Hedge Fund Losses Amid Tech Stock Rout

By Nell Mackenzie
LONDON (Reuters) – Hedge fund stock-pickers lost billions on Monday following a slump in global technology shares due to a low-cost Chinese AI model, as noted in a Goldman Sachs update and industry figures on Tuesday.

Hedge funds focusing on company fundamentals, rather than systematic algorithmic trading, were down 1.1% on Monday amid falling markets. This drop is significant for funds, which can earn 15% in good years like 2024.

While Goldman Sachs does not disclose dollar values for the hedge funds it tracks, data from BarclayHedge indicates that the sell-off losses could be in the billions.

Hedge funds managing long and short positions had $176.7 billion in assets at the end of Q3 2024, while long-only hedge fund assets reached $672.9 billion.

Despite returns up 1.5% for the year so far, many of these funds had increasingly invested in the largest tech companies, leading to high risk before the recent decline. Concerns about hedge funds crowding into the so-called ‘Magnificent 7’ trades—major companies like Nvidia, Apple, and Microsoft—were highlighted in a Bank of America report.

Nvidia experienced a 17% drop on Monday, costing nearly $600 billion in market value, marking the most significant single-day decline for any company.

Goldman Sachs noted that Monday’s sell-off in U.S. stocks was the largest observed in around six months and among the highest in the past five years. Hedge funds have been reducing their exposure to tech stocks for three consecutive sessions as long positions became too risky.

In contrast, systematic managers using algorithms to trade finished Monday up 1.7%, having initially begun the week with a bearish stance on the markets and reduced their riskier bets.