Summary

  • Walleye Capital said it will shrink its equities operation and return some capital to investors after a plunge in AI-related stocks.
  • Walleye Capital said it is simplifying its internal equity long-short business after posting a 5.9% loss in October and a 6.8% cumulative loss through October this year.
  • Goldman Sachs said large multi-strategy hedge funds are heavily exposed to megacap AI stocks and are suffering substantial losses, adding to pressure on the broader market.

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Walleye cuts equities team after 6% loss

A sharp selloff in U.S. artificial intelligence stocks is heightening tensions across the hedge-fund industry. Walleye Capital, which manages more than $17 billion, plans to shrink its equities operation and return some capital to investors. Some analysts also say unwinds of positions concentrated in AI shares amplified the market's losses.

On Nov. 5, the Nasdaq 100 sank about 6.4% in New York, its biggest one-day drop since the Covid-19 shock in March 2020. The S&P 500 fell 4.36%, wiping about $3 trillion off the market value of its constituent companies in a single session. Concerns that a Democratic landslide in the midterm elections could lead to tighter regulation of data centers triggered the selloff in AI shares.

According to Bloomberg, Walleye plans to scale back its internal equity long-short business and return part of its managed assets. Anil Gondi, head of equities, and a substantial portion of the equity-investing team are leaving the firm. Equity long-short is a strategy that combines buying and short selling based on views on individual stocks.

Walleye posted a 5.9% loss in October alone, its worst monthly performance since March 2020. Its year-to-date loss through October widened to 6.8%. The firm said it is simplifying its internal equity long-short business and plans to return some capital after reviewing the fund's appropriate size.

Chief Investment Officer Will England wrote in a letter that the internal equity long-short business has been the weakest part of the firm's strategy since 2023. It has also significantly lagged the firm's external long-short business. He added that Walleye will focus on core strategies including volatility investing, quantitative investing and external asset-management operations.

This concentration in AI shares among large hedge funds is also weighing on the broader market. Reuters reported that Goldman Sachs told clients in a prime-brokerage note that large multi-strategy hedge funds were excessively exposed to megacap AI stocks and were suffering substantial losses.

Doohyun Hwang