Tech selloff erases hedge fund gains as managers cut risk and staff

Technology-focused hedge funds lost more than 4% in the latest daily equity selloff, leaving their year-to-date returns roughly flat, according to Goldman Sachs estimates. The reversal has coincided with cuts to risk exposure and investment teams across parts of the industry.

The tech-focused equity long-short funds had reached a peak gain of 24% in June. In the latest session, global fundamental long-short managers lost an average of 1.3%, while multi-strategy managers fell 1.4%, Goldman Sachs estimated.

Walleye Capital, a New York-based multi-strategy hedge fund managing $17 billion, told investors it would scale back its internal equity long-short operation and cut a substantial share of its equity investment staff. The firm also said it planned to return some capital after reviewing the fund's appropriate size.

Walleye described its latest month as its worst since March 2020. Other large multi-manager platforms have recently reduced leverage and dismissed teams that were losing money, market participants said.

The losses followed an October decline of 6.6% for the Nasdaq 100, its largest monthly drop in 18 months. JPMorgan estimated that hedge funds globally lost 3% in October, when higher AI-related borrowing costs and concerns about returns weighed on sentiment.

Goldman Sachs executive John Flood said funds had chased a brief rally after reducing risk before the U.S. midterms, then reversed purchases as stocks fell again. Research firm PivotalPath warned that increasingly overlapping holdings among the 10 largest multi-strategy funds could concentrate selling in the same securities.