Hedge Funds Live to Fight Another Day After Reddit Mayhem

In a blow to the Reddit crowd taking on the Wall Street elite, the broader hedge fund industry lives to fight another day for now following a week of stock drama.

Even after the worst-ever short squeeze forced professional speculators to deleverage by the most in more than a decade, the smart money is staying invested in the U.S. stock rally with exposure near a record high, Goldman Sachs Group Inc. prime brokerage data show.

Stocks beloved by professional speculators are rebounding, while their most-shorted shares are no longer staging a costly rally. Quant funds -- often accused of amplifying sell-offs -- have been largely unscathed. Equity volatility is down again and other asset classes barely registered the commotion.

The bottom line? Last week’s deleveraging was drastic, but concentrated. Beyond the handful of smaller stocks roiled by the Reddit crowd, selling pressure has dissipated.

“A small set of shorts caused tremendous losses for some hedge funds,” Michael Gleason and Sean Spaulding at quant firm Acadian Asset Management wrote in a note. “Nevertheless, overall gross exposure remains elevated, in fact, near peak levels.”