AI-focused hedge fund Situational Awareness, founded by Leopold Aschenbrenner, a former OpenAI employee, sold the majority of its stock portfolio to Citadel following deep losses. The fund, which had rapidly grown to manage over $20 billion in assets within two years of its founding, saw its public investments plummet as investors became wary of AI and technology stocks due to concerns about high capital expenditures and rising borrowing costs. Some reports indicated the fund's assets at their peak reached $45 billion, before dropping to around $10 billion after the sale. Its public holdings included companies in the AI supply chain like memory-chip makers SK Hynix and Sandisk, fuel-cell maker Bloom Energy, and AI cloud-computing provider Nebius Group, all of which experienced significant declines.
The downturn led to margin calls from lenders such as Bank of America, Goldman Sachs, and JPMorgan Chase, pressuring Situational Awareness to raise cash. The fund had amplified its bets on stocks by borrowing money, and Citadel specifically acquired the portion of the firm's public-stock portfolio that was financed with this borrowed capital. While Situational Awareness divested its leveraged public positions, it retained its private company investments, notably its stake in AI giant Anthropic.
Aschenbrenner, in his mid-20s, lacked professional investing experience when he launched the firm with initial backing from figures like Stripe co-founders Patrick and John Collison, and other notable investors. Despite a reported 67% loss in July, the fund was still up around 80% for the year prior to the Citadel sale. Goldman Sachs, one of Situational Awareness's prime brokers, earned over $200 million in commissions from the fund, highlighting its rapid growth and active trading volume. Following the losses, Aschenbrenner informed investors that the fund would cease borrowing money to leverage its positions, which is expected to reduce future fees for its prime brokers. The firm's collapse coincided with a broader market sell-off in AI-related stocks, partly fueled by fears of AI disruption and a viral report by Citrini Research outlining potential negative impacts of AI on white-collar employment and the economy.
