October’s AI-led market rout forced hedge funds into rapid liquidations and risk
reductions, producing the largest active de-risking by stock-picking funds in
over a decade, Morgan Stanley data show. Aggregate market exposure has fallen
roughly 9% since June and by end-October more than 40% of funds were flat or
negative YTD. Losses were broad-based—from AI and healthcare equities to
high-yield corporate bonds—prompting pre-Thursday selling in many funds ahead of
a further equity drop. Goldman Sachs noted TMT-focused hedge funds fell over 4%
on Thursday while multi-strategy funds lost about 1.4%. Institutional managers
are shrinking operations: Samlyn Capital (about $7bln AUM) narrowed its focus to
financials and saw senior departures; Engineers Gate cut hybrid
quant/discretionary teams; Walleye Capital eliminated several portfolios
managers. Reported performance hits include Lone Pine down 8.8% in October and
Arini Capital materially reducing bond holdings.
