AI fund loses 67% as margin calls force $16B Citadel sale

Situational Awareness, the AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, lost about 67 percent in July as margin calls forced it to sell most of its $16 billion public stock portfolio to Citadel.

"Potential investors should be wary that overconfidence could create risk-management problems, especially if leverage is indeed large," Aksia warned clients in a March 2025 assessment of the fund, according to a document reviewed by The Wall Street Journal.

The fund's assets fell from roughly $45 billion at the start of July to about $10 billion after the sale, according to reports. Citadel, which invests about $71 billion for clients, bought the positions at a discount of more than 10 percent. Situational Awareness retained a stake in Anthropic valued at about $5 billion.

The collapse shows how concentration, borrowed money and a thin liquidity buffer can destroy a portfolio before a long-term thesis plays out — even as Citadel's Wellington fund gained 6 percent in July and its equities fund climbed 14.2 percent, showing how forced selling redistributes capital to less leveraged buyers.

Aschenbrenner, 24, launched the fund in 2024 after publishing "Situational Awareness: The Decade Ahead," a 165-page essay arguing that rapid progress toward artificial general intelligence would require a massive expansion in semiconductors, computing capacity, memory and energy infrastructure. The fund concentrated on companies tied to that trade, including chipmakers, cloud providers, data center operators and energy firms.

Its investor base set it apart from peers of similar size. A $45 billion hedge fund typically draws capital from pensions, university endowments and sovereign wealth funds. Situational Awareness instead relied on wealthy individuals, including D1 Capital founder Dan Sundheim, Greenoaks co-founder Neil Mehta, XN founder Gaurav Kapadia, former Tiger Global public-markets head Feroz Dewan, Stripe co-founders Patrick and John Collison, Meta AI executives Daniel Gross and Nat Friedman, and market maker Jane Street. Institutions stayed away because Aschenbrenner had no verifiable investment track record, people familiar with the matter told The Wall Street Journal. The fund also reported performance quarterly rather than monthly, a departure from industry convention that frustrated some investors.

How 400 percent leverage turned a selloff into a crisis

The fund's strategy documents placed no limits on position types, direction, concentration or leverage, according to the source material. That open mandate produced exceptional returns — about 439 percent through June — but left little room for error. When AI infrastructure stocks including SK Hynix, SanDisk, CoreWeave, Nebius and Bloom Energy fell more than 30 percent in July, lenders demanded additional collateral. The fund's short positions against software also moved against it as software stocks rallied, removing the protection the pair trade was meant to provide.

The result was a feedback loop: prices fell, lenders demanded more collateral, the fund sold assets, and forced selling pushed prices lower. Millennium Management also approached the fund with offers to buy positions, but Situational Awareness selected Citadel, inking a deal on Thursday after Ken Griffin and top lieutenants worked through the night to structure the package.

Situational Awareness kept its private investments, most notably a stake in Anthropic valued at about $5 billion. The company behind Claude was valued at $965 billion in its latest private funding round and could pursue a public listing later this year, according to reports. The fund also holds stakes in cloud startup Fluidstack and AI chip startup MatX. Private shares differ from public equities in a key way: they cannot be marked to market every second or pledged as collateral to lenders, so they escape the daily liquidation pressure that forced the public portfolio sale. The fund reportedly considered selling about $3.5 billion of its Anthropic position to a group led by Greenoaks and Sequoia Capital before withdrawing from the transaction.

What the collapse means for the AI trade

The failure does not prove Aschenbrenner's AI thesis wrong. Memory chips, cloud computing, data centers and energy infrastructure remain central to the AI supply chain. The collapse instead shows how leverage reduces the time an investor has to wait for a thesis to work — a long-term view can be correct and still produce devastating short-term losses.

The episode also highlights the fragility of the financial structure supporting the AI boom. Large amounts of capital have flowed into a narrow group of companies, and when those positions rise together returns look exceptional, but the same concentration accelerates declines when sentiment shifts. Citadel's July performance illustrates the redistribution: its Wellington fund gained 6 percent, its tactical trading fund rose 11 percent and its equities fund climbed 14.2 percent, all while rivals nursing AI losses saw double-digit declines. Despite the meltdown, a Barclays survey found interest in hedge fund allocation at its highest level in years, with pension funds planning to continue committing capital.

Situational Awareness has removed leverage from its public-market positions and said it will stop relying on bank borrowing to increase stock bets, according to reports. The fund remains up roughly 80 percent for the year after its earlier gains, and the Anthropic stake could provide a major source of liquidity if the company goes public.

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