Global hedge funds hammered by AI selloff this week, Asia managers lead losses

By Summer Zhen and Anirban Sen

TOKYO/NEW YORK, Oct 16 (Reuters) - Global hedge funds suffered steep losses this week, battered by a sharp unwind of a swathe of AI bets, with Asia-focused funds hit the hardest.

Investors are increasingly questioning whether massive AI spending can pay off anytime soon as elevated inflation keeps borrowing costs high. Wall Street ended the week sharply lower on Friday, with AI-related technology stocks including CoreWeave and Broadcom under renewed pressure, while a jump in oil prices spooked traders heading into the weekend.

CoreWeave has been one of the biggest casualties of the latest selloff, with the data center operator's bonds selling off sharply this week, pushing yields above 15%.

Global fundamental long-short funds, or stock pickers, lost money every single day this week, the Goldman Sachs prime brokerage unit said in a note to clients, with losses for the week to October 15 coming to 2.9%. For the year to date, they have gains of 14.3%.

"Following a sharp AI unwind on Wednesday and week-over-week, global equities were net sold again yesterday (Thursday) though at a much slower pace, driven by continued risk unwinds with long sales outpacing short covers," Goldman said in the note on Friday. "In dollar terms, yesterday's global de-grossing activity — long selling and short covering combined — was roughly half of what we saw on Wednesday."

Goldman added that global AI stocks collectively have been sold by long-short fund managers for six straight sessions. 

On Thursday, hedge funds across strategies retreated sharply, with stock pickers globally losing 0.9%. Among them, Asia-focused managers were down 2.6%, while tech-focused funds were off 2.0%. Global systematic long-short managers and multi-strategy funds also declined roughly 1%.

"What we saw was less a fundamental rejection of AI and more a classic, high-velocity unwind of a crowded trade meeting a macro reality check," said Bruno Schneller, managing partner at Erlen Capital Management, which invests in hedge funds. "Hotter-than-expected US inflation data forced markets to reassess the path of interest rates, putting immediate pressure on the most capital-intensive parts of the AI complex."

US inflation data this week increased expectations of further rate ⁠hikes, fueling declines in semiconductor and AI supply chain stocks.

Semiconductor-heavy markets bore the brunt of the selloff. South Korea's benchmark KOSPI tumbled 8% to close at a ‌six-month low on Thursday, while Taiwan stocks also lost more than 3%.

"From COVID through end-2025, all three broad strategies never fell more than 80 bps on the same day," Goldman Sachs said in an earlier note from Thursday, referring to fundamental equity long-short, systematic and multi-strategy trades.

The note added that this has now occurred three times this year: on February 4, July 28 and October 15.

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

"The interesting thing about this selloff is that it exposes just how much of the hedge fund industry has effectively been trading the same underlying theme, even when portfolios look very different on paper," said Schneller.

(Reporting by Summer Zhen and Anirban Sen; Editing by Edwina Gibbs, Will Dunham and Sam Holmes)