Hedge Funds
Hedge fund short bets near five-year high as Goldman flags squeeze risk
Short leverage on Goldman Sachs' prime book sits in the 99th percentile of the past five years, while net exposure among fundamental stock pickers is near a three-year low.
HedgeWeekly Hedge Fund Desk ·
Hedge funds have stepped up bets against stocks this month, taking bearish positioning close to its highest level in five years, according to Goldman Sachs prime brokerage data reported on October 22. Short leverage across the bank's prime book now ranks in the 99th percentile of readings over the past five years.
Across global equities, short sales have run at roughly five times the volume of long purchases, the data show. Gross leverage has climbed, meaning funds are carrying larger books on both sides, while net leverage among fundamental long/short managers has dropped to near a three-year low as they tilt toward hedges rather than exiting the market outright.
Goldman said the build-up raises the risk of a short squeeze, in which a rebound forces managers to buy back borrowed shares quickly and pushes prices sharply higher. The bank did not point to a specific catalyst or timing. The readings follow data earlier this week showing funds sold technology stocks at the fastest pace in at least a decade.
Why it matters: crowded shorts paired with low net exposure leave long/short books vulnerable to a sharp, painful rally, a risk allocators should weigh when reviewing October performance. The positioning also feeds prime brokers' balance sheets: Goldman posted a 96% jump in third-quarter equities financing revenue as hedge fund demand for leverage drove Wall Street equities revenue to records.