Citadel, the hedge fund led by Ken Griffin, has purchased the majority of Situational Awareness's stock holdings following substantial losses in the artificial intelligence sector, according to sources familiar with the matter. Situational, an AI-focused fund founded by former OpenAI researcher Leopold Aschenbrenner, was compelled to divest its public equity portfolio due to heavy losses in its tech holdings.
The fund faced pressure to either secure new capital or sell its entire portfolio, ultimately opting for the latter. Its public holdings included significant investments in prominent AI companies such as Broadcom, Intel, and CoreWeave, according to its latest regulatory filings. Since its launch in 2024, Aschenbrenner had gained investor attention for a notable 439% return on AI sector bets from the beginning of the year through June.
Major prime brokers, including Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup, were involved in facilitating the transaction between Citadel and Situational. Citadel, which manages approximately $71 billion in assets, is a prominent global hedge fund.
Under the terms of the deal, Citadel is acquiring the portion of Situational's public portfolio that was leveraged through brokers. Following this transaction, Situational is expected to retain a portfolio valued at roughly $10 billion, encompassing both public stocks and private investments, such as its stake in Anthropic. The fund has not divested its investment in Anthropic.
AI Market Volatility
Global hedge funds are experiencing one of their largest monthly drawdowns on record, with AI stocks experiencing a broad market rout that has eroded gains from concentrated sector bets. Reports from prime brokerages indicate that stock-picking hedge funds have been rapidly unwinding positions in AI names, selling long positions and covering short positions at similar rates. Hedge funds typically utilize significant leverage from lenders to amplify market returns, but leveraged bets can lead to substantial losses when market movements are unfavorable, potentially triggering margin calls from prime brokers. These margin calls can initiate a cycle of forced selling, exacerbating market downturns.
It remains unclear whether Situational faced margin calls before the agreement with Citadel was reached. The hedge fund, which previously managed around $20 billion and currently employs approximately 20 individuals, has a history of using leverage to bolster its investments, a practice common among its peers. Aschenbrenner's early success attracted investments from entities such as Jane Street and notable figures including Stripe co-founders Patrick and John Collison, as well as Meta Platforms executives Daniel Gross and Nat Friedman. The Wall Street Journal first reported on the deal.