Global hedge funds suffered their steepest daily losses since the Covid-era market turmoil as a renewed selloff in technology stocks triggered widespread deleveraging and forced managers to unwind crowded AI-related positions, according to a report by Reuters.

All three major hedge fund strategies tracked by Goldman Sachs – fundamental equity long-short, systematic and multi-strategy – fell more than 1% on 22 October, marking the first time all three had suffered losses of that magnitude on the same day since the pandemic.

The downturn was driven by mounting concerns over the sustainability of AI infrastructure spending, with sharp declines in major technology stocks spilling into global equity markets. Meta Platforms plunged 7% on Thursday, its biggest decline since July, while Nvidia fell 4% and the Nasdaq Composite dropped 2.6%, its steepest fall since 5 June.

The selloff prompted hedge funds to reduce leverage and cut risk across portfolios as losses on concentrated technology positions accelerated. Asian markets were also hit by concerns over AI spending and rising oil prices, adding to pressure on managers with exposure to Chinese and South Korean equities.

Global fundamental equity long-short funds have lost 3.8% so far in October, although they remain up 8.8% for the year, according to Goldman Sachs estimates. Losses on Chinese equities and technology holdings, alongside short squeezes in crowded bearish positions, have weighed on returns.

Technology-focused hedge funds have been particularly hard hit, declining approximately 10% through 22 October, while Asia-focused managers have lost around 9%, making them among the worst-performing strategies this month.

Goldman Sachs' prime brokerage team warned clients that Thursday's losses had exceeded those recorded during the previous week's sharp market decline, underscoring the speed of the deterioration.

Masaki Gotoh, a partner at Tokyo-based TriVista Capital, said the firm had been reducing its exposure to technology hardware stocks since late June, citing concerns over excessive concentration in AI-related investments and the circular financing arrangements supporting the sector's expansion.

Gotoh drew parallels with the dotcom bubble, warning that the concentration of capital in a narrow group of AI-linked companies had created vulnerabilities despite the technology's long-term investment potential.

The latest drawdowns highlight the growing pressure on hedge funds as crowded positioning, elevated technology valuations and concerns over AI spending combine to drive volatility across global markets.