Global hedge funds suffer widespread losses as Nasdaq 100 plunges

Highlights

Three major hedge fund strategies fell over 1%.
Technology-focused funds lost an average 2.7%.
Short squeezes added to losses during the rout.

According to Goldman Sachs data, all three major equity hedge fund strategies lost more than 1% in a single trading session for the first time since the pandemic, Bloomberg reports. More than two-thirds of the hedge funds tracked by the division ended Thursday with losses, highlighting the unusually broad impact of the market downturn.

Technology exposure drives heavy losses

Fundamental long-short equity funds, which buy stocks expected to outperform and sell those expected to underperform, declined 1.4% globally. That marked their worst session since July 16, with portfolios concentrated in telecommunications, media, and technology suffering average losses of 2.7%.

Systematic long-short funds, which rely on quantitative models to identify trading opportunities, fell 1.3%. It was their third-worst daily performance since December 2023, suggesting that the selling pressure extended beyond discretionary stock selection.

The Nasdaq 100 Index dropped 2.9% on Thursday, its steepest decline since June. Investors reduced exposure to technology companies amid growing doubts about whether extensive spending on artificial intelligence infrastructure would generate sufficient profits.

Diversified funds fail to escape selloff

Multistrategy hedge funds, which distribute capital across independent investment teams and trading approaches, lost 1.9%. Their performance marked the second-worst session since the tariff-driven market turmoil of April 2025, challenging expectations that diversified portfolios would offer greater protection.

Short positions also provided limited relief. Goldman Sachs found that heavily shorted stocks rebounded during the second half of trading, creating additional losses for managers betting against those companies.

Asian fundamental long-short managers faced particularly difficult conditions, with month-to-date losses reaching 9.3%. Despite the recent setback, their returns remained positive at 14.2% for the year, indicating that the latest decline had not erased earlier gains.

Market volatility tests hedge fund risk controls

The simultaneous losses across investment strategies raise questions about portfolio diversification during periods of concentrated market stress. When investors rapidly reduce exposure to similar assets, strategies designed to behave differently can experience losses together.

Higher oil prices have added another complication by increasing inflation concerns while technology valuations face renewed scrutiny. The combination makes it harder for managers to anticipate interest rate movements and identify reliable defensive positions.

For hedge funds, the immediate challenge is managing exposure without locking in unnecessary losses during volatile trading. The breadth of Thursday's decline suggests that traditional hedges may offer less protection when market positioning becomes crowded and investors seek liquidity simultaneously.

As we previously reported, gold drops below $4,000 as Wall Street selloff sparks liquidity crunch.

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