AI star in crisis: hedge fund Situational Awareness sells assets to Citadel
Situational Awareness, a hedge fund once considered a leader in AI investing, has faced financial distress following failed bets. Ken Griffin's Citadel has acquired a significant portion of its portfolio, triggering a rally in tech stocks on Wall Street.
The hedge fund Situational Awareness was one of the most prominent players in the artificial intelligence sector. However, after suffering significant losses, the fund was forced to sell most of its stock portfolio to Ken Griffin's investment firm, Citadel, as reported this evening by the Wall Street Journal.
Leopold Aschenbrenner, a 25-year-old investor who gained fame for his aggressive bets on AI infrastructure, founded the fund in 2024. Reportedly, the fund achieved a net return of over 1,000% in less than two years. At its peak, the fund grew to approximately $45 billion, but in July it suffered sharp losses following declines in stocks such as SK Hynix and short positions on software companies.
Due to collateral requirements and pressure from prime brokers, Aschenbrenner was forced to sell almost the entire portfolio of traded stocks. The fund has not been closed, and private investments remain in its possession, though official data on how much of the exceptional returns were wiped out by losses has not yet been published.
According to Harel Investments, some analysts estimate that the fund's situation was a major factor behind the sharp rise in many stocks on Wall Street this evening, as fears of its collapse in recent days led to a wave of forced sales that has now subsided.
Aschenbrenner, perceived by many investors as an "AI Oracle," faced a crisis as investors began reducing exposure to AI-related stocks amid concerns over the massive scale of infrastructure investment, rising financing costs, and the potential for delayed returns. The pressure forced the fund to use bank leverage to increase its bets, ultimately failing to meet collateral requirements from lenders.
Among the fund's public holdings were companies in the AI value chain, including memory chip manufacturers SK Hynix and SanDisk, fuel cell manufacturer Bloom Energy, and cloud service provider Nevius Group. These stocks had suffered sharp declines over the past month.
Market reaction to the deal
Shares of companies held in the hedge fund's portfolio are soaring today following the news that the fund sold a significant portion of its holdings to Citadel. Investors interpreted the move as the removal of selling pressure caused by the fund's liquidity distress.
According to the Wall Street Journal, Citadel purchased only the portion of the Situational portfolio financed through bank loans, while the fund retained assets financed by client capital. Additionally, the fund still holds private investments, including a stake in the AI giant Anthropic.
The story of Situational Awareness is notable for its rapid growth. Aschenbrenner became a key industry figure following the publication of his 2024 paper, "Situational Awareness: The Decade Ahead." Early investors in the fund included Stripe founders Patrick and John Collison, as well as Daniel Gross and Nat Friedman, who currently lead AI divisions at Meta.
For Citadel, which manages approximately $71 billion, acquiring assets from an investor under pressure is a known strategy. Ken Griffin's firm is one of the world's largest hedge funds and has a history of exploiting opportunities that arise when sellers are forced to liquidate assets quickly.
