Tech sell-off wipes out hedge fund gains, prompting layoffs and risk cuts - The Business Times
[HONG KONG] A brutal global equity sell-off led by technology stocks has wiped out year-to-date gains at many hedge funds, while forcing some managers to cut risks and reduce investment teams.
The post-midterm relief rally proved short-lived. A market rout on Thursday (Nov 5) compounded losses across the industry, with tech-focused funds bearing the brunt.
Equity long-short funds that primarily invest in tech fell more than 4 per cent on the day, leaving returns for the year “roughly flat”, Goldman Sachs estimates showed.
That compares with a peak gain of 24 per cent in June before the artificial intelligence-driven sell-off.
Global fundamental long-short managers were down 1.3 per cent on average, while multi-strategy managers dropped 1.4 per cent on Thursday, according to the bank.
At the centre of the industry’s latest pain is US$17 billion hedge fund Walleye Capital.
The New York-based multi-strategy fund said in an investor letter on Thursday, seen by Reuters, that it would trim its internal equity long-short business and reduce a substantial portion of its equity investment team.
“Following our worst month since March 2020, in an already challenging 2026, we have taken a hard look at every aspect of our firm,” the letter said.
“We have evaluated the optimal size of the fund and plan to return a portion of our capital.”
Several large multi-manager hedge fund platforms have cut leverage and laid off loss-making teams in recent weeks, said market participants, who expect more layoffs if declines continue.
The post-US midterm market turmoil extended losses after a bruising October, when sentiment was dampened by elevated AI-related borrowing costs and worries over returns.
The Nasdaq 100 index, which contains many tech heavyweights, plunged 6.6 per cent in October, its biggest monthly fall in 18 months. JPMorgan estimates global hedge funds lost 3 per cent in October.
Massive de-risking ahead of the US midterms left many hedge funds chasing Wednesday’s relief rally, only to be caught wrong-footed a day later, John Flood, partner and managing director in the global banking and markets division at Goldman Sachs, said in a note on Thursday.
“Hedge funds are selling back pockets of the market (hyperscalers)” that they had just bought, he said.
Research firm PivotalPath warned in a note this week that the firm observed a high and increasing degree of overlap among the 10 largest multi-strategy hedge funds, meaning their unwind could fall on many of the same securities. REUTERS
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