Bank of America CEO warns that AI hedge fund collapse signals broader market risks

Bank of America chief executive Brian Moynihan said the near-collapse of AI-focused hedge fund Situational Awareness serves as a warning for financial markets that have been driven by elevated valuations and extensive borrowing. The fund, led by Leopold Aschenbrenner, was forced to sell most of its public equities to Citadel in a rapid fire sale after its AI bets deteriorated, after having peaked at about $45 billion in assets.

Moynihan told CNBC’s Andrew Ross Sorkin that the episode underscores the need for caution, noting that “valuations get out, leverage in the system gets there. You have to be careful.” He added that firms will likely tighten underwriting standards slightly in response to the sharp run-up in stock prices.

Bank of America, along with Goldman Sachs and JPMorgan Chase, acted as a prime broker for Situational Awareness, providing trade execution and leverage. Moynihan said the bank would have remained “fine” even without the Citadel transaction that supplied capital for the fund to settle its obligations.

The fund’s heavy exposure to AI hardware suppliers, including South Korean memory-chip maker SK Hynix, contributed to a broader sell-off in AI-related shares after margin calls forced the fund to liquidate positions in a falling market. When Citadel acquired the positions, concerns eased and several AI infrastructure stocks rebounded, temporarily boosting the value of the acquired holdings.