Tech sell-off wipes out hedge fund gains, prompting layoffs and risk cuts

Hedge funds experienced significant losses due to a market downturn on November 5, as technology stocks suffered a sharp decline. Many funds that had previously gained year-to-date saw their returns nearly wiped out. Tech-focused equity long-short funds experienced a more than 4% drop on the day, leaving their annual returns roughly flat.

Goldman Sachs estimates show that global fundamental long-short managers were down 1.3% on average, while multi-strategy managers dropped 1.4% on Thursday. The pain in the industry is centered around Walleye Capital, a US$17 billion hedge fund that announced plans to reduce its equity long-short business and equity investment team following its worst month since March 2020.

Large multi-manager hedge fund platforms have also cut leverage and laid off loss-making teams in recent weeks, anticipating further layoffs if declines persist. The recent market turmoil extended losses after a challenging October, when sentiment was dampened by elevated AI-related borrowing costs and concerns over returns. The Nasdaq 100 index, which includes many tech giants, dropped 6.6% in October, its largest monthly decline in 18 months.