"Boasting a 439% Return"...20-Something 'AI Prophet' Fund Collapses in a Day

[Financial News] Situational Awareness, a hedge fund that grew rapidly on the back of the AI investment boom, has been pushed into a liquidity crisis by a recent slump in AI-related stocks and aggressive leveraged investing. In the end, the fund suffered a sharp collapse after selling most of its $16 billion portfolio of listed equities to Citadel, the giant hedge fund led by Kenneth C. Griffin.
According to major foreign media outlets including Financial Times (FT) and The Wall Street Journal (WSJ) on the 30th local time, Citadel, which manages $71 billion in assets, completed a deal in just 24 hours to acquire a large portion of Situational Awareness's listed stock portfolio. It is one of the largest emergency equity liquidation deals in Wall Street history.

About two years ago, Situational Awareness, founded by former OpenAI employee Leopold Ashenbrenner, who is in his mid-20s, drew attention on Wall Street by investing heavily in key companies in the AI supply chain, including SK hynix, SanDisk Corporation, Bloom Energy, and Nebius Group. Two years after its founding, assets under management had swelled to more than $20 billion, and Ashenbrenner said in an investor letter last week that the fund's cumulative return for the first half of this year reached 439%.
However, the large amount of borrowing from prime brokers used to maximize returns turned into a burden. As technology stocks came under sustained selling pressure amid concerns over excessive capital spending by AI companies and prolonged high interest rates, lenders began demanding additional collateral through margin calls.
Facing a liquidity drain, Situational Awareness held emergency talks with major financial firms including Millennium Management, Goldman Sachs, and JPMorgan Chase & Co. It ultimately agreed to hand over its leveraged listed stocks to Citadel, which moved quickly to buy assets using large-scale borrowed funds. However, it will keep some stocks held with client money and private assets, including a $5 billion stake in Anthropic, and will convert into a private investment firm.

As Situational Awareness's holdings were dumped indiscriminately into the market, the tech-heavy NASDAQ-100 Index rebounded more than 3% that day. Shares of major AI stocks held by the fund, including SK hynix, also turned higher on relief buying.
The financial sector is treating the episode as a warning sign about excessive leveraged bets on AI. A Wall Street asset manager said, "This is a textbook case of an unproven new fund riding the AI frenzy and borrowed money to grow rapidly, only to collapse after a single stock-price drop." The manager added, "Calls to beware of a bubble across the AI market will likely grow louder."


[email protected] Moon Young-jin Reporter