Global Hedge Funds Experience One of the Broadest Single-Day Drawdowns Since the COVID-19 Pandemic
Global hedge funds experienced one of the broadest single-day drawdowns since the COVID-19 pandemic on Thursday, with Goldman Sachs' prime brokerage data showing that the stock market sell-off has quickly impacted global fund positions.
For the first time, all three major stock strategies fell more than 1% simultaneously, marking the first occurrence of such synchronized drawdowns since the pandemic.
Global long-short managers fell 1.4% on the day, the worst single-day performance since July 16, with telecom, media, and technology-themed funds averaging a decline of 2.7%.
Systematic long-short strategies and multi-strategy funds also faced impacts, with institutional investors overall unable to avoid this round of market turbulence.
Funds had previously been reducing long exposure to technology and artificial intelligence while pushing short positions to near five-year highs.
The sell-off was primarily driven by long position liquidations rather than new shorts, with funds shifting capital from growth and technology sectors to defensive areas such as healthcare and consumer staples. Under event-driven conditions, funds holding crowded positions in AI and semiconductors faced pressure, while shorts and low-leverage strategies benefited relatively.
Source: Public Information
ABAB AI Insight
Hedge funds faced multiple drawdowns from crowded trades in AI themes in 2025 and 2026, including the DeepSeek impact, July sell-off of Asian chip stocks, and consecutive net selling of the global AI basket in early October. Goldman Sachs' prime brokerage data has shown that the simultaneous drop of fundamental long-short, systematic, and multi-strategy strategies exceeding 80 basis points on the same day occurred three times in 2026, a situation that had not happened from the end of the pandemic until the end of 2025.
In terms of capital flow, funds reduced net leverage to near one- or three-year lows, pushed short leverage to the 99th percentile, and reversed nearly two years of net buying in AI stocks within just a few days. Goldman Sachs' prime brokerage encouraged increasing shorts to free up balance sheet capacity, maintaining total leverage at high levels while shrinking net exposure, shifting resources from crowded longs to shorts and defensive sectors.
Similar cases were seen in the early pandemic period of 2020 when multi-strategy funds collectively deleveraged, and during the 2022 growth stock crash when long-short funds retreated due to momentum and crowded factors. The current industry is in a deleveraging phase of crowded trades rather than merely expanding or transforming.
Essentially, this is a rise in correlation caused by capital concentration: a large number of funds hold similar long positions in AI and technology, and once macro shocks occur, liquidation actions happen simultaneously, shifting pricing power from active stock picking to passive risk reduction.
ABAB News · Law of Cognition
- The end of crowded trades is synchronized liquidation.
- Leverage amplifies returns and also amplifies correlation.
- Shorts are for risk reduction, not bearish market views.