Original text: Walleye Capital

Translation: Jiahua, ChainCatcher

On November 5, U.S. tech stocks experienced a significant sell-off. The Nasdaq Composite Index fell by 5.5%, and the S&P 500 Index dropped by 4.4%. The decline in chip stocks was particularly marked: SanDisk fell by 22.3%, Micron Technology dropped by 17.5%, AMD decreased by about 17%, and Nvidia fell by 9.3%. Investors are reassessing the impact of the U.S. midterm election results on the construction of AI data centers, as well as whether the massive investments in AI can yield sufficient returns.

The market turmoil has also drawn attention to the plight of hedge funds. Walleye Capital, with over $17 billion in assets under management, lost 5.9% in October, marking its worst monthly performance since March 2020.

Subsequently, the company indicated in a letter to investors that it would streamline its internal long-short equity business and part ways with the management of that business as well as a significant portion of the investment team, also planning to return some funds to investors. Walleye emphasized that the company would not exit the long-short equity investment space and that it would allocate more resources in the future to volatility, quant, and external investment businesses.

Letter from Walleye Capital to Investors

I believe that discipline, humility, and self-awareness are crucial for achieving long-term success. The year 2026 is already filled with challenges, and after experiencing our worst month since March 2020, we have conducted a deep review of all aspects of the company.

Based on this consideration, we are streamlining our internal long-short equity business. This decision includes parting ways with the management of the long-short business and a significant portion of the internal long-short investment team. We will also increase our investment in areas where we have demonstrated a unique competitive advantage, including volatility, quant, and external investment businesses.

Meanwhile, we have assessed the optimal size of our fund and plan to return some capital. We will further communicate with each investor regarding the amount, timing, and specific method of this capital return.

Since 2023, our internal long-short equity business has been our weakest strategy, significantly lagging behind our external long-short business. Over the past few years, we have invested significant effort to improve the internal business, including bringing in new management. These efforts have not delivered the expected results, and the opportunity costs and resources consumed are too high relative to the returns.

However, this has also led us to recognize an important lesson: our competitive advantage does not lie in attempting to replicate the traditional multi-manager long-short equity model.

We will not be exiting this asset class. We will continue to engage in long-short equity investments as we have for the past decade, through collaborations with external managers; continue to provide initial capital for newly established external long-short funds; and maintain exposure to related investments by working with our most confident long-short portfolio managers. These managers, along with future internal long-short portfolio managers, will report directly to me.

This decision is part of an overall adjustment the company began in 2023. At that time, we merged two funds into one, strengthened the management team, and focused resources on the most advantageous businesses. Most of these efforts have made an impact.

Today, our volatility business is larger than ever before, covers a broader range, and is more profitable. October was the best month in history for this business, and in terms of P&L in dollars, 2026 is expected to be its best year. Over the past two years, we have hired nearly 20 volatility portfolio managers, making it the fastest-growing area for internal portfolio managers.

Despite the relatively weak performance in 2026, quant investing remains a business with lasting advantages, having built a successful track record over the past decade. We are confident in Rob and his team and will continue to invest resources in this business through Quantic and the company's central quant team.

External long-short equity investments and initial capital investments will remain core to our future business, supported by our well-established experience over the years and the natural strategic alignment with Dockside and institutional partners.

My partners Tom (responsible for project sourcing and relationship management) and Chris (responsible for risk management) will re-engage in the management of external long-short business with their respective teams and, as during much of 2024 and 2025, will report directly to me.

As Walleye continues to grow, “balance sheet” strategies such as reinsurance, U.S. Treasury basis trading, and equity capital markets, although relatively small, have provided valuable complements to our business. We will continue to seek attractive opportunities for investors in this area.

This is a proactive decision we have made after ongoing discussions. We still see strong demand from investors to increase exposure to volatility, quant, and external strategies. Feedback from several large partners further validates the rationale for streamlining the internal long-short business, as this move will allow the fund to be more focused on the distinctive businesses that initially attracted them to choose Walleye.

Thank you all for your continued support.

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