Unified Global Alternatives – Hedge Fund Bulletin

Market context

Global markets were broadly challenged in March, as heightened Middle East tensions triggered sharp cross‑asset volatility and rising energy prices, while rapidly repricing interest‑rate expectations weighed on equities. Equity markets declined across regions, sector and factor rotations intensified, and performance dispersion increased amid a highly headlined-driven environment. US equities: Dow Jones -5.38%, S&P 500 -5.09%, NASDAQ -4.15%. Europe: MSCI Europe -8.03%, FTSE -4.70%, and DAX +6.30%. Asia: Nikkei 225 -13.23%. Emerging Markets: Brazil -6.51%, China -0.70%. Rates/credit: US 2Y at 3.79% (from 3.38%) and the US 10Y at 4.30% (from 3.94%). Barclays US IG -1.98% and HY -1.18%. Commodities/FX: Gold -11.50%; oil +51.60%. The euro fell -2.20% (1.1818 → 1.1558), while the USD rose 1.93% versus the JPY (156.08→ 159.10).

Sources: Pound Sterling Live, Exchange Rates UK, U.S. Department of the Treasury, Bloomberg, Gold Price, Business Insider 

Hedge fund highlights

Equity Hedge: March was extremely challenging as equity markets fell and factor volatility surged. Fundamental long/short suffered one of its worst months historically due to negative beta and weak alpha. Asia managers gave back YTD gains, while low‑net strategies were relatively resilient.

Relative Value / Event Driven: Returns were mixed to slightly negative. Fixed income RV struggled where positioned in crowded macro trades, while micro‑RV approaches held up better. Convertible and merger arbitrage were broadly flat, supported by volatility trading and improved deal flow late in the month. Quant equity was a notable bright spot.

Credit / Income: Credit performance was mixed amid rising rates and modest spread widening. Managers with neutral or short credit exposure outperformed, while long‑biased strategies lagged. Corporate long/short benefited from increased dispersion, and asset‑backed strategies were supported by short‑duration carry and resilient CLOs.

Trading / Macro: Trading strategies faced significant headwinds from geopolitical risk and extreme rates volatility. Discretionary global macro losses were driven by UK and European rates, while EM macro was pressured by a stronger USD. Commodity trading stood out positively, led by oil, gas and critical materials.

Key takeaways for allocators

Geopolitical risk was a primary portfolio driver: The Middle East conflict triggered sharp cross‑asset volatility, exposing crowded positions and driving rapid rate repricing, particularly at the front end. Market moves remain headlined and abrupt.

Equity hedge beta overwhelmed alpha: Fundamental equity long/short suffered severe drawdowns as macro forces and factor rotations dominated. Lower‑net and tactical approaches proved more defensive, reinforcing the need for tight exposure control.

Macro consensus trades are vulnerable: Discretionary macro and fixed income RV struggled where positioning was crowded, highlighting allocator risk in overlapping exposures across managers.

Relative value dispersion favored selectivity: Micro‑RV, stat arb and volatility‑driven strategies were more resilient than macro‑RV, supporting diversified and idiosyncratic RV allocations.

Diversifiers mattered: Commodity trading and quantitative equity provided meaningful diversification during equity and rate stress, underscoring their role in portfolio resilience.

Performance snapshot

Overall market commentary

Risk assets produced broadly negative performance in March. The weak results were primarily a function of the escalation of hostilities in the Middle East and the related spike in energy prices, especially in crude oil and European natural gas. The duration of the conflict weighed on investor sentiment, worsening expectations for global growth and inflation, while also forcing some long liquidation of risk asset positions. Expectations for lower interest rates also waned in the face of higher input costs, prompting the US yield curve to flatten, credit spreads to widen and volatility to rise. The Dow Jones, S&P and NASDAQ posted negative performance with losses of -5.38%, -5.09% and -4.15%, respectively. The European indices also generated negative performance with the MSCI Europe, DAX and FTSE producing losses of -8.03%, 6.30% and-4.70%, respectively. Asian developed markets underperformed other regions, producing strongly negative results with the Nikkei 225 generating a loss of -13.23%. Emerging market indices produced negative performance in March as Brazilian and Chinese markets weakened -6.51% and -0.70%, respectively. US interest rate markets suffered losses given the change in monetary policy expectations. The two-year US Treasury yield moved higher to 3.79% from 3.38%, while the ten-year US Treasury yield increased to 4.30% from 3.94%. The Barclays US Corporate Investment Grade Index fell -1.98%, mostly in line with the US Treasury sell-off, while the Barclays US Corporate High Yield Index lost -1.18%. Commodity prices were mixed last month with gold falling -11.5%, while oil also rallied 51.6% (WTI) following the closure of the Strait of Hormuz. In currency markets, the Euro fell -2.20% to 1.1558 from 1.1818, while the US dollar rose 1.93% against the Japanese Yen from 156.08 to 159.10.

Source returns: UGA - Hedge Funds, Bloomberg, Barclays (Lehman) Live, HFR. As of March 31, 2026. Historical performance indications and financial market scenarios are not reliable indicators of future performance.

Fundamental: The equity long/short strategy struggled during the month with rotations, reversals and macro headwinds. Early reports suggest that March performance will be one of the worst months in the history of the strategy. Performance was impaired both by market beta and to a lesser degree negative alpha. While wide scale de-risking was not observed, nets did came in as the month progressed and losses widened. Asian equity long/short managers in general finished the month down, on average, having given back 30-40% of their YTD gains. Managers came into March with reasonably high net exposure on the back on strong performance in Jan and Feb and a relatively favorable market backdrop. However, while the fundamental for many of the themes did not change, the market was mainly driven by geopolitics as toward the end of the month, market started to worry about a potential energy crisis and the potential shocks to Asian supply chains as the war dragged on. Given that most of the Asian funds were sitting on decent YTD gains coming into March, we did not see aggressive risk reduction, most of the funds took a more wait and see approach while acknowledging the risk of a prolonged conflict.

Tactical / low net managers running tight portfolios were largely able to avoid the month’s rotations and negative market beta. However, more directional managers were challenged by headwinds from long momentum and long crowding. Technology related holdings appeared to have the greatest impact on weak alpha as themes related to AI and Datacenters, as well as memory and hardware, sold off sharply. While not widely held, energy was the only S&P sector to show positive performance during the month.

HFRI Equity Hedge Total Index:

Fixed Income Relative Value performance for March was flat to down around -4.5% on the month. Managers who were more exposed to the consensus Macro RV trades are at the lower end of that range, while those with portfolios focused on Micro RV outperformed. Managers have selectively added to / kept risk on in the dislocated RV trades and reduced risk in lower conviction positions. Some long inflation and tail risk hedge positions were positive drivers for the month, as well as CFB strategies. No funding stress or significant moves in Cash Futures Basis have been reported in March although there is a risk of contagion should market deleveraging moves continue. Managers continued to run healthy levels of unencumbered cash and expect them to be able to step into any notable Micro RV dislocations should those begin to occur.

Quantitative strategies were the bright spot through the month, helping to cushion results despite being broadly flat in the final week. Quant equity managers generally had a positive month. Stat Arb managers fared well, while factor-oriented models registered losses in a rangebound trading market for quality and low volatility. Gains came mostly from mid-frequency models in the US which, after a challenging start to the year, provided convexity to global equity and other HF strategies during a difficult month. The backdrop was particularly conducive for short alpha, and generally shorter-dated forecasts outperformed longer-dated ones. Despite heightened factor volatility, GMV levels remained roughly stable.

Convertible arbitrage performance in March was mixed, ranging from -20 bps to +40 bps. Volatility trading contributed positively, though gains were largely offset by pressure from credit spread widening and higher rates, particularly late in the month. Credit, rho, and equity hedges performed well. The convertible bond basis widened modestly, with most of the move occurring in the final week. Despite a broadly risk off backdrop, new issuance activity remained active throughout March.

Merger Arbitrage returns also spanned -20 bps to +40 bps, with deal activity improving meaningfully in the final week, led by larger-cap M&A transactions. Within Equity Capital Markets, UGA managers delivered slightly positive performance, holding up well against a very challenging environment for IPOs, secondaries, and block offerings.

Within Agency MBS, mortgage derivatives benefited from the move higher in mortgage rates. March performance dispersion among managers was driven by differences in positioning with regard to both duration and the agency mortgage basis - on average expected to be flat to moderately positive.

HFRI Relative Value Total Index:

The US 10 year moved higher and credit spreads ultimately widened during March, despite a sharp move tighter at the tail end of the month. Credit spreads only widened marginally, lagging equities and sovereign bonds. Generally, managers with negative or more neutral biases to corporate credit markets generated positive returns, while the move in credit spreads acted as a headwind for managers with a net long bias to corporate credit.

For Corporate long/short, managers benefited from an increase in dispersion, EM sovereign shorts, and tactical trades playing on elevated IG new issuance. Losses were largely driven by long positioning, in particular in sectors that were more sensitive to oil prices given geopolitical driven volatility during the month. Returns ranged from negative to positive, depending on positioning, net exposure, and geographic exposure. For corporate long-biased, strategies are generally down as corporate credit spreads widened during the month.

For ABS focused managers spread widening was relatively contained. From an asset class perspective, short duration carry strategies were the top contributors. CLO outperformed given stabilization of loan market and prior drawdown in the asset class from earlier in Q1 – as such performance was flat to modestly positive.

HFRI ED: Credit Arbitrage Index:

Discretionary: Global Macro DM managers were down on average just over -6% on the month, with a range of slightly positive all the way down to -14%. Losses were driven primarily by the rates positions, most notably UK/EU receivers and EU curve steepeners amid extreme market moves exacerbated by heavy positioning. US steepeners and receivers also detracted, whilst the residual shorts in Japan provided small offsets.

Other parts of the portfolios were also under pressure, including shorts in USD FX and equity thematic plays such as financials, defence, miners and pockets of tech. Some managers also experienced losses in Asia equities, mostly in Korea and Japan. Longs in metals were down, albeit with lighter risk levels there.

Managers that outperformed did so primarily due to a more hawkish bias in rates, hedges in oil and a longer gamma/volatility profile. Others with low to mid-single digit losses were quicker to cut risk and/or entered the month with lower risk levels. They also managed to add hedges/trade tactically around front-end rates and crude oil.

More broadly, de-risking was more meaningful by the end of the month, particularly in cases of more severe losses. Initially risk reduction was more pronounced in areas outside of core convictions, specifically equities, FX, and commodities. However, following the extreme volatility in rates in the second half of the month, higher conviction positions in rates, including UK/EU, were also reduced more significantly.

At present, risk levels remain reduced and managers are taking time to re-access the situation before re-engaging in the markets more meaningfully. We are seeing some tactical trading taking place; however, it is likely that until some PnL is made back and the situation in Iran becomes clearer, risk taking and thus PnL volatility may be more subdued.

EM macro managers also finished the month down on average circa -4%, with some outliers on both the upside and the downside. The range was flat to circa -10% for March. The sell off across EM rates and stronger USD weighed on rates receivers, EM carry in FX and some selective longs in DM FX. Within idiosyncratic EM carry, TRY moves were relatively contained by the local Central Bank, whilst Egypt FX was hit quite materially. Outperformance on the month was largely due to oil hedges that were also traded more tactically during the month, along with longs in equity volatility and active trading in DM rates from the short side. Early month attempts to receive DM rates (typical risk off hedges) in contrast were unsuccessful due to inflationary concerns and were subsequently reduced.

Managers that experienced more severe underperformance saw losses not only in FX and EM rates, but also equity thematic plays. Most of these were in financials, miners, some tech and Asian equities, with a bit of an offset from DM index hedges. Credit longs across EM also detracted on the month, albeit risk there as been lighter/mixed. Credit index hedges also produced more muted results, even if there was some rewidening in spreads.

Positioning wise, magnitude of risk reduction has varied with PnL on the month. Those that outperformed have kept most of the core risk in EM largely unchanged bar some reduction in idiosyncratic names like Türkiye. Others saw a more meaningful risk reduction in EM rates and FX, including introduction of some tactical/optionalised USD longs.

On the hedges side, managers continued to run longs in oil, mix of shorts/longs in DM rates, shorts in DM equities and credit indices, as well as longs in volatility. Views wise, we have not yet seen any major shifts in terms of the assessment of market regime/outlook for EM. Managers continue to assess what is a very fluid situation in the ME.

Commodities: Commodity trading managers generally made money in March, with oil trading, nat gas and critical materials strategies the main drivers of positive performance. Precious metals and carbon exposure detracted, with some recovery towards the end of the month. Performance for the month ranged from +7% to -4% depending on sector focus (oil/gas/critical materials managers up, metals/carbon managers down). Managers entered March with lighter risk levels after the already volatile start to the year in both Jan and Feb, and hence most were able to be front-footed into the market moves.

Trading remained tactical given the headline volatility, with managers proactively locking in gains and adding back to some heavily de-leveraged themes at more attractive levels.

Systematic: CTA manager performance was diverse, with trend-based strategies down -3% to -8% on the month while non-trend and more diversified strategies were flat to positive. Trend followers benefited from long Energy positioning, while longs in FI and Equities, as well as short USD FX, detracted.

Managers reduced equity nets significantly, with medium term signals starting to turn net short. Fixed income positioning largely flipped from long to short while net longs in commodities increased slightly (long energy increased, while metals reduced/flattened). FX positioning was more neutral / small long USD, and credit longs were also very small in general.

Despite a period of challenging performance, the overall exposure to CTAs was minimal and remained immaterial in the context of our UGA – HF portfolios.

Source: UGA - Hedge Funds, HFR. For illustrative purpose only. As of March 31, 2026. Historical performance indications and financial market scenarios are not reliable indicators of future performance. Please note that the composition, methodology, and reported values of the HFRI Index are subject to periodic updates and revisions by Hedge Fund Research, Inc.

HFRI Macro Total Index:

This document has been prepared by UBS Asset Management (Americas) LLC, acting through Unified Global Alternatives - Hedge Funds (“UGA - Hedge Funds” or “UGA - HF”), a provider of hedge fund strategies. It contains UGA - Hedge Funds' view of market events during the specified period and all such information and opinions are subject to change without notice, and does not pertain specifically to products managed or advised by UGA - Hedge Funds. The materials are provided for information purposes only and do not constitute investment advice. The information contained herein is believed to be reliable but its accuracy is not guaranteed. This publication encompasses UGA - Hedge Funds’ views based on our internal manager universe and are subject to change. The universe includes managers that are either invested in or followed by UGA - Hedge Funds and does not represent all hedge fund managers and strategies available in the industry. Any indices shown throughout this report are for illustrative purposes only and not a representation of UGA - Hedge Funds universe performance.