AI Hedge Fund’s Leverage Bet Unravels as Citadel Steps In
AI Hedge Fund’s Leverage Bet Unravels as Citadel Steps In
Situational Awareness was built on a bold conviction: the AI buildout would demand ever more chips, memory, computing power and energy. Founded in 2024 by former OpenAI researcher Leopold Aschenbrenner, the fund rapidly turned that thesis into an enormous public-markets wager.
By June, the strategy appeared to be working. The fund had returned 439% for the year and its assets reportedly swelled as high as $45 billion at their peak. But the same concentrated AI-infrastructure bets that powered the ascent became a liability when the sector sold off. Shares in holdings including SK Hynix, Sandisk, Bloom Energy and Nebius dropped more than 30% in a month, while leverage magnified the hit.
Aschenbrenner initially argued for doubling down. In a July 24 investor letter, he called the slump “one of the best buying opportunities since early last year” and invited clients to provide new capital. The hoped-for commitments did not materialize, according to subsequent reporting.
That left the fund confronting lenders after a heavily leveraged one-way AI bet “imploded” during the summer. Goldman Sachs and Bank of America were among banks that had extended tens of billions of dollars in financing, underscoring regulators’ concern that hedge-fund borrowing has become a broader market vulnerability. Treasury Department figures cited in the report put hedge-fund borrowing from banks at nearly $3.7 trillion by midyear.
The unwind came quickly. Axios reported that Citadel bought Situational Awareness’ entire public-equities portfolio, allowing the fund to repay lenders; other reporting described the transaction as the sale of most of those holdings. The distinction matters less than the reversal: a fund once synonymous with AI exuberance had to hand its liquid bets to a better-capitalized rival.
Citadel’s move is not necessarily a vote against the original AI thesis. Its portfolio already included similar infrastructure exposure, suggesting Ken Griffin’s firm sees value in assets that Situational Awareness could no longer afford to wait out. The fund still holds private investments, including an Anthropic stake reportedly valued at $5 billion—a potential lifeline, but not a cure for the risks exposed by its public-market retreat.
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