AI-focused hedge fund Situational Awareness sold to Citadel after 67% portfolio loss

An AI-focused hedge fund named Situational Awareness sold the majority of its portfolio to billionaire Ken Griffin's firm Citadel after the fund’s assets fell about 67% in the previous month. The decline was linked to leveraged bets on chipmakers and other companies tied to artificial-intelligence technologies.

The transaction is intended to avoid a forced liquidation that could have pressured markets, but analysts say it raises questions about whether the sector may be experiencing a broader correction. One veteran Wall Street source described the fund’s founder, 25-year-old Leopold Aschenbrenner, as a “leveraged investor who was right until he was wrong,” adding that the collapse appears to be an isolated event.

Other industry contacts noted that many firms hold similar positions in AI-related stocks and have also faced losses as enthusiasm for the technology has cooled. A senior hedge-fund manager, who asked to remain anonymous, said his own investments in chipmakers essential to the AI supply chain have been “crushed.”

Investors have previously driven up valuations of AI companies on expectations of transformative growth, but some observers warn that the sector’s cash returns remain limited and that financing could become constrained as borrowing costs rise. A pension-fund representative said near-term cash returns for most AI firms are “negligible.”

Citadel’s purchase of the distressed assets suggests it sees value at lower prices, though market participants remain cautious about a potential broader shake-out in AI-related investments.