Hedge funds unwind AI bets at fastest pace in over a decade

According to a summary of Morgan Stanley's client report, October 2026 was the month with the largest active de-risking by equity long-short hedge funds in more than a decade, and market exposure across this group had fallen roughly 9% since June. The same report noted that more than 40% of equity long-short funds were flat or negative on the year through October, even though the S&P 500 and the Nasdaq Composite index still held positive year-to-date returns over the same period.

The pressure broke out in late October. Goldman Sachs told clients on Thursday that hedge funds focused on telecom, media and technology lost more than 4% on the day, while multi-strategy funds lost 1.4%, with technology stocks and momentum trading cited as the main drags. That Thursday the Nasdaq 100 fell 6.4% in a single session, wiping out roughly $2.3 trillion in market value, and the VIX index spiked 70%. The index's 24% year-to-date gain accumulated before the AI trade reversal over the summer was nearly erased. Reporting also says Samlyn Capital, Engineers Gate and Walleye Capital, among others, have recently announced layoffs or restructuring, and that funds have been shrinking team sizes over the past few weeks.

The situation is still at the stage of ongoing risk alerts and damage assessment: Morgan Stanley and Goldman Sachs material was circulated through client notices, and the available reporting records no policy response or turning point in the market. The described selling has been framed as one of the steepest US equity selloffs on record, pushing the hedge fund industry into what the report calls a rare systemic stress test. Details such as exact figures for job cuts, the timing of further deleveraging and any rebound in exposure had not been reported.