Situational Awareness, an AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, imploded after incurring heavy losses in its tech holdings, particularly in AI stocks. The fund, which once managed $20 billion, was down approximately 67% in July. The rapid decline led to margin calls from its prime brokers, including Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup, forcing the fund to sell its public stock portfolio.
Ken Griffin's Citadel hedge fund stepped in to acquire the bulk of Situational Awareness's public holdings. This deal effectively bailed out Situational Awareness, preventing a further deleveraging spiral. The acquired portfolio included prominent AI names like Broadcom, Intel, and CoreWeave. Situational Awareness will retain about $10 billion in assets, including its private investments, notably a large stake in Anthropic.
The collapse of Situational Awareness and the subsequent acquisition by Citadel occurred amidst what BTIG described as the "largest/fastest momentum crash in modern history." Morgan Stanley's sector-neutral Momentum Index plummeted 17.4% in just four trading days, surpassing declines during the dot-com bust, the pandemic shock, and the 2022 inflation-driven bear market. This event highlighted the fragility of the AI momentum trade, exposing the risks associated with highly concentrated, leveraged bets in a volatile sector.
The fund's troubles began as its portfolio value fell, shrinking its equity cushion and triggering demands for additional collateral from prime brokers. To raise cash, Situational Awareness was forced to sell holdings, exacerbating its losses. Aschenbrenner reportedly blamed short sellers for intensifying the firm's losses. Following the sale, traders rushed back into many of the same chipmakers, power companies, and data-center plays that had been at the center of the selloff, with the tech-heavy Nasdaq Composite experiencing a rebound.
