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

This week, global hedge funds experienced significant losses due to the rapid unwinding of their AI-related investments, with Asia-focused funds suffering the most significant declines. Goldman Sachs reported that global long-short funds, which employ fundamental stock picking strategies, suffered daily losses throughout the week, with a combined loss of 2.9% for the week ending October 15.

During the same period, these funds had gained 14.3% year-to-date. On Wednesday, hedge funds across different strategies showed a sharp retreat, with stock pickers globally down 0.9% and tech-focused funds off 2.0%. Systematic long-short managers and multi-strategy funds also experienced a decline of approximately one percent. The sharp sell-off was fueled by the release of hotter-than-expected US inflation data, which further increased expectations of additional rate hikes.

This growing concern over AI spending's long-term viability, coupled with high inflation's impact on borrowing costs, has led to a decline in semiconductor and AI supply chain stocks. South Korea's KOSPI index plunged eight percent, hitting a six-month low, while Taiwan stocks also experienced a decline of more than three percent.

Asia-focused stock pickers have lost 6.8% for the first half of the month, erasing more than half of their gains from their late-June peak, when they had risen more than 40% for the year, according to Goldman Sachs.