Citadel buys $45B AI fund's stock book after 4x-leverage blowup

A 4x-leveraged bet on AGI infrastructure collapsed in 24 hours, and Ken Griffin's Citadel was there to buy the wreckage at a discount.

Citadel bought the liquidated $45 billion AI fund's stock book at a 20-50 percent discount, pocketing an estimated $3-4 billion.

"This is the most dramatic forced unwind since LTCM," said Martin Shkreli, former hedge fund manager and financial commentator, in a podcast interview.

The fund, Situational Awareness LP, ran 4x leverage that pushed gross market value to $120 billion. A 25 percent drop in public AI stocks cut net equity from $35 billion to $5 billion, prompting prime brokers Goldman Sachs, Bank of America and JPMorgan Chase to seize the portfolio.

The unwind marks a clearing event for the AI trade, with the Nasdaq-100 down 10 percent from its June peak and chip stocks jumping 6.7 percent the day after Microsoft's strong earnings.

The Power Thesis That Became a Mining Bet

Aschenbrenner, fired from OpenAI's Superalignment team in April 2024, published the essay series "Situational Awareness" in June 2024 arguing AGI by 2027 was "strikingly plausible" and that power, not chips, would be the bottleneck. He built the fund on that idea. Its first 13F filing, covering December 2024, listed six power and chip holdings worth $254.8 million — none crypto.

That changed fast. The latest filing lists 29 holdings worth $5.52 billion, with Bitcoin miners and their data center arms making up $1.38 billion. Core Scientific was the largest at $418.7 million, followed by IREN at $328.6 million and Applied Digital at $278 million. Cipher Mining, Riot Platforms, Hut 8, WhiteFiber, Bitdeer, CleanSpark and Bitfarms made up the rest. The mining share went from nothing to a quarter of the disclosed book in a year. Miners own power, land and cooling, which is why they became AI powerhouses — but no mining company knew it shared its shareholder base with a fund facing margin calls.

Did Citadel Engineer the Collapse?

A theory spread that Citadel Securities' macro strategist Frank Flight, who called for a rate hike on July 27, helped trigger the selloff so a Griffin firm could buy cheap. Four facts undercut it: Citadel Securities and Citadel are separate firms; PGIM and Wrightson ICAP also called for a hike; the fear predated the note, tied to oil prices after US-Iran clashes; and the Fed held rates steady anyway, with three of 12 voting members dissenting — the first time since September 2016 that three officials dissented in the same direction.

The Leverage Lesson

Shkreli traced the collapse to overbetting. He cited the Kelly criterion, which says even a trader with a 60-40 edge goes to zero if position size runs two to ten times the optimal level. The fund's 4x leverage meant a 25 percent drawdown erased 80 percent of net equity. The fund is not dead — it still holds private stakes including Anthropic, which filed confidential IPO paperwork on June 1. But the public book is gone, and Shkreli said other AI funds running similar leveraged trades face 30-40 percent losses as buyers dispose of the positions.

Aschenbrenner told investors to add money on July 24, days before the unwind — he got the direction right but no longer owned the stocks.

This article is for informational purposes only and does not constitute investment advice.