A sharp global stock market selloff, driven primarily by technology shares, has erased much of the gains accumulated by hedge funds in 2026. The downturn has also pushed several investment managers to reduce their market exposure, scale back leverage, and cut staff.
The brief recovery following the US midterm elections quickly lost momentum. Thursday’s steep market decline intensified pressure across the hedge fund industry, particularly among firms with significant exposure to technology stocks.
Technology Hedge Funds See Profits Evaporate
According to estimates from Goldman Sachs, equity long-short hedge funds specializing in technology stocks suffered losses exceeding 4% on Thursday. The decline left their average year-to-date performance close to zero.
The reversal is particularly striking considering that these funds had recorded gains of approximately 24% at their June peak, before the selloff in artificial intelligence-related stocks began weighing on performance.
Other hedge fund strategies also struggled. Global fundamental long-short managers experienced average losses of 1.3%, while multi-strategy funds declined approximately 1.4% during Thursday’s trading session.
Walleye Capital Announces Staff and Investment Cuts
Among the firms facing significant pressure is Walleye Capital, a New York-based hedge fund managing approximately $17 billion in assets.
In a Thursday letter to investors reviewed by Reuters, the firm announced plans to shrink its internal equity long-short operations and eliminate a substantial number of positions within its equity investment team.
Following its weakest monthly performance since March 2020, Walleye Capital has undertaken a comprehensive review of its operations and investment strategy.
The fund also indicated that it intends to reduce its overall size and return part of its capital to investors.
The difficulties extend beyond Walleye Capital. Several major multi-manager hedge fund platforms have reportedly reduced leverage and dismissed underperforming investment teams in recent weeks.
Market participants anticipate additional job cuts if the stock market downturn continues.
Nasdaq 100 Decline Intensifies Hedge Fund Pressure
The latest wave of selling followed an already challenging October for global equities.
Concerns surrounding rising borrowing costs associated with artificial intelligence investments, combined with uncertainty over potential returns, have weakened confidence in technology stocks.
The Nasdaq 100, which includes some of the world’s largest technology companies, dropped 6.6% in October. This represented its steepest monthly decline in 18 months.
Meanwhile, JPMorgan estimated that hedge funds globally lost approximately 3% during the same period.
The volatility surrounding the US midterm elections added another layer of uncertainty.
According to John Flood, a partner and managing director in Goldman Sachs’ global banking and markets division, extensive risk reductions before the elections left numerous hedge funds scrambling to participate in Wednesday’s relief rally.
However, the recovery quickly reversed, leaving managers exposed to another round of losses on Thursday.
Flood noted that hedge funds were once again selling shares of major cloud computing and artificial intelligence infrastructure companies, including positions they had recently repurchased.
Crowded Hedge Fund Positions Raise Further Risks
Another emerging concern involves the growing similarity between portfolios held by major multi-strategy hedge funds.
Research firm PivotalPath warned that its analysis had identified increasingly significant overlap among the holdings of the industry’s 10 largest multi-strategy funds.
This concentration could amplify market volatility if several managers attempt to reduce exposure to the same stocks simultaneously.
Such coordinated selling could place additional downward pressure on already weakened technology shares, potentially triggering further losses across the hedge fund industry.
With market sentiment remaining fragile, hedge fund managers face increasing pressure to protect capital, manage portfolio risks, and reassess their exposure to the technology sector.
