Situational Awareness, the AI-themed hedge fund founded in 2024 by Leopold Aschenbrenner, saw its value collapse from $45 billion to $10 billion in less than a week. The fund was forced to sell leveraged stock positions—including SK Hynix and CoreWeave—at a steep discount to Citadel, people with knowledge of the matter said. The move came as semiconductor stocks fell and margin calls hit. Earlier this month, the fund had reached its peak size. The swift and dramatic decline has drawn attention from both financial markets and tech circles, with Aschenbrenner now being viewed as a major casualty in the rollercoaster ride of the AI investment boom. Analysts and industry observers have pointed to the extreme leverage the fund employed as a major contributor to its downfall, a practice that amplified gains in good times but proved disastrous during a market downturn.
A 24-year-old’s AI boom and bust
At just 24 years old, Leopold Aschenbrenner built Situational Awareness into one of the fastest-growing funds in history. The Wall Street Journal reported the fund had returned over 1,000% since inception. But the same leverage that fueled the rise became its undoing. Sources said the fund was using as much as 400% leverage, a factor critics said made the collapse inevitable. The rapid ascent of the fund had been fueled in part by Aschenbrenner’s bold predictions about the future of artificial intelligence and his high-profile manifesto that had captured the imagination of many in Silicon Valley. However, as the market began to waver, the fund’s heavy reliance on borrowed money turned its fortune upside down. The collapse of Situational Awareness serves as a stark reminder of the risks associated with high-leverage trading, especially in a still-developing and volatile sector like AI.
A tech background with no money management experience
Aschenbrenner, a former OpenAI researcher and Columbia University valedictorian at 19, had no prior experience managing money. Before launching the fund, he worked at the Future Fund, FTX’s philanthropy arm, where he helped Sam Bankman-Fried manage charity operations from a Bahamas penthouse. He later joined OpenAI’s Superalignment team under Ilya Sutskever. But his lack of institutional finance experience became a point of criticism as the fund unraveled. Many in the finance community questioned how a young man with no formal training in asset management could build a multi-billion-dollar fund in such a short time. Aschenbrenner’s academic background in computer science and his focus on AI ethics had earned him a reputation as a thought leader in certain circles, but it also highlighted a disconnect between theoretical insights and the practical demands of managing real money. Critics suggested his meteoric rise was more about luck and timing than a deep understanding of financial markets.
Former Wall Street traders and fund industry experts said the blow-up wasn’t a surprise. 'Maybe his views on AI are correct in the long run, but in the public markets, you have to be prepared for the short-term.' Traders and investors who had followed the fund’s rapid growth from the start were not shocked by the sudden reversal. They noted that Situational Awareness had been built on a model that depended heavily on sustained bullish trends in AI-related stocks. When those stocks faltered, the fund’s strategy became unsustainable. The collapse also brought into question the broader trend of young tech founders entering the financial sector with unconventional but bold ideas. While some praised Aschenbrenner’s ambition and vision, others argued that his inexperience left the fund vulnerable when markets turned.
Situational Awareness had built concentrated positions in one of Wall Street's most popular trades: owning companies expected to supply the chips, data centers, power and other infrastructure behind the AI boom while betting against software firms viewed as vulnerable to the technology's disruption. Its long positions were concentrated among some of the market's biggest AI beneficiaries. Public filings showed large stakes in Nebius, Bloom Energy, Sandisk, CoreWeave, SharonAI and IREN as of March 31. By Wednesday's close, those shares had fallen between by 50% and 78% from recent peaks. At the same time, software stocks like Adobe that had been used as the short leg of the trade rallied. That meant the fund wasn't protected by its hedges. Instead, the longs and shorts lost money simultaneously. "People get over leveraged in this market, and they get seduced by the big returns that some of these companies can deliver," said Bob Lang, founder and chief strategist at Explosive Options. "If you're not managing your risk properly, this is the sort of thing that's going to happen to you." As the value of the portfolio fell, the fund's equity cushion shrank and its prime brokers demanded additional collateral. Raising cash required selling more holdings, adding further pressure to sliding stocks and generating additional losses. What might otherwise have been a painful drawdown became a deleveraging spiral. Ken Griffin's Citadel hedge fund reached a deal to buy the fund's publicly traded assets. "Running somebody out the door like this is as old as time," Lang said. "I've seen it happen a lot in oil markets ... there's a lot of things that are happening underneath the surface that we really don't know about."
In an internal letter to investors, Leopold Aschenbrenner acknowledged the fund's failure and took full responsibility for the events that led to a 67% loss in July. He assured backers the fund is still up roughly 80% on the year and has retained its valuable stake in Anthropic, according to a person close to the firm. Aschenbrenner emphasized that while the drawdown was painful, the fund is not shut down, liquidated, or transformed into a private-only fund. He committed to implementing changes across portfolio management, risk management, and vigilance to ensure a higher level of resilience going forward. Aschenbrenner also announced that the fund would manage its public book on a fully-paid-for basis while drawing necessary lessons from the recent developments. "We let you down this month. We came closer to permanent capital impairment than is acceptable to us," he wrote. "While we ultimately found a solution that protected the fund and you as investors, our intention in running the fund is to never find ourselves in such a position in the first place."}]}]