AI selloff hammers hedge funds this week, Asia managers lead losses

Global Hedge Funds Hit by AI Selloff, Asia-Focused Managers Lead Losses

Hedge Fund Performance Amid AI Market Turbulence

By Summer Zhen and Anirban Sen

Steep Losses Triggered by AI Unwind

TOKYO, Oct 16 (Reuters) - Global hedge funds suffered steep losses this week, according to a Goldman Sachs prime brokerage note, battered by the violent 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.

Daily Performance and Year-to-Date Gains

Global fundamental long-short funds, or stock pickers, lost money every single day this week, Goldman Sachs said, with losses for the week to October 15 coming to 2.9%.

For the year to date, though, they have gains of 14.3%.

Strategy Breakdown: Regional and Sector Impacts

On Wednesday, 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%.

Market Drivers: Inflation and Rate Hike Expectations

Hotter-than-expected US inflation data this week that increased expectations of further rate ⁠hikes also fuelled the selloff in semiconductor and AI supply chain stocks.

Historical Context and Market Reaction

"From COVID through end-2025, all three broad strategies never fell more than 80bps on the same day," Goldman Sachs said, adding that this has now occurred three times this year, on February 4, July 28 and October 15.

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%.

Asia-Focused Funds: Recent Performance

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.

(Reporting by Summer Zhen and Anirban Sen; Editing by Edwina Gibbs)