HedgeCo.Net — Systematic long/short hedge funds had their worst week in two years last week, falling about 2%, as doubts over the payoff from heavy artificial intelligence spending drove volatility across stocks and bonds, according to a Goldman Sachs prime brokerage note reported by Reuters on Monday. Fundamental long/short strategies lost another 1.1% over the same week.
The damage came alongside a 5.5% weekly fall in the Nasdaq 100, its biggest since April 2025. Fundamental long/short funds are down 3.8% for October so far but still up 8.8% for the year, according to the note. Systematic strategies are down 1.1% for the month and up 18.7% year to date, which leaves the quant cohort with a large cushion even after the worst week since 2024.
Positioning data point to risk reduction rather than outright bearish bets. Goldman’s prime desk saw about $20 billion of selling in technology stocks over the past two weeks, close to the roughly $23 billion of selling during July’s unwind, and single stocks recorded their largest de-grossing since late July. U.S. equities were net sold for a third straight week. Investing.com, citing the same desk, reported that long sales outpaced short covers by about 3.4 to 1 and that net leverage among fundamental long/short funds fell to 47%, the lowest in a year.
The short side has been a main source of pain. Shorts drove most of the underperformance in the week through Thursday, according to the Investing.com report, as crowded bearish positions squeezed even while the broader market fell. Goldman’s head of hedge fund coverage, Tony Pasquariello, wrote that hedge funds sold technology stocks at the fastest pace in two years last Thursday, casting doubt over conviction in the AI trade, Bloomberg reported.
For allocators, the combination of lower net exposure and slightly higher gross exposure leaves books cautious but not empty. With long books at their smallest in a year, a sharp rebound could squeeze managers who sold their winners, while further AI weakness would test how much of this year’s gains managers can hold into year-end. The next few weeks of prime brokerage data will show whether last week was a reset or the start of a wider de-risking.