HedgeCo.Net — Elliott Management has warned investors that mounting financial risks, excessive leverage and speculation around artificial intelligence could set off a severe market correction, The Wall Street Journal reported. The $80 billion firm, led by Paul Singer and Jonathan Pollock, made the case in its October investor letter while reporting returns of less than 2% for the first nine months of 2026.
The third quarter was flat. By comparison, the S&P 500 returned nearly 13% over the same period and short-term U.S. Treasury bills about 3%. Elliott lost money in distressed debt and in portfolio hedges tied to gold, currencies, equities and interest rates, partly offset by gains in commodities, arbitrage and credit hedges.
The letter likened current conditions to the speculative excesses that preceded the Great Depression, citing U.S. fiscal deficits, persistent inflation, private credit exposure and debt-funded AI investment. It singled out circular financing among technology companies and rising debt-funded infrastructure spending, and warned that sentiment could swing from fear of missing out to what Elliott called “fear of getting obliterated.”
Elliott says it is prioritizing capital preservation and liquidity so it can act on dislocations, particularly in distressed credit, energy assets and activist situations in healthcare. It recently took activist positions in PepsiCo and Synopsys.
The letter is a notable trade-off. Elliott is accepting a large performance gap to equities in return for dry powder, and investors will judge that stance by whether a dislocation arrives on a timeline that makes the carry cost worthwhile.