Asian hedge funds, often lauded for their regional expertise and agility, found themselves profoundly exposed to global geopolitical tremors in March, as the escalating Iran war triggered substantial losses across portfolios. Trivest Advisors Ltd., a firm with nearly 16 years of market navigation, exemplifies this sudden vulnerability, reporting its worst-ever monthly performance for its flagship TAL China Focus Fund, which plummeted 10.2%.
March Meltdown: Funds Blindsided by Geopolitical Volatility
The $5.4 billion TAL China Focus Fund, despite having weathered the country’s stock market routs, geopolitical spats, and the handling of the pandemic throughout its existence, recorded this unprecedented decline in March. Trivest communicated the severity of the situation to its clients, stating, ‘March ‘is likely to go down in history as one of the most challenging months for investors.” The firm further elaborated on the market’s erratic behavior: ‘Global markets have gone through an awfully painful pattern where risk-on and risk-off trades turned very wrong within hours as news of war escalation or ceasefire negotiations changed constantly.’
Trivest was not an isolated case. Mohit Khurana’s $1.65 billion Southern Ridges Summit Macro Fund also experienced a sharp 10.2% tumble in March. This marked its most significant decline since its inception in October 2022, more than doubling its previous largest monthly loss recorded in August 2024. Similarly, Hermes Li’s substantial Aspex hedge fund, managing over $14.5 billion, retreated 7% during the same turbulent month, according to individuals familiar with the matter.
Broader Regional Impact and Market Dynamics
The widespread impact of the US-Israeli war against Iran was evident across the region. To varying degrees, the majority of funds managed out of Asia found themselves in negative territory for March. Data compiled by UBS Group AG prime brokers indicated that median stock hedge funds, whether trading across the region or focusing on specific geographies, incurred losses ranging from 4.5% to 6.2% during the month. Macro funds, which typically tap broad trends across asset classes, slid a median of 6.9%.
The market’s rapid repricing was a direct consequence of the conflict. March saw popular wagers across rates, currencies, equities, and commodities entirely upended. The war’s disruption of oil and gas supplies immediately stoked fears of inflation and a broader economic slowdown. This environment prompted a significant shift among stock investors, who moved away from previously red-hot technology bets towards more defensive energy and utility companies, as prospects of tighter financial conditions clouded the outlook for growth-oriented sectors.
A Blindsided Bet: Southern Ridges’ Macro Positioning
Mohit Khurana, leading Southern Ridges, provided insight into the fund’s pre-March positioning, which was ultimately blindsided by the geopolitical turn. The fund had entered the month with wagers on a dollar decline, steeper yield curves, and stock rallies. Khurana’s investment thesis anticipated productivity growth driven by corporate spending on artificial intelligence, higher fiscal deficits, and a global trajectory towards ‘a less unipolar world.’ Crucially, he noted that ‘US President Donald Trump’s willingness to go to war wasn’t on his radar,’ highlighting the unexpected and disruptive nature of the conflict’s escalation.
Swift Rebound and Relative Resilience
Despite the sharp March downturn, the picture for Asian funds was not uniformly bleak. They demonstrated a degree of resilience compared to their global counterparts. For the most part, funds in Asia held up better than global peers during March and the first quarter, primarily by having stayed out of the worst-hit wagers on European rates. Stronger performances in January and February also provided a crucial cushion against the March losses.
The subsequent ceasefire brought a rapid reversal of fortunes. Asian stock-picking hedge funds tracked by Goldman Sachs Group Inc. have already rebounded 8.9% this month through April 9, according to a bank note. This swift recovery effectively erased much of the March fall, pushing these funds to an impressive average 15% return for the year. Similarly, the MSCI Asia Pacific Index of shares, which had slid 13.4% in March, has since recouped most of those losses, even as investors continue to grapple with ongoing confusion over the precise state of the conflict.
The rapid oscillation from significant losses to a robust rebound underscores the extreme volatility that geopolitical events can inject into financial markets. While Asian hedge funds have largely recovered their March losses, investors continue to grapple with the fluid nature of global conflicts and their potential to instantly reprice assets, making adaptability and astute risk management paramount in an increasingly unpredictable world.
