Hedge Funds Log Deepest Global Equity Retreat in More Than a Decade

Global equity hedge funds cut risk at their fastest pace in more than a decade in November’s first week, while broader prime-brokerage leverage stayed near the top of its one-year range.

In Asia, funds reduced long positions and added bearish short positions. Fundamental stock pickers led the selling, while multi-strategy, macro and quantitative funds covered existing shorts. South Korea saw a sharper version of that pattern, with technology stocks representing a significant share of its market.

U.S. fundamental long-short funds’ gross leverage fell 8.7 percentage points in one week, the group’s largest drop since March 2020. That decline contrasted with gross leverage of 314.2% across all prime-brokerage clients, a reading in the 85th percentile of the past year. The figures cover different groups: a steep weekly reduction among U.S. fundamental funds alongside elevated leverage across the broader client base.

The latest retreat follows a period of elevated short positioning: global hedge fund short leverage had reached the 99th percentile of its five-year range in October.

JPMorgan global markets strategy head Dubravko Lakos-Bujas characterized the latest adjustment as concentrated deleveraging by momentum traders. He said capitulation selling had gone deep, while technical indicators showed short-term oversold conditions and accumulating signs of a potential bottom.