Hedge Funds Cut Equity Risk at Fastest Clip in 10+ Years

What happened

Morgan Stanley reported that a broad unwind gathered speed into early November, with equity hedge funds dialing back risk at a pace not seen in over ten years. Since late June, the gross market value tied to long-short stock strategies has dropped 10.7%, a sign of how widely investors have pulled back amid a selloff in artificial intelligence shares that picked up after the recent US mid-term elections. Performance in that week was negative across every region.

Where the selling landed

Asia took the biggest week-one hit. The average Asia-based fund declined 1.5%, still faring better than the MSCI Asia-Pacific Index, which fell more than 5%. Those losses chipped Asia funds' year-to-date return down to about 2.6%, compared with roughly 6% gains for US-based peers.

China-focused stock picking was the exception. It posted a 1.1% average gain for the week, lifting its year-to-date advance to 6.7%. Managers covered shorts in Chinese consumer names plus locally listed semiconductor and state-owned companies. Backed by state-led "national team" support, investors also closed short positions in yuan-traded shares on domestic exchanges, leaving Hong Kong and China as the only markets that finished the week net bought.

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Risk, leverage and the investor picture

Across Asia, managers pulled back most in information technology, cutting bullish positions and putting on fresh shorts, with the heaviest activity in Taiwan and South Korea. Fundamental managers led the selling, while multi-strategy, macro and quant funds were net covering shorts.

Leverage moved lower too. Across Asia, gross leverage for equity long-short vehicles dropped by 3 percentage points over the week to 124%, hovering just above the 123% low that followed President Donald Trump's tariff announcements in April 2025. In the US, net leverage for long-short funds slid by 5 percentage points during one trading day, landing at 42%.

Why it matters for your portfolio

The quick de-risking helps explain sharper swings in tech and the split between China-focused stock picking and broader Asia benchmarks in early November. The bottom line: positioning got more cautious, and where managers kept or added exposure tells you where they still see tradable edges.

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