Key Takeaways
- • Equity long-short funds focused on tech fell more than 4% on Thursday, leaving returns for 2026 "roughly flat" according to Goldman Sachs estimates, versus a peak gain of 24% in June before the AI-driven selloff.
- • $17 billion multi-strategy fund Walleye Capital said it will trim its internal equity long-short business, reduce a substantial portion of its equity investment team, and return a portion of capital to investors.
- • Several large multi-manager platforms have cut leverage and laid off loss-making teams in recent weeks, with market participants expecting more layoffs if declines continue.
- • JPMorgan estimates global hedge funds lost 3% in October, while the Nasdaq 100 plunged 6.6% that month, its biggest monthly fall in 18 months.
- • Research firm PivotalPath flagged high and increasing overlap among the 10 largest multi-strategy funds, raising the risk that their unwinds fall on the same securities.
Summary
A broad global equity selloff led by technology stocks has erased year-to-date gains at many hedge funds, forcing some managers to cut risk and reduce investment teams, Reuters reported from Hong Kong on November 6. The post-US midterm relief rally proved short-lived, and Thursday's market rout compounded industry losses, with tech-focused funds bearing the brunt. Equity long-short funds that primarily invest in tech fell more than 4% on the day, according to Goldman Sachs estimates, leaving their returns for the year "roughly flat" against a peak gain of 24% in June before the AI-driven selloff. Global fundamental long-short managers fell 1.3% on average, while multi-strategy managers dropped 1.4% on Thursday, according to the bank.
The most prominent casualty is the $17 billion New York-based multi-strategy fund Walleye Capital. In an investor letter seen by Reuters, the firm said that "following our worst month since March 2020, in an already challenging 2026," it had taken a hard look at every aspect of the business. Walleye said it would trim its internal equity long-short business and reduce a substantial portion of its equity investment team, and that it had "evaluated the optimal size of the Fund" and plans to return a portion of its capital.
Market participants told Reuters that several large multi-manager hedge fund platforms have cut leverage and laid off loss-making teams in recent weeks, and expect further layoffs if declines continue. The turmoil follows a difficult October, when sentiment was weighed by elevated AI-related borrowing costs and concerns over returns. The Nasdaq 100, which includes many technology heavyweights, plunged 6.6% that month, its largest monthly decline in 18 months, and JPMorgan estimates global hedge funds lost 3% in October.
John Flood, partner and managing director in Goldman Sachs' global banking and markets division, said in a note on Thursday that heavy 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. "Hedge funds are selling back pockets of the market (hyperscalers)" that they had just bought, he wrote. Research firm PivotalPath warned in a note this week of a high and rising degree of overlap among the 10 largest multi-strategy hedge funds, meaning their unwinds could fall on many of the same securities.
The most prominent casualty is the $17 billion New York-based multi-strategy fund Walleye Capital. In an investor letter seen by Reuters, the firm said that "following our worst month since March 2020, in an already challenging 2026," it had taken a hard look at every aspect of the business. Walleye said it would trim its internal equity long-short business and reduce a substantial portion of its equity investment team, and that it had "evaluated the optimal size of the Fund" and plans to return a portion of its capital.
Market participants told Reuters that several large multi-manager hedge fund platforms have cut leverage and laid off loss-making teams in recent weeks, and expect further layoffs if declines continue. The turmoil follows a difficult October, when sentiment was weighed by elevated AI-related borrowing costs and concerns over returns. The Nasdaq 100, which includes many technology heavyweights, plunged 6.6% that month, its largest monthly decline in 18 months, and JPMorgan estimates global hedge funds lost 3% in October.
John Flood, partner and managing director in Goldman Sachs' global banking and markets division, said in a note on Thursday that heavy 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. "Hedge funds are selling back pockets of the market (hyperscalers)" that they had just bought, he wrote. Research firm PivotalPath warned in a note this week of a high and rising degree of overlap among the 10 largest multi-strategy hedge funds, meaning their unwinds could fall on many of the same securities.
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