Hedge fund returns worsen this week as tech selloff deepens

Key Points:

• Global hedge funds experienced their worst day since the COVID-era market downturn due to a renewed selloff in big tech stocks, driven by skepticism over massive AI spending.
• All three major hedge fund strategies tracked by Goldman Sachs—fundamental equity long-short, systematic, and multi-strategy—lost more than 1% on October 22, marking a first since the pandemic.
• Meta's announcement to issue a new class of shares to raise funds was a key catalyst for the selloff, which also impacted Asian stocks amid higher oil prices and concerns over heavy AI investments.
• The downturn led to deleveraging among hedge funds, as losses in crowded AI-related trades forced investors to reduce exposure and manage risk more cautiously.
• Despite a 3.8% drop in October, global fundamental long-short funds remain up 8.8% year-to-date, though tech-focused and Asia-focused hedge funds have seen significant losses of about 10% and 9%, respectively, this month.