AI-focused hedge fund Situational Awareness forced to liquidate $45 billion portfolio after sharp momentum reversal
Leopold Aschenbrenner's Situational Awareness hedge fund cut its public-stock holdings after a rapid market swing erased value in both its long and short positions, prompting margin calls and a sale of assets to Citadel.
Leopold Aschenbrenner's Situational Awareness fund, which had about $45 billion under management, was compelled to sell a large portion of its listed-stock positions after a swift reversal in market momentum caused losses on both its long and short bets. The fund had concentrated long positions in companies tied to AI infrastructure, such as Nebius, Bloom Energy, Sandisk, CoreWeave, SharonAI and IREN, which fell 50% to 78% from recent highs by the end of the week. At the same time, software stocks used as short positions, including Adobe, rose, leaving the hedge fund unprotected.
"People get over-leveraged in this market, and they get seduced by the big returns that some of these companies can deliver," said Bob Lang, founder and chief strategist at Explosive Options.
The decline in portfolio value reduced the fund’s equity cushion, prompting prime brokers to demand additional collateral. To meet the calls, the fund sold more holdings, further depressing prices and deepening losses. Citadel, led by Ken Griffin, reached an agreement to purchase the fund’s publicly traded assets.
"Running somebody out the door like this is as old as time," Lang added, noting similar dynamics in past commodity markets.
Market data highlighted the speed of the swing. Morgan Stanley’s sector-neutral Momentum Index fell 17.4% over four trading days, the steepest decline on record, surpassing drops seen after the dot-com bust, the pandemic shock and the 2022 inflation-driven bear market, according to BTIG analyst Jonathan Krinsky. The iShares MSCI USA Momentum Factor ETF, which had posted its best month in April, quickly shifted to its worst month.
Despite the unwind, some investors remain skeptical about a lasting AI sell-off. Michael Burry, known for his criticism of the AI rally, wrote that the recent bounce was a “knee-jerk reaction” and added to bearish positions in Micron, the VanEck Semiconductor ETF and Nvidia put options.
"The legs already look tired," Burry wrote in a Substack post.
The episode illustrates how a hedge fund can suffer severe losses even when broader indices appear stable.