Hedge Funds Cut Staff and Positions After October Rout

Stock-picking hedge funds are aggressively unwinding positions and reducing staff following a severe market rout in October. Morgan Stanley reported that the period saw the largest active unwinding of positions for these funds in over a decade, with market exposure dropping approximately 9% since June.

The downturn followed a volatile week after a Democratic blue wave in the U.S. elections. This political shift sparked investor fears that new government control could hinder the advancement of AI stocks and the anticipated Anthropic IPO. Technology, media, and telecom sectors suffered the heaviest losses, causing some funds to erase their year-to-date gains.

Several firms have implemented drastic measures to stabilize. Walleye Capital cut stock-picking portfolio managers and announced plans to return client capital after its worst month since March 2020. Engineers Gate shut down most of its quantamental strategy and cut the majority of its portfolio managers, while Samlyn Capital narrowed its focus to financial-services stocks.

Other firms faced liquidity pressures and direct losses. Lone Pine Capital suffered an 8.8% loss in October due to the reversal in AI stocks, and Arini Capital Management US LLC significantly reduced its debt holdings following margin calls from banks.