Goldman Says Hedge Funds Cut Equity Risk as Rally Hit Records

Hedge funds used the S&P 500’s record-setting rally to trim risk, not add it. Goldman Sachs’ prime brokerage desk, led by Vincent Lin, said U.S. long-short gross leverage fell 4.6 percentage points as the benchmark hit a record high last week, the biggest notional de-grossing in seven months.

For Goldman employees, that matters more than the index level itself. A rising market can look like a client-friendly backdrop, but this flow says many hedge funds were selling into strength, cutting both long and short books, and resetting exposure after a volatile stretch. The biggest pullback was concentrated in single stocks, the part of the market that feeds prime brokerage financing, equity derivatives hedging, borrow demand and the day-to-day pitch for relative-value trades.

The selling was also broad. Nine of 11 sectors were net sold, which suggests this was not a narrow rotation but a wider risk-off adjustment across books. For sales traders and coverage teams, that usually means the conversation shifts fast from “where is the rally going?” to “what needs hedging, what can be monetized, and where is client appetite still real?” In other words, the headline strength in U.S. equities did not translate into a simple risk-on message on the desk.

Goldman’s latest read fits a larger pattern that has been building for weeks. Bloomberg reported on April 8 that hedge funds were closing out bearish U.S. stock bets at the fastest pace since the March 2020 rebound. A separate Goldman note put overall hedge-fund equity leverage at 2.9 times books, a five-year high. Earlier, Goldman said hedge funds had cut global equity holdings for a sixth straight week, driven by short sales, and Bloomberg reported that global stock selling in March was the fastest in 13 years.

That backdrop helps explain why some funds may have used the latest rally to clean up exposure instead of leaning harder into it. Goldman’s Christian Mueller-Glissmann said on April 17 that the stock-market rebound likely needed central banks to pivot back toward rate cuts to keep momentum going. Until that macro support shows up, clients are likely to keep treating strength as a chance to lighten up, and Goldman’s front office will keep reading the market through the lens of who is still buying, who is trimming and who is running out of room.