Asia-focused hedge funds suffered widespread losses in July as a sharp reversal in AI-related stocks triggered what Goldman Sachs’ prime brokerage business described as the worst month on record for regional equity long-short managers, according to a report by Bloomberg.
Several of the region’s best-performing funds from the first half of the year posted double-digit declines during the month, including strategies managed by Hel Ved Capital Management, E20 Capital, Valliance Asset Management and WT Asset Management. Goldman estimated that Asia-focused long-short equity hedge funds lost around 15% in July based on aggregate client positioning.
The losses followed a broad retreat from AI-linked stocks as investors questioned whether the sector’s heavy capital spending could be sustained. South Korean memory chip maker SK Hynix fell by more than 30% during the month, while Japan’s Kioxia Holdings almost halved in value. Chinese indices tracking smaller domestic companies also posted steep declines.
The sell-off marked a dramatic reversal after AI beneficiaries had delivered extraordinary gains in the first half of the year. SK Hynix shares had quadrupled over that period, while Kioxia had surged more than 750%, encouraging both institutional and retail investors to increase exposure.
With many Asian technology suppliers viewed as key beneficiaries of the AI investment boom, regional hedge funds had built significant positions in the sector, leaving portfolios vulnerable when sentiment turned.
The turmoil extended beyond Asia. AI-focused hedge fund Situational Awareness lost 67% in July, forcing the liquidation of billions of dollars in technology holdings, a substantial portion of which was acquired by Citadel. The fund’s assets reportedly fell to around $10bn from approximately $45bn.
Managers with broader investment mandates and more diversified portfolios generally weathered the volatility more successfully.
Singapore-based Arrowpoint Investment Partners reported only a low single-digit decline in its multi-manager, multi-strategy fund after reducing portfolio risk by around 30% between May and June. The firm also benefited from exposure to commodities and arbitrage strategies, which helped offset weakness in equities.
Meanwhile, quantitative hedge fund Quantedge Capital generated positive performance during July, with gains from commodities, currencies and equity trading outweighing losses in fixed income markets.
Kings Court Capital’s Asia-Pacific equity hedge fund also finished the month in positive territory after significantly reducing exposure to sectors it considered overheated before the market correction. The firm said it had become increasingly concerned that valuations, investor positioning and expectations in parts of the AI supply chain had moved well ahead of underlying business fundamentals.
