AI selloff hammers hedge funds this week, Asia managers lead losses

This week, global hedge funds faced significant losses, primarily due to the rapid reversal of AI-related investments, with Asia-focused funds experiencing the most severe decline. A Goldman Sachs prime brokerage report revealed that global fundamental long-short funds, or stock pickers, suffered daily losses throughout the week, totaling 2.9% for the week ending October 15.

However, for the year to date, these funds have managed to gain 14.3%. On Wednesday, hedge funds across all strategies saw a sharp retreat, with stock pickers experiencing a 0.9% decline. Among them, Asia-focused managers suffered the largest loss, dropping 2.6%, while tech-focused funds fell by 2.0%. Systematic long-short managers and multi-strategy funds also declined by approximately 1%.

Inflated US inflation data, which raised concerns about further rate hikes, exacerbated the market sell-off in semiconductor and AI supply chain stocks. Throughout the year, these three broad strategies have never dropped more than 80 basis points on the same day, but this has happened three times in 2023, including February 4, July 28, and October 15.

Semiconductor-heavy markets suffered the most significant impact of the market downturn. South Korea's KOSPI index dropped 8% to close at a six-month low on Thursday, while Taiwan stocks also declined by more than 3%. Asia-focused stock pickers have lost 6.8% during the first half of October, erasing over half of their gains from their late-June peak, when they had risen more than 40% for the year, according to Goldman Sachs.