Key Takeaways
- • Morgan Stanley's prime brokerage desk reported global equity hedge funds de-grossed at the fastest pace in more than a decade in the first week of November, with gross market value of long/short equity positions down 10.7% since late June.
- • Canada's CPP Investments is reported to be planning to lift its hedge fund allocation from about $80 billion to about $160 billion over five to seven years, while Colorado's Fire & Police Pension Association approved $240 million of new commitments.
- • Walleye Capital plans to return about $2 billion to clients as it scales back its internal equity long/short unit, bringing hedge fund assets back to roughly $10 billion.
- • October returns diverged sharply: Renaissance's Institutional Equities Fund gained 6% while Rokos Capital lost 4.9%, a spread of nearly 11 percentage points that supports treating hedge fund strategies as separate return engines.
- • Allocators are advised to add exposure only where it diversifies the portfolio, since buying crowded equity long/short now largely restores risk managers just reduced.
Summary
Hedge fund managers cut risk sharply in the first week of November, while several large allocators added to the asset class. According to a Morgan Stanley prime brokerage note, global equity hedge funds de-grossed at the fastest pace in more than a decade. The gross market value of long/short equity positions has fallen 10.7% since late June, and U.S. net leverage among long/short equity managers dropped five points in a single session to 42%. Gross leverage among Asian equity long/short funds fell to 124%, just above the 123% low of April 2025. Fundamental stock pickers led the selling, while multistrategy, macro and quantitative funds mainly covered existing shorts.
Walleye Capital illustrates the pattern within a single firm. The manager plans to return about $2 billion to clients as it scales back its internal equity long/short unit, bringing hedge fund assets to roughly $10 billion, close to where they started the year. Management said it will focus on its volatility, quantitative and external businesses.
Returns in October underscored the dispersion among strategies. Renaissance Technologies' Institutional Equities Fund gained 6% in the month and is up 12.3% year to date, while its Institutional Diversified Alpha fund rose 4.6% and is up 22.4%. Rokos Capital, a roughly $22 billion macro manager, lost 4.9% and is up about 8% for 2026. Many systematic funds finished October down about 1%.
Institutional buyers are moving selectively. Per reports, CPP Investments plans to raise its hedge fund allocation from about $80 billion to about $160 billion over five to seven years and seeks exposure to large managers it does not yet back, including Millennium. Because the pension expects total assets to roughly double over the same period, its hedge fund weight would remain broadly similar. External hedge fund investments were largely responsible for $3.4 billion of net income in its Capital Markets and Factor Investing segment in the 12 months ended March. Colorado's Fire & Police Pension Association approved $240 million of new commitments, splitting $200 million to Millennium's flagship multistrategy fund and $40 million to NovaCore, a European industrials market-neutral strategy. Diversifiers made up 11.1% of its $7.74 billion long-term portfolio in September against an 11% target. By contrast, New Mexico PERA is weighing whether to eliminate an absolute return allocation targeting 6% of assets, following a reported $100 million redemption from Two Sigma in September.
The central point for allocators is to distinguish the de-gross from the opportunity. Lower exposure reduces beta to further drawdowns but also reduces capacity to capture a rebound, so adding to crowded equity long/short now largely restores risk recently cut. Before committing, investors should assess how much of their existing hedge fund allocation is in fundamental equity long/short exposed to the AI selloff, and whether a new commitment lowers portfolio correlation or reinstates it.
Walleye Capital illustrates the pattern within a single firm. The manager plans to return about $2 billion to clients as it scales back its internal equity long/short unit, bringing hedge fund assets to roughly $10 billion, close to where they started the year. Management said it will focus on its volatility, quantitative and external businesses.
Returns in October underscored the dispersion among strategies. Renaissance Technologies' Institutional Equities Fund gained 6% in the month and is up 12.3% year to date, while its Institutional Diversified Alpha fund rose 4.6% and is up 22.4%. Rokos Capital, a roughly $22 billion macro manager, lost 4.9% and is up about 8% for 2026. Many systematic funds finished October down about 1%.
Institutional buyers are moving selectively. Per reports, CPP Investments plans to raise its hedge fund allocation from about $80 billion to about $160 billion over five to seven years and seeks exposure to large managers it does not yet back, including Millennium. Because the pension expects total assets to roughly double over the same period, its hedge fund weight would remain broadly similar. External hedge fund investments were largely responsible for $3.4 billion of net income in its Capital Markets and Factor Investing segment in the 12 months ended March. Colorado's Fire & Police Pension Association approved $240 million of new commitments, splitting $200 million to Millennium's flagship multistrategy fund and $40 million to NovaCore, a European industrials market-neutral strategy. Diversifiers made up 11.1% of its $7.74 billion long-term portfolio in September against an 11% target. By contrast, New Mexico PERA is weighing whether to eliminate an absolute return allocation targeting 6% of assets, following a reported $100 million redemption from Two Sigma in September.
The central point for allocators is to distinguish the de-gross from the opportunity. Lower exposure reduces beta to further drawdowns but also reduces capacity to capture a rebound, so adding to crowded equity long/short now largely restores risk recently cut. Before committing, investors should assess how much of their existing hedge fund allocation is in fundamental equity long/short exposed to the AI selloff, and whether a new commitment lowers portfolio correlation or reinstates it.
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