AI Fund Situational Awareness Sells to Citadel After 67% July Meltdown
Leopold Aschenbrenner’s $45 billion AI fund offloaded its leveraged public equities to Citadel to stave off liquidation, underscoring the systemic risks of concentrated, borrowed bets in a volatile sector.
Leopold Aschenbrenner’s Situational Awareness fund offloaded the bulk of its public equities to Ken Griffin’s Citadel this week after a 67% July drawdown triggered margin calls. The block trade eliminated all leverage from the hedge fund's public book. It also closed out short positions, removing the immediate threat of liquidation.
The fund, launched in early 2025 with less than $1 billion, had rapidly swelled to $45 billion by the start of July. Aschenbrenner, a former OpenAI researcher who had never managed money before, used borrowed capital from banking partners to amplify his bets on artificial intelligence hardware and infrastructure names. These included SK Hynix, CoreWeave, and SanDisk.
When those core positions slumped, the fund’s highly leveraged structure created a vicious cycle. "These dynamics are essentially similar to a bank run: vulnerability begetting more vulnerability," Aschenbrenner wrote in a letter to investors. The rapid drawdown, compounded by adverse trading in publicly associated names and drying liquidity, forced the fund to trade out of positions to meet collateral requirements with lenders.
For market professionals, the episode illustrates the fragile mechanics of leveraged, thematic investing. A sharp reversal in concentrated, borrowed bets can force fire sales that impact broader market pricing. Citadel’s role as the buyer of the distressed block highlights how better-capitalized market makers profit from such deleveraging.
Situational Awareness is not shutting down. It remains a hybrid public-private fund and still holds its valuable private stake in Anthropic. Despite the July collapse, the fund is still up roughly 80% for the year. Its public book now consists entirely of long stock and fully-paid-for options, carrying no margin or liquidation risk.
"We let you down this month," Aschenbrenner wrote, taking full responsibility for the near-miss with permanent capital impairment. He warned investors that artificial intelligence may continue to drive extreme market volatility for years. The fund manager noted he is implementing changes across portfolio management and risk teams to build resilience.
