Hedge Funds Struggle Amid Rate Hikes, AI Swings, and Oil Price Volatility

Global hedge funds struggled to deliver positive returns in September as surging bond yields, higher oil prices, and sharp swings in AI shares whipsawed the markets.

Average returns for global fundamental equity long-short funds fell 0.55% last month, according to Goldman Sachs Prime Services team, although they still outperformed the MSCI World Index which dropped 1.3%.

In contrast, computer-driven systematic equity long-short funds rose 3.46% in September, marking their best monthly performance this year, according to Goldman Sachs.

The US Federal Reserve raised interest rates for the first time since 2023, signaling more rate hikes in coming months, which contributed to the sharp moves in commodities and rates.

Trend-following hedge funds were among the biggest winners in September with the Société Générale trend index gaining more than 4%, driven by short fixed income and long energy positions, according to Winton Group.