The hedge fund that became synonymous with the AI trade just learned a brutal lesson about leverage. Situational Awareness, the fund run by 24-year-old former OpenAI researcher Leopold Aschenbrenner, lost roughly 67% of its value in July, forcing it to dump most of its public equity holdings to Citadel to meet margin calls from its prime brokers.
The portfolio sold to Citadel was valued at approximately $16 billion. The buyer reportedly picked it up at a discount of around 10%.
From 439% returns to margin calls
Situational Awareness had ridden concentrated long positions in AI hardware and semiconductor names, including SK Hynix, Nebius, and Micron, to a staggering 439% return through June 2026.
That performance catapulted the fund’s assets under management to a peak of roughly $45 billion by early July. For context, a fund managed by a team of about 12 people was overseeing more capital than most established multi-strategy firms accumulate over decades.
Then July happened. A broader downturn in AI infrastructure stocks turned the fund’s leveraged bets against it with stunning speed. Bank of America, Goldman Sachs, and JPMorgan, the fund’s prime brokers, came knocking with margin calls that left Aschenbrenner with two options: find cash or sell everything.
The liquidation process was completed by July 30.
Citadel plays cleanup crew
Citadel stepped in to absorb $16 billion in distressed AI equity positions at a roughly 10% haircut. The AI sector had already shed approximately $3 trillion in market capitalization during the downturn.
Despite the carnage, Situational Awareness isn’t dead. The fund’s remaining portfolio sits at approximately $10 billion, and it remains up around 80% on the year, largely thanks to retained private holdings including a stake in Anthropic.
The leverage problem
Aschenbrenner’s fund strategy paired aggressive long positions in AI hardware stocks with short positions in software equities. When the entire AI sector moved against the long side simultaneously, the short book apparently wasn’t enough to offset the damage.