A global equity selloff led by technology stocks has erased year-to-date gains at many hedge funds. Some managers are cutting risk and reducing investment teams, and Walleye Capital is among them. Market participants expect more layoffs if declines continue.
A global equity selloff 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, Reuters reported. The post-midterm relief rally proved short-lived.
Tech-focused funds give back the year's gains
Thursday's rout compounded losses across the industry. Equity long-short funds that primarily invest in tech fell more than 4% on the day, leaving returns for the year roughly flat, Goldman Sachs estimates showed. That compares with a peak gain of 24% in June, before the AI-driven selloff.
Meanwhile, global fundamental long-short managers were down 1.3% on average, while multi-strategy managers dropped 1.4% on Thursday, according to Goldman Sachs.
Walleye Capital trims its equity team
At the center of the industry's latest pain is $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.
The letter said: "Following our worst month since March 2020, in an already challenging 2026" the firm took a hard look at every aspect of its business. Walleye also plans to return a portion of its capital.
Several large multi-manager platforms have cut leverage and laid off loss-making teams in recent weeks, market participants said. They expect more layoffs if declines continue.
October losses set the stage
The post-US midterm 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% last month, its biggest monthly fall in 18 months. JPMorgan estimates global hedge funds lost 3% 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, Goldman Sachs partner John Flood said in a note on Thursday. He said hedge funds are selling back pockets of the market, such as hyperscalers, that they had just bought.
Research firm PivotalPath warned this week of 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.
Source: Reuters via Investing.com
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