Goldman: Hedge Fund Leverage Falls 4.2 Points to 73.4% in October
Key Facts
Net leverage across Goldman Sachs’ prime brokerage client book fell 4.2 percentage points to 73.4% in October, its fastest monthly decline since March, according to data reported by Investing.com. The figure reflects a reduction in hedge funds’ exposure held through the prime brokerage book, during a month that brought pressure on multiple strategies. In the same month, Goldman clients were net sellers of global equities by the largest dollar amount in seven months. Long sales exceeded short covering by four to one. The trading desk attributed the imbalance to risk reduction, not to an outright bearish bet on equities.
The sales mix suggests that cutting positions betting on rising share prices was more pronounced than closing short bets. According to Goldman data cited by Investing.com, net global equity sales in October were at their highest dollar value in seven months. The ratio of long sales to short-covering sales was four to one, which the trading desk described as a reflection of risk reduction. That puts the leverage move in the context of an exposure reset, rather than a confirmed signal of expectations for a market decline. AI stocks were a prominent part of the month’s selling.
Between 8 and 14 October, hedge funds sold global AI-linked equities for five consecutive sessions, according to Goldman data. Those sales erased cumulative net purchases of stocks in the theme recorded since the start of 2025. The specified period shows that the selling wave was concentrated in consecutive October sessions and wiped out the funds’ accumulated net purchases since the previous year. This came as part of the global equity selling that accompanied the decline in leverage during the month. The source did not attribute the move to a change in technology companies’ fundamentals; the trading desk described risk reduction motives rather than an outright bearish bet.
Hedge fund strategies recorded sharp losses in the 22 October session, according to a Hedgeweek report citing Reuters. The three strategies tracked by Goldman Sachs — fundamental long/short equity, systematic strategies and multi-strategy — each fell by more than 1% in that session. For the month through 22 October, fundamental global long/short equity funds lost 3.8%, while remaining up 8.8% since the start of 2026. The comparison between monthly performance and the year-to-date return shows that October’s losses had not erased gains accumulated since the start of the year by that date. These figures are as of 22 October, before the end of the month.
Pressure extended to geographically and sector-focused funds: technology-focused hedge funds fell about 10% through 22 October, while Asia-focused funds lost about 9%, according to the same report. The report attributed the pressure on returns to losses in Chinese stocks and technology holdings, alongside pressure from crowded short positions. Masaki Goto, a partner at Tokyo-based TriVista Capital, said the firm had been reducing its exposure to technology hardware stocks since late June. Goto linked the decision to concerns about the concentration of AI-related investments and circular financing arrangements. He said the firm “had been reducing its exposure to technology hardware stocks since late June,” indicating that its position cuts began before the October leverage reduction wave.
Against the backdrop of the technology sell-off, Forbes reported on 26 October that data from Goldman’s prime brokerage desk showed hedge funds selling about $20 billion of technology stocks over two weeks. The report quoted Goldman as saying that, earlier in the month, funds sold in just five sessions all the AI stocks they had bought since the start of 2025. These figures provide dated context for October sales, while other Goldman data show that net selling of AI stocks continued for five consecutive days between 8 and 14 October. In the 30 October session, the Nasdaq Composite fell 2.9%, and the Dow Jones Industrial Average dropped 572 points, or 1.1%, according to the Associated Press. Intel shares also fell 28.6% in the session after its fourth-quarter profit forecast came in below analysts’ expectations, despite the company reporting stronger-than-expected quarterly earnings.
In the bond market, the yield on the 10-year U.S. Treasury fell to 4.93% at the 30 October close, from 4.98% at the previous day’s close, after topping 5.30% earlier in the month, according to the Associated Press. Joe Tigay of Equity Armor Investments said the AI trade “is moving from a phase of hopes and dreams to a phase of show me the results.” While Tigay’s comment came in the context of market moves, the leverage reduction and equity sales data document position cuts during October, alongside varying losses across hedge fund strategies and funds. Global quantitative equity funds lost 5% in July, while hedge fund borrowing remained near five-year highs but below the peak of the previous 12 months. JPMorgan said leverage levels started and ended July at similar levels despite volatility during the month; the available facts do not include later data establishing the path of leverage after October.