Tech Rout Wipes Out Hedge Fund Gains, Walleye Cuts Team as Losses Mount

Tech-heavy hedge funds got hammered Thursday, and the damage is now showing up in headcount. Equity long-short funds that lean on technology dropped more than 4% on the day, leaving their year-to-date returns roughly flat, according to Goldman Sachs estimates. Back in June, those same funds were sitting on gains of 24%.

Walleye Capital is the clearest casualty so far. The New York-based multi-strategy fund, which runs about $17 billion, told investors in a letter seen by Reuters that it will trim its internal equity long-short business and cut a substantial portion of its equity investment team. The letter described the past month as the firm's worst since March 2020, in what it called an already challenging 2026, and said Walleye plans to hand a portion of its capital back to investors.

The wreckage spread well beyond one fund. Global fundamental long-short managers slipped 1.3% on average Thursday, while multi-strategy managers fell 1.4%, per Goldman Sachs. Market participants say several large multi-manager platforms have already pulled back on leverage and axed money-losing teams in recent weeks, with more cuts expected if the declines keep rolling.

October set the stage. The Nasdaq 100 tumbled 6.6% last month, its worst monthly drop in 18 months, as elevated AI-related borrowing costs and doubts about returns soured sentiment. JPMorgan estimates global hedge funds lost 3% in October.

Then came the whiplash. Funds had de-risked heavily going into the US midterms, only to pile back in for Wednesday's relief rally and get caught out a day later, according to John Flood, a partner and managing director at Goldman Sachs. He said funds are now selling the same hyperscaler positions they had just bought.

There's a bigger risk lurking underneath, according to research firm PivotalPath. It warned this week that the 10 largest multi-strategy hedge funds hold a high and rising degree of overlapping positions, meaning a coordinated unwind could slam many of the same stocks at once.