Hedge funds hit by AI sell-off, Goldman Sachs says

By Nell Mackenzie

LONDON, Feb 5 (Reuters) – Big hedge funds that trade in stocks had their worst day in almost a year on Wednesday as crowded trades lost value in the tech-driven selloff, Goldman Sachs said in a note to clients released after the market closed.

Investors have rotated out of technology companies and into defensive stocks such as Walmart on fears of AI disruptions to jobs.

The recent selloff, triggered by a new legal AI tool from Anthropic’s Claude large language model, has rippled out across the world.

Hedge fund managers, whose strategies focus on tech, telecoms and media companies, were down as much as 2.78% on Wednesday, Goldman said in the note, which was seen by Reuters on Thursday.

For investors to receive double-digit annual returns net of fees, hedge funds must average between one and two percent positive returns a month. To lose this amount in a single day could potentially have an impact on monthly returns.

Many other hedge fund strategies that also trade equities gave up profits on Wednesday, including systematic stock traders and those that pick stocks fundamentally. These funds had losses of 0.76% and 0.84% respectively, said Goldman’s note.

Multi-strategy hedge funds, which trade different kinds of financial instruments under one roof, saw their stock portfolios down by 1.9% in their worst day since April 9 last year when markets were still reeling from U.S. President Donald Trump’s sweeping tariff announcement, the note added.

They were caught in what the bank described as a momentum selloff. Momentum trading follows a stock’s rise or fall, regardless of how near a top or trough it might be.

Goldman said hedge funds on Wednesday were caught in crowded trades and gave up profits trying to exit concentrated long positions.

The bank noted that multi-strategy funds were still up 3.9% for the year so far.

(Reporting by Nell Mackenzie; Editing by Dhara Ranasinghe and Jane Merriman)