Geopolitical volatility takes centre stage: Hedge fund strategies & directors’ duties in the shadow of conflict
By Alric Lindsay, Cayman Fund Director
Published: 22 June 2026
Immediately following the Iran war announcement on 28 February, 2026, futures, foreign currency and crypto markets observed sharp swings. Some offshore funds with volatility strategies benefited, while others with long-term growth ideas hoped that the hit on their valuations would return to normal once the conflict was over. The war also exacerbated existing fundraising, cash flow and financing challenges, requiring offshore directors to adapt and continuously analyse impacts, while adhering to sound governance practices.
While navigating this environment, two important things for offshore directors to understand were the role played by the United States Dollar generally and during geopolitical conflicts. In addition, the United States is reportedly a net energy exporter.1
Regarding the role of the US Dollar, the Federal Reserve explained:2
“A key function of a currency is as a store of value which can be saved and retrieved in the future without a significant loss of purchasing power.
Additionally, many foreign countries leverage the effectiveness of the US dollar as a store of value by limiting the movements of their currencies with respect to the dollar – in other words, using it as an anchor currency.”
The Federal Reserve added:
“The international role of a currency can also be measured by its usage as a medium of exchange. The dominance of the US dollar internationally has been highlighted in several recent studies on the currency composition of global trade and international financial transactions. The dollar is overwhelmingly the world’s most frequently used currency in global trade.
In part because of its dominant role as a medium of exchange, the US dollar is also the dominant currency in international banking.
Issuance of foreign currency debt—debt issued by firms in a currency other than that of their home country — is also dominated by the US dollar.”
The Federal Reserve concluded:
“In sum, absent any large-scale, lasting disruptions which damage the value of the US dollar as a store of value or medium of exchange and simultaneously bolster the attractiveness of dollar alternatives, the dollar will likely remain the world’s dominant international currency for the foreseeable future.”
Turning to the role of the US Dollar during conflicts, a Reuters article dated 2 March, 2026, explained that it acts as a “global safe-haven.” Investors typically react by purchasing US Treasury securities, which are described as “risk-free” assets.3
Highlighting previous debates about the US Dollar as a safe-haven, the Reuters article said:
“The renewed safe-haven bid comes after months of growing doubt about the dollar’s reflexive appeal during times of stress, scepticism that took root when the currency failed to rally during last year’s tariff-induced global market selloff.”4
The tariff in question was Executive Order 14257, titled “Regulating Imports With a Reciprocal Tariff to Rectify Trade Practices That Contribute to Large and Persistent Annual United States Goods Trade Deficits.”5
Following the tariff announcement, the US Dollar fell sharply, as confirmed by the US Dollar Index on TradingView.6 (Note that, based on some reactions on TradingView, it was suggested that the fall in the US Dollar index may have been imminent due to other factors and the 2 April, 2025, tariff announcement merely “accelerated” the fall.)
While the USD fell against major currencies, the value of pairs like the EUR/USD increased.7
This was reversed at the start of the Iran conflict in 2026 when the investors sought the US Dollar as a safe haven.
Offshore fund managers with volatility as a primary strategy may have benefited from intraday price action since the start of the war. For those without this strategy and who experienced fundraising and financing difficulties before the war, the picture was more mixed.
For example, some long-biased or fundamental equity positions saw valuation pressure. In these circumstances, fund managers and directors were expected to closely monitor developments, hoping that an end to hostilities would allow underlying corporate earnings, balance sheets, and sector trends to regain primacy.
In the case of offshore funds seeking financing arrangements with lenders to support liquidity, they had to be mindful of their fiduciary duties to the offshore fund and its investors while securing facilities. This included the duty not to exercise powers for an improper purpose.
Offshore fund directors will be familiar with this duty as it was reiterated in the UK Privy Council case of Tianrui (International) Holding Company Ltd v China Shanshui Cement Group Ltd.8
In this case, the Board concluded:
“... a shareholder has a right of action against the company to challenge the allotment of shares by the board of directors on the basis that the allotment was made for an improper purpose in circumstances where the allotment will cause detriment to the shareholder.”
However, if the offshore fund is bordering on insolvency, the directors should consider the interests of creditors.
This was discussed in the case of BTI 2014 LLC (Appellant) v Sequana SA and others (Respondents).9
The judgment in this case highlights that “A company’s creditors always have an economic interest in its continued solvency so that it can pay its debts to them.”
However, “The relative importance of that economic interest or stake holding as against the economic interest or stake holding of the company’s shareholders increases when a company is bordering on insolvency.”
The judgment added:
“It is this shift in relative economic interest or, in Lord Briggs’ nontechnical words, “skin in the game”, that gives rise to the fiduciary duty to the company to give separate and proper consideration to the interests of a company’s creditors.”
The judgment concluded:
“Where a company is insolvent or bordering on insolvency the West Mercia duty involves a fiduciary duty of the directors to the company to take into account and give appropriate weight to the interests of the company’s creditors as a body. Where the company is irretrievably insolvent, the interests of those creditors become a paramount consideration in the directors’ decision making.”
The takeaway for offshore fund directors is that, although capital may be urgently required, the interests of lenders cannot supersede the best interests of the fund or its investors if the offshore fund remains solvent. Directors should review financing agreements with this in mind to ensure alignment with the fund’s investment objectives and investor protections.
Conclusion
Ultimately, war brings new considerations to the forefront of the mind and management of offshore funds.
However, in the process of resolving urgent commercial concerns, offshore fund directors cannot put on blinders when it comes to their fiduciary duties. In fact, they must cement their minds into robust scenario planning, liquidity management, and clear governance frameworks. This will inevitably involve an in-depth review of the offshore fund’s exposure to geopolitically sensitive assets and ensuring that the offshore fund directors consider the proper interests. Only by doing this can they effectively discharge their duties in decision-making processes.
1 https://www.eia.gov/energyexplained/us-energy-facts/imports-and-exports.php
3 See the Treasury International Capital (TIC) data published by the U.S. Department of the Treasury on March 18, 2026, releasing January 2026 data and stating that “Foreign residents decreased their holdings of U.S. Treasury bills by US$10.2 billion” (see https://home.treasury.gov/news/press-releases/sb0418). The TIC data dated April 15, 2026, releasing February 2026 data, highlighted that “Foreign residents increased their holdings of U.S. Treasury bills by US$91.6 billion (see https://home.treasury.gov/news/press-releases/sb0448), the first TIC data release immediately following the start of the war. (https://home.treasury.gov/news/press-releases/sb0418)
6 https://www.tradingview.com/chart/TEXAKE8f/?symbol=CAPITALCOM%3ADXY
7 https://www.tradingview.com/chart/TEXAKE8f/?symbol=CAPITALCOM%3ADXY
8 https://jcpc.uk/cases/judgments/jcpc-2023-0002
9 https://supremecourt.uk/uploads/uksc_2019_0046_judgment_a33492fe08.pdf
