Hedge fund Situational Awareness sells leveraged portfolio to Citadel

$30 billion July loss marks rapid unwinding of concentrated AI bet

The AI-focused hedge fund Situational Awareness, founded by Leopold Aschenbrenner, sold the bulk of its leveraged stock portfolio to Citadel at roughly a 10% discount to public market prices after losing about 67% of its value — approximately $30 billion — in July, according to people familiar with the situation. The fund’s concentrated long and short AI-stock bets moved against it simultaneously as lenders issued margin calls.

At its peak, Situational Awareness controlled roughly $100 billion in assets, including the sums it borrowed from banks to supersize its AI-related trades. Aschenbrenner, a 20-something former OpenAI employee, had built his reputation on a 165-page essay in 2024 titled “Situational Awareness: The Decade Ahead” that foresaw AI’s development path. “It wasn’t for conservative pension funds and retired teachers,” said John Pfeffer, co-founder of Pfeffer Capital, a family office that invested in Situational from its inception. “It was going to be an aggressive bet on AI, we all knew there was going to be volatility.”

The fund grew from about $1.5 billion in assets under management the previous summer to over $45 billion at the start of July, people familiar with the matter said. Situational borrowed about $3 for each $1 of capital it held — and sometimes more — above the leverage typically used by funds trading volatile shares. The fund also purchased “flex options,” a customized derivative, to amplify its AI trade.

Goldman Sachs financed Situational’s trades from the outset and featured the fund at its emerging-manager conference at the Orlando Ritz-Carlton in March 2025. JPMorgan, Bank of America and Citigroup also lent money to Situational, while Morgan Stanley was in talks to add the fund as a client, according to people familiar with the situation. Jefferies and Barclays passed; one prime brokerage executive who declined to take Situational on as a client after meeting with Aschenbrenner said his “unshakable confidence was a red flag.”

Situational’s strategy concentrated on stocks that would benefit from AI’s broad adoption — from chip makers to infrastructure providers — while betting against stocks that AI would disrupt, including software makers. The fund’s longs and shorts amplified a bet on a single theme, sometimes called a “Texas hedge.”

Investor sentiment around the AI trade shifted in the middle of July as advances in cheaper, open-source Chinese models spooked traders, people familiar with the situation said. Situational’s lenders began examining their exposure to the firm and its performance swings. Rival traders paid attention to Aschenbrenner’s known positions, so when those stocks dropped, they surmised the fund was in trouble.

Stocks Situational owned as of its most recent filings — including fuel-cell maker Bloom Energy, memory-chip maker Sandisk and AI cloud company Nebius — declined throughout July, then fell sharply starting Friday, July 24. Software stocks the fund had bet against, including Adobe, AppLovin and Figma, rallied, exacerbating losses. Nebius, Bloom Energy, Sandisk and Core Scientific each fell between 9% and 24% between Friday, July 24 and Tuesday, July 28.

By the week of July 27, Situational was selling shares to raise cash to meet margin calls from lenders, people familiar with the matter said. Each day, prime brokers share aggregate portfolio reports with hedge-fund customers; that month’s reports pointed to decreased leverage in the tech sector, tipping traders off that someone focused on those stocks was likely in trouble. “It felt like he was being hunted,” Pfeffer said.

Scrambling for cash, Aschenbrenner and his team began emergency talks to sell at least part of the fund’s roughly $5 billion Anthropic stake. Because Anthropic had the right to approve any transfer of its privately held shares, Situational could pitch the stake only to investors with existing Anthropic holdings. On Wednesday, July 29, the fund approached firms including Sequoia, Greenoaks, Michael Dell’s family office DFO Management, and New York investment firm XN, offering a 20% discount with a 12-hour deadline. The Greenoaks group worked through the night; the deal was scheduled to close at 8 a.m. Thursday.

Simultaneously, Situational was negotiating a separate transaction with Citadel and Millennium Management: the sale of the bulk of its stock portfolio. A Citadel executive reached out to Situational’s Sven Khatri — a former Citadel treasury researcher — on July 28. Citadel won that deal in the early hours of Thursday, July 30, paying roughly a 10% discount to public market prices at the time. Situational and Citadel finished signing documents and trade confirmations around 9:10 a.m., about 20 minutes before U.S. markets opened.

That morning, Aschenbrenner reached out to investors who had been expecting to close on the Anthropic stake, telling them he had reached a better deal with Citadel, people familiar with those conversations said. Some investors were angry. “Aschenbrenner was being forced to sell,” said David Mann, chief executive of the Mannsion Group, a family office that owns stakes in Anthropic and other private companies. “He needed the money and was sounding people out.”

That morning Situational informed its investors that the fund had lost about 67% so far that month — roughly $30 billion — though it remained up 80% for the year. Trading firm Jane Street, one of Situational’s investors, lost about $15 billion in July, much of it due to Situational’s troubles.

The fund, now valued at about $15 billion, is rebuilding its portfolio. It recently invested $400 million in startup Source Foundry and has been buying shares of SharonAI. Aschenbrenner and his leadership team are meeting clients to explain the losses; the executives said they were conducting a postmortem and reassessing the fund’s risk posture.