses: Hundreds of Billions in AUM Can’t Shield Against Single-Week Devastation

The hardest-hit firms are all industry leaders. Citadel manages $66 billion; its flagship Wellington fund fell about 2% last week but remains positive for the year. Millennium and Point72 oversee roughly $87 billion and $46 billion respectively; while their year-to-date gains have narrowed, they remain in positive territory, according to people familiar with the matter.

Balyasny was particularly hard-hit, dropping 3.5% in a week and widening its year-to-date loss to 3.1%. Bloomberg reports that Marshall Wace’s Eureka fund led declines with a 3.7% weekly drop, trimming its year-to-date gain to 2.4%. ExodusPoint gave back all of its 2.6% gain accumulated in the first two months of the year.

Analysts note that in absolute terms, billion-dollar losses represent relatively modest percentage declines for firms managing hundreds of billions in assets. However, for top institutions whose core competitive edge lies in consistent, stable returns, such sharp weekly drawdowns inflict far more damage than just book-value losses.

## Bond Trading Blowouts: Popular "Steepener" Strategies Become Epicenter of Losses

According to The Wall Street Journal, this round of losses stemmed not from a single trade but from the simultaneous failure of multiple macro bond bets. The hardest-hit area was the so-called "yield curve steepener" trade—investors betting on a widening spread between short- and long-term Treasury yields— which collapsed entirely as the Iran conflict reversed inflation expectations.

Germany’s 2-year government bond yield jumped 0.3 percentage points last week to over 2.3%, marking its largest weekly gain in nearly two years. The narrowing spread between short- and long-term yields—known as "curve flattening"—forced massive stop-loss exits by investors holding steepener positions. Widespread forced liquidations occurred across euro and sterling rate markets.

"This is widespread carnage; market sentiment is extremely negative," a macro-focused portfolio manager told the Financial Times. He added that Wall Street had widely expected Trump to "drop a few bombs and walk away," but the situation deteriorated far beyond expectations. Another macro trader noted that market volatility was extremely low before the conflict erupted, "which encouraged hedge funds to take excessive risk on bets for falling interest rates."

## Oil Price Shock: Inflation Expectations Reverse, Central Bank Rate-Cut Paths Shift

Before the Iran conflict, investors widely expected inflation to continue falling, with multiple central banks set to keep cutting rates, and global bond yields trending lower overall. The sudden oil price spike completely upended this logic, forcing traders to quickly pivot to betting on rising inflation and sending bond yields sharply higher.

Fears of surging inflation have led markets to rapidly price out expectations for further rate cuts by the Bank of England and European Central Bank. Traders now even bet the ECB will hike rates by 25 basis points this year, whereas markets had previously priced in rate-cut odds.

Notably, some market moves have already reversed this week. Benchmark Brent crude plummeted from a high of $119 per barrel to $84 in a single day on Monday, and some bond market losses have been partially recovered.

## Multi-Strategy Model Under Pressure: Diversification Logic Fails in Extreme Markets

The institutions hardest hit are mostly multi-manager hedge funds—among the industry’s most profitable in recent years. These funds allocate capital to hundreds of specialized investment teams across equities, bonds, currencies, and commodities, centered on market-neutral strategies designed to profit in both rising and falling markets.

However, this shock saw rare synchronized selling across multiple asset classes, rendering traditional diversification-based risk hedging logic ineffective and exposing systemic vulnerabilities among these firms to extreme macro events. With AUM often in the hundreds of billions, forced liquidations can trigger ripple effects across broader markets.

Before the late-February conflict erupted, hedge funds had performed strongly, overcoming concerns about AI, tariffs, and private credit to post solid gains for two consecutive months. PivotalPath’s broad hedge fund index shows the industry was up more than 3% year-to-date through the end of February.

## Risk Warning and Disclaimer

The market is subject to risks; investing involves risk. This article does not constitute personal investment advice and does not take into account individual investors’ specific investment objectives, financial situations, or needs. Investors should consider whether any opinions, views, or conclusions in this article are appropriate for their particular circumstances. Any investment made in reliance on this article is at your own risk.