Situational Awareness, an AI-focused hedge fund that had surged to nearly $45 billion in assets at the start of July, sold the bulk of its stock portfolio to Ken Griffin’s Citadel on July 30 after suffering steep losses in recent weeks, according to people familiar with the matter.
The fund, founded by 24-year-old former OpenAI researcher Leopold Aschenbrenner, was forced to unwind its highly leveraged public positions after declines in AI infrastructure stocks triggered margin calls from multiple prime brokers. Bank of America, Goldman Sachs, and JPMorgan Chase all worked with the fund as it scrambled to meet collateral demands, according to sources familiar with the discussions.
Situational Awareness had posted a 439% gain after fees through the end of June 2026, making Aschenbrenner one of the most closely watched figures in AI investing. But the fund embraced a highly leveraged “long hardware, short software” trade, betting heavily on AI infrastructure companies like SK Hynix, Sandisk, Micron, and CoreWeave while shorting software stocks viewed as vulnerable to AI disruption. When the trade reversed sharply in July, the fund lost roughly 67% of its value that month, according to sources who reviewed internal communications.
The fund’s largest holdings all declined more than 35% in July as investors shed AI infrastructure positions amid concerns about massive capital expenditures and higher borrowing costs. Citadel purchased only the portion of Situational Awareness’s stock holdings that were financed with borrowed money, while the fund retained the remainder that it had funded with client capital, according to people familiar with the deal.
The liquidation was driven by leverage that amplified losses as positions moved against the fund. Situational Awareness had used nearly four times leverage on its public equity positions, according to sources, meaning small declines in stock prices quickly erased capital and triggered forced selling. CNBC’s Jim Cramer said the unwind illustrates how borrowing money can magnify losses and trigger cascading forced sales. “The irony here is that when tech had a bit of a downturn Aschenbrenner apparently lost all the money he managed, despite excellent performance of the companies themselves,” Cramer said on air Thursday.
Aschenbrenner built the fund around the thesis that increasingly powerful AI systems would require vast expansions of chips, memory, data centers, and electricity generation. He had published influential essays in 2024 arguing for that infrastructure build-out after leaving OpenAI, where he had worked on the company’s Superalignment team. But when the AI trade reversed, his highly concentrated, heavily leveraged bets on that thesis collapsed within weeks.
The forced unwind may help stabilize the broader AI trade by removing a major source of selling pressure, according to analysts and investors tracking the market. Micron jumped 18% and other semiconductor stocks recovered on Thursday as news of the liquidation spread, suggesting the market had been pricing in continued forced selling from Situational Awareness’s unwinding.
Sources
- Wall Street Journal — Citadel’s purchase of Situational Awareness’s stock portfolio, the fund’s leverage structure, and its holdings in SK Hynix, Sandisk, Bloom Energy, and Nebius Group
- CNBC — The fund’s growth to $45 billion, its 439% return through June 2026, the 67% July decline, prime broker involvement, holdings in Micron and CoreWeave, and Aschenbrenner’s background at OpenAI
- CNBC (Jim Cramer) — Analysis of the leverage mechanism, the “long hardware, short software” trade structure, and the fund’s forced selling of positions despite strong company fundamentals
