NEW YORK, July 30 (Reuters) - Situational Awareness, an AI-focused hedge fund run by former OpenAI researcher Leopold Aschenbrenner, sold the bulk of its stock portfolio to Ken Griffin’s Citadel after being battered by heavy losses in its tech holdings, two sources familiar with the matter told Reuters on Thursday.
Situational was forced to unwind most of its public equities portfolio, which included sizable holdings in several prominent AI names that have been rocked by the recent market selloff, the sources said, requesting anonymity as the discussions are confidential.
The fund was under pressure to either raise fresh capital from investors or offload its entire book, and eventually chose the latter option, the sources added. Situational held positions in several prominent tech names including Broadcom, Intel, and CoreWeave, according to its most recent regulatory filings.
Since the fund's launch in 2024, Aschenbrenner has garnered a cult-like following among investors for his prescient bets on the AI sector that propelled his fund to a lofty 439% return from the start of the year until the end of June.
A number of top Wall Street prime brokers, including Goldman Sachs, JPMorgan Chase, Bank of America, and Citigroup, helped facilitate the deal between Citadel and Aschenbrenner's fund, the sources said. Griffin's Citadel, which has about $71 billion of assets under management, is one of the world's most profitable and largest hedge funds.
As part of the deal, Citadel is picking up the portion of Situational's public portfolio that was financed by leverage from brokers, the sources said. They said Situational will hold a book of roughly $10 billion after the deal comprised of stocks as well as private investments in companies like Anthropic. Situational has not sold its stake in Anthropic, the sources said.
AI MELTDOWN
Global hedge funds are grappling with their biggest monthly drawdown on record as AI stocks have been routed across the board, erasing much of the gains from crowded bets in the sector. Asia-focused fundamental long-short funds are down 18.6% on average this month through July 28, Goldman Sachs said in a prime brokerage note sent to clients this week.
Stock-picking hedge funds have been rushing to unwind their positions in AI names, as they covered short positions and sold long positions in relatively equal amounts, according to a note from Morgan Stanley's prime brokerage unit sent to clients on Wednesday.
Hedge funds typically take on large amounts of leverage from lenders to take bigger swings at the markets in order to amplify their returns. However, such leveraged bets can backfire when the markets move against positions taken by funds, forcing margin calls from prime brokers. That can result in a vicious cycle, where the margin calls trigger sales, extending market downturns that beget more selling.
It is not clear whether Aschenbrenner's fund faced margin calls from its lenders before striking the deal with Citadel. The hedge fund, which earlier managed about $20 billion of assets and currently has about 20 employees, has used leverage to boost its positions in the past - much like its peers.
Aschenbrenner's success attracted big-name backers like secretive trading giant Jane Street. Other investors include Stripe co-founders Patrick and John Collison, as well as Meta Platforms executives Daniel Gross and Nat Friedman.
The Wall Street Journal reported the deal between Citadel and Situational earlier on Thursday.
(Reporting by Anirban Sen in New York and Manya Saini in Bengaluru; Additional reporting by Saeed Azhar; Editing by Joyjeet Das and David Gaffen)
