Hedge funds decline 1.4% in October as technology selloff hits performance

Hedge funds declined an estimated 1.4% in October, according to new data from HFR, as sharp losses in technology and artificial intelligence-related equities weighed on equity and macro strategies. Activist and fixed income managers were the notable exceptions, delivering positive returns during the month. Approximately 60% of hedge funds recorded losses.

Equity hedge strategies were among the weakest performers, falling 2.4%. Fundamental growth funds lost 5.6%, and technology-focused managers fell 4.8%. Macro strategies also struggled amid heightened geopolitical uncertainty and volatile commodity markets. The HFRI Macro Index declined 1%, with discretionary thematic managers losing 3.2% and commodity-focused funds falling 1.9%. Systematic diversified and CTA strategies were more resilient, recording a marginal 0.1% decline.

Event-driven strategies fell 0.2% overall, though activist funds gained 3.6% and merger arbitrage managers advanced 0.1%. Credit arbitrage and distressed debt declined 2.7% and 1.8%, respectively, reflecting broader pressure across credit markets. Fixed income provided some of the strongest returns, helping the HFRI Relative Value Index gain 0.2%. Sovereign fixed income managers advanced 5.3%, while yield alternatives and asset-backed fixed income returned 4.6% and 2.1%.

Performance dispersion widened considerably. The top decile of hedge funds gained an average of 7.7%, while the bottom decile declined 13.2%, a 20.9 percentage-point spread versus 14.6 points in September. HFR president Kenneth Heinz warned that policy changes following the Democratic Party's victory in the US midterm elections could prolong market volatility. He cited AI regulation, data centre development, tariffs, interest rates and the Iran conflict as key factors likely to shape hedge fund positioning over the coming quarters.