Major hedge fund strategies lose more than 1% as technology selloff deepens

Global hedge funds suffered their worst day since the COVID-era market collapse across major strategies this week as technology shares fell further. Goldman Sachs said each of the three major hedge fund strategies the bank monitors fell more than 1% on October 22. Goldman Sachs said the simultaneous losses were the first since the COVID pandemic and covered fundamental equity long-short, systematic and multi-strategy funds. Goldman Sachs' prime brokerage team told clients that the day's performance was worse than last Thursday's.

Growing doubts about the enormous spending on AI infrastructure drove another selloff in large technology stocks across global markets. Meta helped trigger the latest decline after Meta said the company would create a new share class to support fundraising. Meta is among the hyperscalers investing billions in developing AI models. Meta Platforms shares fell 7% on Thursday, the steepest decline since July. Nvidia shares dropped 4%. The Nasdaq Composite declined 2.6%, the index's biggest fall since June 5. Asian shares, including stocks in South Korea and China, also suffered amid rising oil prices and concerns about substantial AI spending.

Market participants said the downturn prompted hedge funds to reduce leverage as losses in crowded AI-linked investments forced investors to reduce exposure and risk. Goldman Sachs estimated that global fundamental long-short funds, also known as stock pickers, lost 3.8% so far in October. However, Goldman Sachs estimated that those funds remained up 8.8% year-to-date. Goldman Sachs attributed weaker performance to losses in China and technology investments and a squeeze affecting crowded short positions. Goldman Sachs said technology-focused hedge funds were among the month's worst performers through October 22, losing roughly 10%. Goldman Sachs said Asia-focused hedge funds were also among the worst performers over that period, losing roughly 9%.

Masaki Gotoh, a partner at Tokyo-based TriVista Capital, said the hedge fund had reduced hardware investments since late June. Gotoh said he remained a strong believer in AI but considered the concentration level staggering. Gotoh compared the concentration with levels during the information technology dotcom bubble. Gotoh also expressed concern about circular financing.