The sharp plunge in the US stock market may stem from hedge fund liquidation, with market expectations that multiple funds are undergoing full liquidation.

In response to yesterday's U.S. stock market plunge, most Wall Street traders and analysts attribute the main cause not to fundamental deterioration, but to hedge fund liquidation. Noel Smith, co-chief investment officer at Kai Asset Management, said: "A decline of this magnitude without major market news is extremely rare. This reeks of liquidation." Besides Bloomberg's report last night that multi-strategy hedge fund Walleye Capital will streamline its internal equity long-short business, the market widely expects several funds are undergoing full liquidation, or "pods" (independent investment teams) within multi-strategy funds are being forced to close out positions. According to a list released this morning by leading financial research community Special Situations, multiple hedge funds are facing distress, including Axebrook, Walleye, Engineers Gate, Lone Pine, Millennium internal pods, Verition pods, and Samlyn, mainly involving large redemptions, internal team closures, or portfolio manager (PM) replacements. Notably, during the U.S. stock market's major turmoil in July this year, AI hedge fund Situational Awareness also experienced a similar incident: its assets shrank by 67%, and it subsequently reached an emergency exit deal with Citadel, selling most of its public stock holdings at a discount.