Original Author: Dong Jing

Original Source: Wall Street Watch

Overnight, U.S. stocks plunged across the board, with the Nasdaq dropping more than 5% and the chip index diving 12%. The new round of crashes in tech stocks is causing a ripple effect in the hedge fund industry.

According to Business Insider on November 6, Walleye Capital, a multi-strategy hedge fund with a size of $17 billion, announced the dismantling of its core long-short equity team, returning part of the investors' funds, and restructuring its overall business framework—this is another systemic shock to the Wall Street hedge fund industry caused by concentrated AI positions following the significant hit to the AI-focused fund Situational Awareness in July.

Walleye Capital disclosed in a letter to clients that the fund lost 5.9% in October, marking its worst monthly performance since March 2020, with a cumulative loss of 6.8% as of the end of October 2026. The fund announced the firing of long-short equity head Anil Gondi and a significant portion of its internal long-short investment team, and will return part of the capital to investors, with the specific amount and timing yet to be determined.

Additionally, systematic hedge fund Engineers Gate also announced the dismantling of most of its "Synthesis" equity team, which reported a loss of 5.5% for October as of the 23rd. Meanwhile, several leading hedge funds similarly recorded significant losses, including Millennium, Marshall Wace's Eureka strategy, ExodusPoint, and North Rock Capital.

The backdrop of this round of selling is the sharp reversal of AI-related tech stocks. According to Goldman Sachs data, hedge fund managers net sold about $20 billion in tech stocks within two weeks, wiping out their entire net long position in AI stocks accumulated since early 2025 in just five trading days; the semiconductor index saw a one-day maximum drop of 11%, also the largest single-day decline since March 2020. This round of liquidation once again exposes that when leverage encounters overcrowded positions, a liquidity crisis can explode in a very short time.

AI Positions Hit Hard, Walleye's Monthly Plunge

The losses at Walleye Capital are closely related to its highly concentrated positions in AI-related tech stocks. According to disclosures, by the end of the second quarter of 2026, the fund held multiple major stocks in the AI sector, including KLA Corporation, Micron Technology, Advanced Micro Devices (AMD), and Applied Materials.

In this round of tech stock selling, the semiconductor index at one point dropped by 11% in a single day, marking the largest single-day drop since March 2020. Goldman Sachs data shows that the hedge fund group sold around $20 billion in tech stocks in just two weeks and cleared all of its net long positions in AI stocks accumulated since early 2025 within five trading days, indicating the high level of overcrowding and rapid deleveraging of previous positions.

Walleye's CEO and Chief Investment Officer Will England admitted in a letter to clients that the internal long-short stock strategy has been the weakest performing business segment of the company since 2023 and significantly lagged its external long-short business.

“In recent years, we have invested substantial resources into improving our internal business, including bringing in new leadership, but these efforts have failed to deliver the expected results, as the opportunity cost and resource consumption have been too high compared to the returns.”

Mass Layoffs and Capital Return

As part of this restructuring, Walleye fired long-short equity head Anil Gondi and laid off a significant part of its internal long-short investment team. Gondi joined Walleye in July 2025, having previously served as a stock selection portfolio manager at Balyasny Asset Management and founded his own fund 6elm Capital. This marks the second significant personnel change in Walleye's stock selection department this year— in September, the Chief Operating Officer Matt Giannini left to return to Citadel.

Walleye also announced that it would return part of the capital to investors, but the specific amount, timing, and method of operation have yet to be determined, and investors will be informed of the details later.

It is worth noting that England emphasized in the letter that this adjustment does not signify a withdrawal from stock investment. After the restructuring, the internal team will report directly to England; the company plans to continue investing through external stock managers and internal high-conviction portfolio managers while allocating more resources towards volatility trading, quantitative methods, and other competitively advantageous business directions. England stated that Walleye's volatility business achieved its best single-month performance in October and is expected to realize its best annual performance ever in dollar terms.

Additionally, Walleye recently hired Anna Dev, who previously handled business development at Millennium, to assist in seeking external investment opportunities.

Engineers Gate Dismantles Synthesis Team

A client letter obtained by Bloomberg shows that the systematic hedge fund Engineers Gate, based in New York, announced on Wednesday that it is parting ways with most members of its "Synthesis" equity team, including the team leader Mike Daylamani.

The client letter disclosed that the Synthesis team accounted for about 14% of Engineers Gate's total market value at the end of October, and five fundamental portfolio managers will remain after this dismantling. Engineers Gate's CEO Greg Eisner wrote in the letter that the team's performance "does not meet the standards for continuing operations in its current form."

According to Bloomberg, informed sources revealed that Engineers Gate incurred a loss of 5.5% for October as of the 23rd. Eisner attributed the loss to "the sharp reversal of AI and tech stocks, as well as other market shocks that led to widespread losses across hedge fund strategies, including one of the largest single-day drawdowns since the pandemic."

In addition to dismantling the Synthesis team, Engineers Gate also took measures to part ways with or reduce capital on a few "low-conviction portfolios" on the platform and is advancing the internalization of its Asian business.

Industry Ripple Effect: Several Funds Suffer Heavy Losses

Walleye is not alone. According to Bloomberg, Millennium's flagship multi-strategy fund fell 2.3% in October, Marshall Wace's Eureka strategy dropped 5.4%, ExodusPoint was down 2.4%, and North Rock Capital declined 2.3%. Point72 Asset Management and Schonfeld Strategic Partners also recorded losses in October.

This round of shocks recalls an episode from July this year: the AI-focused fund Situational Awareness lost 67% of the value of its portfolio at that time and sold most of its public equity positions to Citadel, owned by Ken Griffin. In less than four months, a new wave of concentrated AI position liquidation has re-emerged, once again revealing how in the presence of leverage, crowded positions can quickly evolve into a liquidity crisis.

The rise in short-selling activity also confirms the breadth of market pressure. According to Goldman Sachs data, short-selling bets across companies approached five-year highs in October, with the volatility of tech stocks sharply increasing, as the S&P 500 index fell approximately 1% for the month, while the Nasdaq and semiconductor sectors faced much more severe impacts.

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