HONG KONG, Nov 6 (Reuters) - A brutal 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.
The post-midterm relief rally proved short-lived. Thursday's market rout compounded losses across the industry, with tech-focused funds bearing the brunt.
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.
Global fundamental long-short managers were down 1.3% on average, while multi-strategy managers dropped 1.4% on Thursday, according to the bank.
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.
"Following our worst month since March 2020, in an already challenging 2026, we have taken a hard look at every aspect of our firm," the letter said. "We have evaluated the optimal size of the Fund and plan to return a portion of our capital."
Several large multi-manager hedge fund platforms have cut leverage and laid off loss-making teams in recent weeks, said market participants, who expect more layoffs if declines continue.
The post-US midterm market 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, John Flood, partner and managing director in the global banking and markets division at Goldman Sachs, said in a note on Thursday.
"Hedge funds are selling back pockets of the market (hyperscalers)" that they had just bought, he said.
Research firm PivotalPath warned in a note this week that the firm observed 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.
(Reporting by Summer Zhen and Anirban Sen; Editing by DJ Yap)
