The first to be hit were the AI specialists. Then came the macroeconomic shock, followed by a credit market panic. Soon, it seemed, hedge funds had nowhere to hide. October was a grim month across the industry.
A broad technology stock selloff collided with a surprise Brazilian election outcome and violent protests in France, dealing heavy blows to many of the world's top money managers. Walleye Capital is returning capital to some investors after posting its worst monthly performance since March 2020. Greg Coffey's macro fund firm Kirkoswald Asset Management recorded its largest single-month decline since inception, abruptly ending a 16-month streak of gains. Credit fund Arini Capital Management lost more than 12% last month alone; one of Europe's fastest-growing hedge funds, it is now heading toward its first annual loss since founding.
For an industry that prides itself on making money regardless of whether markets rise or fall, the breadth of these losses is staggering. Strategies originally designed to operate independently suddenly lost money in unison, exposing excessive position concentration, high leverage, and vulnerabilities that had been easily overlooked during the long upward run in AI-themed stocks.
But Thursday's renewed market battering completely shattered expectations that October's misery was merely an isolated event. Markets fell across the board, with chip stocks sold off, dragging the Nasdaq 100 down 6.4% — its largest drop since March 2020; the S&P 500 also plunged 4.4%.
Hedge fund coach Denise Shull said such violent swings are like being ambushed by three thugs in a parking lot. With Thursday's market chaos, several of her clients canceled previously scheduled consultations. "Your instinct is to fight back, and to some degree you have to; you just need to hold on until you find a gap to escape through."
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