Hedge funds explode: Vara down 33%, Kirkswald worst month ever as AI stocks crater

Hedge Funds Explode: Vara Down 33%, Kirkswald Suffers Worst Month Ever

AI-focused hedge funds are facing a historic reckoning as a brutal October selloff in semiconductor stocks forces rapid deleveraging and capital returns.

Vara plunged 33% in October, according to Bloomberg reporting cited in the segment. Kirkswald, the hedge fund managed by Coffee, posted its worst month ever during the same period. Multiple other funds are also returning capital to investors following the downturn, including Wallach's fund and Millennium, managed by an ex-Citigroup banker.

The mechanism behind the damage is straightforward: many of these funds are running leverage, and if their portfolios are concentrated in semiconductor stocks—which cratered in October—margin calls and forced selling follow. The segment suggests this cascade is still unfolding, with forced block sales of holdings likely to accelerate over the coming days.

The contrast is sharp elsewhere. Lead Edge Capital, cited by name as a counterexample, is up 32% gross year to date and down only 1.2% on the worst day of the selloff. The fund's positioning in tech stocks trading at single-digit ARR multiples and low double-digit cash flow multiples proved defensive when consensus bets imploded.

The human toll is also visible in smaller ways. A hedge fund coach reported multiple clients canceling appointments the day the losses hit—not because they need reassurance, but because they need to solve problems in real time.