The spectacular rise and equally dramatic fall of Situational Awareness has become one of Wall Street’s most striking cautionary tales of the artificial intelligence boom.
The AI-focused hedge fund, founded by 24-year old former OpenAI researcher Leopold Aschenbrenner, has sold the bulk of its public equities portfolio to Ken Griffin’s Citadel after suffering heavy losses on leveraged technology bets, according to Reuters and several other publications citing people familiar with the matter.
The transaction, which ranks among the largest and most abrupt portfolio transfers in recent Wall Street history, marks a stunning reversal for a fund that only weeks ago was being celebrated as one of the industry’s hottest new success stories.
Who is Leopold Aschenbrenner?
Long before launching his hedge fund, Aschenbrenner had established himself as one of Silicon Valley’s emerging AI thinkers.
After graduating from Columbia University at just 19, he briefly worked at the FTX Future Fund before Sam Bankman-Fried’s crypto empire collapsed.
He later joined OpenAI’s Superalignment team before leaving under controversial circumstances.
OpenAI said he was dismissed over what it described as an improper disclosure of internal information.
Aschenbrenner has disputed that account, saying he shared a largely non-confidential planning document with outside researchers for feedback and that his departure followed disagreements over security concerns inside OpenAI.
The company has maintained those issues were unrelated.
Just over two years ago, Aschenbrenner had virtually no trading experience.
Yet the former OpenAI researcher quickly became one of the most talked-about names in both Silicon Valley and Wall Street after launching Situational Awareness, an AI-focused hedge fund built around his conviction that artificial intelligence would reshape the global economy.
His profile rose dramatically after publishing a 165-page essay in 2024 titled Situational Awareness, which argued that artificial general intelligence would transform society much sooner than many expected.
Aschenbrenner capitalized on the attention generated by the essay to launch his hedge fund, securing backing from prominent technology investors, including former GitHub chief executive Nat Friedman and Stripe co-founders Patrick and John Collison.
His predictions resonated with investors.
The fund reportedly generated returns exceeding 400% in the first six months of the year, helping assets swell beyond $20 billion before eventually reaching roughly $24 billion.
How did his AI trade unravel?
The extraordinary performance transformed Aschenbrenner into a market celebrity almost overnight, attracting epithets like ‘Nostradamus of AI’ or AI oracle .
But the same concentrated conviction that fueled the fund’s rise would eventually accelerate its downfall.
Situational Awareness accumulated large positions in several companies viewed as beneficiaries of the AI infrastructure boom.
According to its latest regulatory filings, the portfolio included sizeable stakes in Broadcom, Intel and CoreWeave.
The fund, which employed seven investment professionals and a staff of about 20, at one point held hundreds of millions of dollars worth of Bloom Energy and SanDisk shares.
Those bets worked spectacularly while AI-related stocks continued climbing.
However, the sharp correction in AI shares during recent weeks exposed the risks of running a highly leveraged and concentrated portfolio.
Bloom Energy and Sandisk stocks have fallen about 40% between the end of June and the beginning of this week.
According to the Wall Street Journal, the fund lost about 67% during July alone.
Aschenbrenner reportedly told investors that aggressive short sellers had worsened the decline by targeting the fund’s largest positions.
Behind the scenes, however, the losses were creating mounting pressure.
Sources told Reuters that Situational Awareness had been forced to either raise fresh capital or sell its portfolio.
Ultimately, it opted to dispose of most of its public equity holdings.
Citadel steps in
The rescue came from Ken Griffin’s Citadel.
The $71 billion hedge fund agreed to acquire the leveraged portion of Situational Awareness’s public stock portfolio, with several major Wall Street prime brokers — including Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup — helping facilitate the transaction.
Reports said Citadel beat rival bidders including Millennium Management and Jane Street to secure the assets
After the sale, Situational Awareness is expected to retain a portfolio worth roughly $10 billion, consisting of remaining public holdings alongside private investments, including its stake in AI startup Anthropic, Reuters said.
Sources added that the fund has not sold its Anthropic investment.
Warning signs emerged quickly
Even as the fund continued posting extraordinary gains, cracks were beginning to appear beneath the surface.
When Intel reported stronger-than-expected earnings on July 23, its shares unexpectedly fell, fuelling speculation that a large investor was aggressively offloading stock.
That seller was Aschenbrenner, the Financial Times reported.
According to people familiar with the matter, those sales were driven by mounting losses elsewhere in the portfolio.
“He was trying to recover his losses,” one person told the Financial Times.
“He had the illusion of still being in control . . . he didn’t have control at all.”
Yet publicly, the tone remained optimistic.
On July 24, Aschenbrenner wrote to investors highlighting the fund’s remarkable historical returns.
He said the fund had returned 439% in the year by end of June, and a whopping 1,551% since its founding, before giving a hint that trouble was already brewing.
“It’s more important than ever to recognise the potential for volatility in the future,” he wrote.
He also argued that the selloff represented “a particularly good time to add funds.”
Within days, however, the situation deteriorated rapidly.
People familiar with the matter said Aschenbrenner began contacting investors seeking additional capital or potential asset sales.
As AI stocks continued falling, investor anxiety intensified, with some reportedly struggling to reach the firm.
A familiar Wall Street lesson
The collapse of Situational Awareness is more than the story of one hedge fund.
It illustrates how quickly enthusiasm surrounding transformative technologies can encourage investors to embrace concentration, leverage and inexperienced managers during periods of exceptional returns.
Aschenbrenner’s ascent reflected Wall Street’s growing belief that AI would produce enormous winners.
His fund’s decline shows how unforgiving markets can become when that narrative is interrupted, particularly when leverage amplifies every move.
For Citadel, the transaction represents an opportunity to acquire assets during a market dislocation.
For Situational Awareness, it marks the end of one of the most remarkable rises — and one of the fastest reversals — seen in the AI investment boom so far.
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