Hedge Fund Updates

Taula Capital Management, the hedge fund founded by former Millennium portfolio manager Diego Megia, has fallen 9.4% this year through September 18, according to Bloomberg.

The London-based firm declined 4.3% in September, giving back part of its recovery from earlier losses. The latest setback came amid renewed volatility in global rates and energy markets, including a surge in two-year US Treasury yields and Brent crude above $100 a barrel.

Taula was also hit earlier this year after US and Israeli strikes on Iran disrupted markets and pushed energy prices higher, complicating expectations for central-bank rate cuts.

Megia launched Taula in 2024 with $3 billion in backing from Millennium. The firm has since grown to more than $9 billion in assets under management and expanded its team of senior traders.

Goldman Sachs has generated more than $200m in fees this year from Situational Awareness, making the two-year-old AI-focused hedge fund the bank’s largest hedge fund prime brokerage client, according to the Financial Times.

Founded in 2024 by former OpenAI researcher Leopold Aschenbrenner, Situational Awareness grew rapidly from several hundred million dollars to more than $20bn in assets, initially generating returns of over 400%.

A subsequent selloff in AI-linked stocks triggered significant losses, amplified by leverage. The fund later sold most of its roughly $16bn public-market portfolio to Citadel.

Aschenbrenner has since said the fund will stop using borrowed money to increase its investment positions, potentially reducing future financing fees for Goldman.

Hedge funds are reducing their exposure to the US Treasury basis trade as weaker returns and shifting demand for bonds and futures make the leveraged strategy less attractive, according to Reuters.

Morgan Stanley estimates that capital deployed in basis trades has fallen about 20% this year to roughly $1.2 trillion. The decline comes as rate expectations have shifted in a relatively orderly way, limiting the spreads traders rely on to generate returns.

The strategy typically involves buying Treasury bonds while shorting related futures, with hedge funds using short-term borrowing to finance the positions and leverage small price discrepancies.

The trade has drawn scrutiny during periods of market stress because heavy borrowing can leave funds vulnerable to margin calls and forced selling. The current pullback, however, appears to reflect less attractive trading conditions rather than a disorderly unwind.

Treasury demand has softened, while dealers are holding larger inventories and government buybacks have supported prices for older securities, reducing some of the discrepancies basis traders seek to exploit.

The decline has been most pronounced in futures linked to two- and five-year Treasuries, according to Morgan Stanley. Those maturities are particularly sensitive to changes in Federal Reserve rate expectations, making them less.

Hedge funds are increasing their exposure to US technology stocks as the Nasdaq 100 returns to record highs, reflecting renewed confidence in the artificial intelligence-driven rally, according to Bloomberg.

The Nasdaq 100 rose 0.8% on Tuesday, recovering from a sell-off earlier this year. Tech-focused US ETFs attracted around $22bn in the third quarter, compared with $4.6bn flowing into ETFs covering the rest of the US equity market.

Hedge funds have also raised their net-long exposure to Nasdaq 100 futures to the highest level since December, while US equity funds saw almost $64bn in weekly inflows through September 16.

The renewed appetite for equities comes despite concerns over inflation, interest rates and stretched positioning. Market breadth has weakened, with around 6% of S&P 500 companies hitting 52-week lows in September.

Investors are now looking to third-quarter earnings for evidence that heavy AI investment is translating into stronger profits. Analysts expect S&P 500 technology companies to post earnings growth of around 64%, versus 24% for the index overall.