Global hedge funds hammered by AI selloff this week, Asia managers lead losses

By Summer Zhen and Anirban Sen

TOKYO/NEW YORK, Oct 16 (Reuters) - Global hedge funds suffered steep losses this week after being battered by the sharp 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. Wall Street ended the week sharply lower on Friday, with AI-related technology stocks including CoreWeave CRWV.O and Broadcom under renewed pressure, while a jump in oil prices spooked traders heading into the weekend.

CoreWeave has been one of the biggest casualties of the latest selloff, with the data center operator's bonds selling off sharply this week, pushing yields above 15%.

Global fundamental long-short funds, or stock pickers, lost money every single day this week, the Goldman Sachs prime brokerage unit said in a note to clients, with losses for the week to October 15 coming to 2.9%. For the year to date, they have gains of 14.3%.

"Following a sharp AI unwind on Wednesday and week-over-week, global equities were net sold again yesterday (Thursday) though at a much slower pace, driven by continued risk unwinds with long sales outpacing short covers. In dollar terms, yesterday's global de-grossing activity — long selling and short covering combined — was roughly half of what we saw on Wednesday," Goldman said in the note on Friday.

Goldman added that global AI stocks collectively have been sold by long-short fund managers for six straight sessions.

On Thursday, 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%.

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

"From COVID through end-2025, all three broad strategies never fell more than 80 bps on the same day," Goldman Sachs said in an earlier note from Thursday, 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 .KS11 tumbled 8% to close at a ‌six-month low on Thursday, while Taiwan stocks also lost more than 3%.

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.