Hedge Fund Losses: AI Selloff Erases Tech Gains and Forces Layoffs

Hedge fund losses from the AI selloff have now reached jobs and capital. Equity long-short funds that mainly invest in tech fell more than 4% on Thursday, leaving them roughly flat for the year after being up as much as 24% in June, Reuters reported, citing Goldman Sachs estimates. Walleye Capital, a $17 billion multi-strategy firm, told investors it will cut a substantial portion of its equity team and hand back some capital. This matters for the AI trade because when funds crowd into the same winners with leverage, a reversal can force more selling.

-4%+

Tech-focused long-short funds on Nov 5, Goldman estimate

24% to ~0%

Their 2026 return, June peak to now

-3%

Global hedge funds in October, JPMorgan estimate

$20B

Tech stocks sold in two weeks, Goldman data via Hedgeweek

Walleye cuts its stock team after its worst month since 2020

Walleye lost 5.9% in October, Investing.com reported. In a letter seen by Reuters, the New York firm said it would trim its internal equity long-short business and reduce a substantial portion of the team, and that it plans to return a portion of its capital. Chief executive Will England called it a proactive decision, and the letter described that business as Walleye's weakest strategy since 2023, according to Investing.com. At the end of the second quarter Walleye held large positions in KLA, Micron, AMD and Applied Materials. Its volatility business, by contrast, had its strongest month on record in October.

October losses hit the big multi-manager platforms too

Walleye is not an isolated case. Several large multi-manager platforms have cut leverage and laid off loss-making teams in recent weeks, Reuters reported, citing market participants who expect more layoffs if declines continue. Engineers Gate is parting ways with most of one stock team, according to reports cited by Investing.com. In July, the AI-focused fund Situational Awareness lost 67% of its portfolio value and sold most of its public holdings to Citadel, the same outlet said.

Thursday added to the damage. Goldman estimated that global fundamental long-short managers fell 1.3% on average and multi-strategy managers 1.4%, according to Reuters. The Nasdaq 100 had already dropped 6.6% in October, its largest monthly fall in 18 months, before the crash in AI stocks on November 5.

Funds erased nearly two years of AI buying in five sessions

The speed of the exit is what stands out. Hedge funds wiped out all their net purchases of global AI stocks since the start of 2025 in just five trading sessions, Hedgeweek reported on November 2, citing Goldman Sachs prime brokerage data. Sales of existing long positions outpaced new short selling by 3.5 times, which points to funds cutting risk more than betting on a collapse. Morgan Stanley data showed overall exposure down about 7.8%, the largest reduction since that series began in 2016, according to the same report.

That selling may not be finished. Tech was still 23.5% of Goldman's global prime brokerage book, in the 90th percentile of the past five years, Hedgeweek said, though that figure predates this week's losses. PivotalPath warned in a research note cited by Reuters that overlap among the 10 largest multi-strategy funds is high and rising, so an unwind could hit the same securities. Goldman's John Flood wrote on Thursday that funds were selling hyperscalers they had only just bought.

The selling has spread from AI stocks to AI debt

Bond markets are seeing the same behavior. Andrzej Skiba, head of BlueBay US fixed income at RBC Global Asset Management, said on Bloomberg Television on Thursday that hedge funds have been heavy sellers of debt tied to the AI build-out over the last few weeks.

Separately, a portfolio of about $500 million of data center loans has been put up for sale. Bids are due November 19, and the pool includes debt tied to Vantage Data Centers and CyrusOne, Startup Fortune reported, citing Bloomberg. Startup Fortune argued that the winning bid will show how much the midterm backlash has cost lenders. Credit default swaps on CoreWeave hit a record this week, Reuters reported. For how this debt was built up, see our neocloud debt analysis and our report on Oracle's $20 billion raise.

Friday morning offered some relief. Nasdaq 100 futures were up 1.41% at 6:24 a.m. Eastern and Nvidia was up 4.5% before the open, Reuters reported. Those are premarket moves, not closes. Pressure on new AI issuance is also visible in the doubts over Anthropic's valuation.

What the AI Bubble Index says

The AI Bubble Index stood at 62.7 in its latest published reading, dated November 5, in the Normal band and down from 64.6 a week earlier. Fragility, at 70, is above Euphoria at 63.4, and the systemic risk family reads 69.9. Momentum has cooled to 51.5, while sentiment and attention is still at 92.6. The dashboard tracks each family daily, and our guide to bubble indicators explains why leverage and crowding are among the signals that history says matter.