Citadel Buys Majority of Struggling AI Hedge Fund Situational Awareness's Stocks

Citadel, the massive hedge fund led by billionaire investor Ken Griffin, has acquired the majority of public stock holdings from the struggling AI hedge fund Situational Awareness. The fund, founded by 24-year-old former OpenAI researcher Leopold Aschenbrenner, reportedly suffered significant losses after leveraged bets on AI stocks backfired.

Situational Awareness's portfolio value fell 67% in July after suffering steep losses on AI stocks, according to a letter sent to investors. The fund's founder, Leopold Aschenbrenner, wrote in the letter that the firm came closer to permanent capital impairment than acceptable, and that the fund had removed all leverage. Despite the recent drawdown, the fund remains up 80% for the year, with Aschenbrenner expressing optimism about the underlying fundamentals.

The AI-focused hedge fund, which launched in 2024, has garnered a following for its bets on the AI sector. However, a global selloff in chip stocks has raised concerns about AI valuations, with short sellers also betting on further declines. Hedge funds that borrow heavily to increase exposure can face rapid unraveling when markets move against them, leading to margin calls from prime brokers.

The situation has also inspired a wave of internet memes, with some users highlighting Griffin's reputation for capitalizing on the challenges faced by his peers. Aschenbrenner noted that the portfolio experienced a significant drawdown in July, exacerbated by extreme moves in core positions, comparing the dynamics to a bank run.