So the point I’d make to refute : @Post_Market may weigh in or disagree
1) long/short pod models were running near peak leverage and max long going into this
2) as shorts run up they need to take leverage down which reduces whatever prior position was (so sell Longs)
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1. The volatility of the “hedge fund positioning” factor goes up, so their positions get more risky and 2. Their NAV decreases because of the losses. Both of those lead to more degrossing which perpetuates the cycle, and the second one in particular leads to de *netting*
across multiple large aum funds simultaneously, and it is the simultaneous de-netting (ie selling more longs than shorts) that contributes to a market crash.
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The degrossing cycle can happen to any grp of funds that has large position overlap (eg definitely happens to quant equity mkt neutral and rates RV) but the unique thing about equity l/s is that they normally run a net long position, so only they can contribute to a mkt crash
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Could also manifest in just spooking family offices and degrossing their long short / public equity teams and moving to other asset classes (like crazy silver rally), PE, VC etc. definitely not looking at stonks rn saying “10 year outlook is predictable “
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