Hedge funds reduced leverage at the fastest pace since March as sharp losses across fundamental and systematic strategies triggered widespread de-risking and heavy selling of technology stocks in October, according to Goldman Sachs prime brokerage data.

Fundamental long-short equity funds declined 3.5% during the month, while systematic strategies lost 3.6%, marking the first time since Goldman Sachs began tracking performance in 2016 that both groups recorded monthly losses exceeding 3%. Net leverage across the bank's prime brokerage book fell 4.2 percentage points to 73.4%, its steepest monthly decline in seven months.

Hedge funds were net sellers of global equities by the largest dollar amount in seven months, with sales of existing long positions outnumbering short sales by four to one. Technology stocks accounted for much of the reduction, with approximately $20bn sold over two weeks, approaching the $23bn recorded during July's market unwind.

Five consecutive sessions of selling in AI-related equities between 8 and 14 October erased all cumulative net purchases of the sector since the beginning of 2025. Asia-focused hedge funds were particularly affected, recording average losses of 9.4% during the month, while larger managers generally underperformed their smaller peers.

Despite the broader reduction in risk, trading activity reflected selective portfolio rotation rather than indiscriminate selling. Information technology, industrials and materials experienced the largest net outflows, while consumer discretionary, real estate and healthcare attracted buying interest. Hedge funds also increased exposure to macro products and index instruments while reducing individual stock positions.

European equities proved relatively resilient, with hedge fund overweights to the region reaching a one-year high of 3.5%. The UK, France and Spain were among the most actively purchased markets, highlighting continued interest in regional opportunities despite the wider industry downturn.