Hedge fund returns worsen this week as tech selloff deepens

HONG KONG, New York Oct 23 — Global hedge funds were hit by a fresh ​tech reckoning this week, with major strategies posting their worst day since the COVID-era market rout.

A renewed selloff in big tech stocks, driven by growing skepticism over ‌the massive AI buildout spending, swept through global markets and dealt a heavy blow to global hedge funds.

"If last ⁠Thursday felt bad, today has been worse," ​Goldman Sachs' prime brokerage team said in a ⁠note sent to clients.

All three major strategies tracked by Goldman Sachs lost more than 1% ‌on October 22, a ‌first since the COVID pandemic, with losses spanning fundamental equity long-short, systematic and ⁠multi-strategy funds.

One catalyst for the latest selloff was Meta, ⁠one of the hyperscalers spending billions to build AI models, after the company said it would issue a new class of shares to help it raise funds.

Meta Platforms slumped 7% on Thursday, its largest drop since July. Nvidia tumbled 4%, while the broader Nasdaq Composite lost 2.6%, its largest decline since June 5.

Asian stocks, from South Korea ‌to China, were also at the center of the selloff, ​pressured by higher oil prices and fears over hefty AI spending.

The downturn triggered deleveraging among hedge funds, market participants said, as losses in crowded AI-linked trades forced investors to cut exposure and rein in risk.

Global fundamental long-short funds, or stock pickers, have dropped 3.8% so far in October, but are still up 8.8% year-to-date, Goldman Sachs estimates.

Performance was weighed down by losses on China and technology holdings, as well as a squeeze ​in crowded short positions, the bank said.

Tech-focused and Asia-focused hedge funds were among the biggest losers this ‌month through to ‌October 22, down ⁠roughly 10% and 9%, respectively, according to Goldman.

Masaki Gotoh, a partner at Tokyo-based TriVista Capital, said the hedge fund had trimmed its hardware investments since late June.

"I'm actually a very strong believer in AI... But the concentration level is staggering. If you go back to the IT ‌dotcom bubble, that had similar ​types of concentrations and we saw that happen. The ‌circular financing is also ⁠a source of some ​concern," he said.

(Reporting by Summer Zhen and Anirban Sen, additional reporting by Rocky Swift in TokyoEditing by ​Shri Navaratnam)

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