Asian Hedge Funds Hit by AI Selloff, Margin Calls

Asian hedge funds posted steep losses in October after a selloff in artificial intelligence stocks triggered margin calls, forced liquidations and concerns about concentrated technology holdings. Goldman Sachs’ prime brokerage estimated that Asia-focused equity hedge funds fell 9.4% during the month, reducing their gains for the year to 14%.

Hong Kong-based Aspex lost 16% in October, while China-focused stock-picking funds declined 11%. Some Chinese long-only quantitative strategies fell more than 10%, erasing their gains for the year. Valliance Asset Management’s Long-Short Master Fund dropped 6.7%, and CloudAlpha Capital Management’s $2.8 billion Singularity Master Fund fell nearly 3%.

The losses also affected larger multistrategy firms, including Millennium Management and ExodusPoint Capital Management. Leveraged investors faced additional pressure because falling share prices required them to provide more collateral or close positions to meet margin requirements.

Selling intensified on Friday after concerns about tighter US regulation of artificial intelligence and a possible slowdown in data-center investment weighed on Asian markets. The MSCI Asia Pacific Index fell as much as 5.3%, while South Korea’s Kospi dropped 8.8% and triggered a trading halt.

The declines followed a US technology selloff on Thursday that erased $2.3 trillion from the Nasdaq 100’s market value. Wealthy investors in Hong Kong and Taiwan faced margin calls and potential losses on structured products linked to technology stocks.

Concentrated holdings and options trading added to the selling pressure. Investors cutting leverage sold positions in falling markets, adding to declines in shares popular with hedge funds and other leveraged traders.

Some managers gained from the volatility. Chris McGuire, who manages a Japanese convertible-bond arbitrage strategy at Eagle’s View Capital Management, reported an estimated gain of 2.5% or more in November. Convertible-bond arbitrage funds trade differences between a company’s shares and its convertible debt, giving them different exposure from funds that hold technology stocks directly.

The losses raised concerns that hedge fund deleveraging that began in October could continue into November. Analysts attributed the scale of the selloff to forced position unwinding rather than a broad reassessment of artificial intelligence’s long-term prospects.