"I felt like they were hunting him": The traders who smelled that Ashenbrenner's fund was in trouble, and rushed to act

David Mann was in a taxi on his way to LaGuardia Airport when he heard the news: Wall Street's AI wunderkind was in trouble.

That same afternoon of July 29, Mann received a call from a person acting on behalf of Leopold Ashenbrenner's Situational Awareness hedge fund, who asked him if he would like to purchase part of the fund's holdings in Anthropic, the AI powerhouse facing an IPO. Mann was told that the deal had to be closed that very night. He immediately understood what was happening - no one sells shares of a company before an IPO, when it is valued at nearly a trillion dollars, unless they are in trouble.

"Ashenbrenner was forced to sell," said Mann, CEO of Mansion Group, a family office that holds shares in Anthropic and other private companies. "He needed the money and was checking who might be interested."

Ashenbrenner, a young man in his 20s who previously worked at OpenAI, enjoyed two years of dizzying success. At its peak, his fund controlled assets of about $100 billion, including huge sums borrowed from banks to significantly increase his bets on stocks in the AI sectors, from chip manufacturers to software companies. The reputation he gained as the "AI Nostradamus" helped him in this.

By the end of July, the discourse had already changed. Ashenbrenner was facing heavy losses following the drop in AI stocks and was desperately looking for a way to exit his investments, according to people familiar with the matter. The banks demanded that he provide additional collateral against the loans they had granted him, and at the same time, prominent investors, including hedge fund giants Steve Cohen and Daniel Loeb, heard about the sale of the holdings in Anthropic. Short sellers targeted the stocks favored by Ashenbrenner.

"I felt like they were hunting him," said John Pepper, co-founder of Pepper Capital, a family office that has invested in Situational since its inception.

The rapid liquidation of Situational's investments illustrates how quickly information spreads on Wall Street when a trader gets into trouble, and can ignite a wave of sales. It is also a cruel lesson in the risks involved in leverage, that is, investment bets financed through loans.

Ashenbrenner built his company on the reputation he gained as a fortune teller in the field of AI, while others who founded hedge funds or venture capital funds relied on a long history of successful investments. Ashenbrenner's status, on the other hand, stemmed from a 165-page paper he published in 2024 under the title "Situational Awareness: The Decade Ahead," in which he predicted the trajectory of AI development.

From the start, his company promised to make focused investments in stocks that would benefit from the widespread adoption of AI, from chip manufacturers to infrastructure providers, while simultaneously betting against stocks of companies whose operations are expected to be harmed by the technology, including software manufacturers.

"This was not intended for conservative pension funds and retired teachers," Pepper explained. "It's an aggressive bet on AI, and we all knew there would be volatility."

Charmed the mega-banks

Ashenbrenner also received assistance from Wall Street. Loans to hedge funds contribute to bank profits, and some of them were eager to support a new fund manager dealing with the hottest topic in the market.

Thus, Goldman Sachs financed Situational's deals from its inception, and in March 2025 even presented the fund at a conference it held for new fund managers at the Ritz-Carlton hotel in Orlando.

Even without the impressive professional background that some of the other fund managers have, Goldman executives highly valued Situational, they told clients. However, according to a person familiar with the matter, the bank monitored the fund closely due to the concentration and high leverage of its investment portfolio.

Ashenbrenner met with representatives of other banks together with David Geffen, owner of a consulting firm for hedge funds and a former senior executive in the finance sector at BlackRock and Amaranth Advisors. JPMorgan, Bank of America, and Citigroup also lent money to his fund, and Morgan Stanley held talks to add it as a client in the coming months.

However, some of the banks had reservations. Investors usually hedge risks through a combination of "long" positions, which profit from a rise in certain stocks, and "short" positions, which profit from a fall in others. But in the case of Situational, the long and short positions actually amplified the bet, with a strategy known as "Texas hedge" - where instead of hedging a position against a loss, the investor doubles the bet on the same market direction.

Banks including Jefferies and Barclays decided not to work with the fund. A senior executive in brokerage services for hedge funds, who decided not to add it as a client after meeting with Ashenbrenner, said that his unwavering self-confidence was for him a clear warning sign.

Small team and massive leverage

Situational grew from about $1.5 billion in assets under management last summer to more than $45 billion at the beginning of July. During this period, the fund borrowed about $3 for every $1 of capital it held, and sometimes even more, according to people familiar with the matter. This is a level of leverage higher than that usually used by funds trading in volatile stocks of this type.

Situational also purchased "Flex options," a financial derivative that can be customized, to further increase the bet on AI.

For a period, Situational relied on an exceptionally small team that included two analysts, an economist, a research manager, and a risk manager. In recent months, the fund has recruited more experienced managers for areas such as compliance, investor relations, and finance, including Sven Khatri, a former researcher in the field of wealth management at the hedge fund giant Citadel, which is led by Ken Griffin.

Investors flocked to the fund thanks to the exceptional returns it achieved. But by mid-July, the attitude of investors towards investments in the AI field changed, after the progress of cheaper Chinese models based on open source raised concerns among traders. Situational's lenders began to examine the extent of their exposure to the fund and the fluctuations in its performance. Competing traders said they followed the stocks held by Ashenbrenner - and when they plummeted, they concluded that he was in trouble.

Situational discussed a "Crash Put" plan, inspired by a similar plan by Jane Street (a Wall Street trading giant) designed to protect against a sharp fall in the market, according to a person who received a briefing on the plan. According to market sources, one way to implement such a plan is to purchase a large amount of put options on an index of chip company stocks, which give the fund the right to sell at a predetermined price.

However, stocks held by Situational according to its latest reports, including fuel cell manufacturer Bloom Energy, memory chip manufacturer SanDisk, and AI cloud company Nebius, fell throughout July and from the 24th of the month went into a free fall. At the same time, the software stocks that Situational bet against, including Adobe, AppLovin, and Figma, began to rise and exacerbated the losses, according to people familiar with the matter. Traders also noticed unusual volumes of put options related to these companies, which were intended to protect against the declines that the fund suffered.

On that day, Situational sent its clients an update for the second quarter, in which it admitted that it suffered losses in July, but claimed that it was a good time to inject new money into the fund. However, rumors that the fund was under heavy pressure began to spread, and worried clients called its offices demanding urgent answers. One investor was told by a senior official at the fund that it was working to reduce risk.

Parallel sale talks

With the start of the week of July 27, Situational sold stocks to raise cash and meet requirements for collateral completion by lenders, according to informed sources. Shares of Nebius, Bloom Energy, SanDisk, and Core Scientific fell by rates between 9% and 24% between Friday, July 24, and Tuesday, July 28.

On July 29, it was already an open secret on Wall Street that at least one large fund was performing "degrossing," meaning selling huge amounts of stocks to reduce leverage and risk. Every day, brokers distribute reports to their clients that include aggregate data on the investment portfolios of the hedge funds they serve. That month, the reports indicated a decrease in leverage in the technology sector, which hinted to traders that an entity focused on these stocks had likely gotten into trouble.

In the race to obtain cash, Ashenbrenner and his team opened emergency talks to sell at least part of the fund's holding in Anthropic, the developer of the Claude language model, worth $5 billion. But Situational was limited in its options: Anthropic had the right to approve any transfer of its private shares, so the fund could only approach entities that already held Anthropic shares.

On that Wednesday of July 29, Situational approached, among others, the financial entities Sequoia, DFO Management, Greenoaks, Michael Dell's family office, and the New York investment firm XN, with an offer to purchase from it its holding in Anthropic, according to people familiar with the talks. The offer included a 20% discount and set a 12-hour deadline for its acceptance.

The group led by the investment firm Greenoaks asked to move forward with the deal, and worked throughout the night to complete it by 8:00 the next day, after Anthropic approved the sale of the holding.

What they didn't know was that at the same time, Situational was negotiating a completely different deal with the hedge funds Citadel and Millennium Management, for the sale of most of its stock portfolio.

On July 28, a senior official at Citadel approached Khatri from Situational. The next day, the talks between the two companies progressed from a proposal according to which Citadel would purchase in cash the entire tradable stock portfolio of Situational, to a deal in which it would purchase only the positions financed through leverage, according to people familiar with the talks.

Griffin from Citadel joined the talks from London. For his part, Ashenbrenner believed that after the crisis passed, there might still be a possibility of profit, and wanted to keep as much of his stock portfolio as possible in his hands.

On the morning of July 30, Citadel won the deal, in which it paid a price about 10% lower than the market prices of the position at that time. Ashenbrenner turned to update the investors who expected to complete the purchase of the holding in Anthropic in a short time, and told them that he had reached a better deal with Citadel. According to informed sources, some of the investors expressed anger.

Situational and Citadel completed the signing of the documents and transaction approvals around 9:10 AM, just about 20 minutes before the opening of trading in the US markets.

Situational broke the bad news to its investors: the fund had lost about 67% since the beginning of that month, about $30 billion, although it still recorded an 80% increase since the beginning of the year. Investors in the fund are now calculating their losses. Jane Street, which also invested in Situational, lost about $15 billion in July, a significant part of them following the crisis in the fund.

Damage control attempts

That same weekend, Ashenbrenner married Avital Blewit, chief of staff to Anthropic founder Dario Amodei, in a ceremony held on the beach in Carmel, California. According to one of the participants, in one of the blessings, Griffin and Citadel were mentioned, jokingly, as those who allowed this day to happen.

Ashenbrenner and his management team are now meeting with clients to explain how the fund lost such a large sum in such a short time, according to people familiar with the matter. The executives said they are conducting a retrospective review of what happened, and that the fund is re-examining the level of risk it will be willing to take in the future.

Today, the fund manages about $15 billion, and it seems that it is also rebuilding its investment portfolio. Recently, Situational invested $400 million in the chip startup Source Foundry, and also purchased shares of the Australian SharonAI.