Situational Awareness, a hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, told investors it let them down this month after the firm sold the bulk of its stock positions to Citadel. The move came amid a sharp downturn in artificial intelligence-related equities during July.
The fund’s performance dropped 67% in July, according to a letter sent to investors. The decline marked a significant reversal for the firm, which had previously posted strong gains tied to its concentrated bets on AI infrastructure and energy stocks.
Aschenbrenner’s firm built its strategy around the premise that AI growth would drive massive demand for power, data centers, and related hardware. That thesis propelled early returns, but the July rout in AI stocks hit the fund hard as market sentiment shifted.
The firm sold most of its holdings to Citadel, the Miami-based hedge fund giant, in what it described as a defensive move. The letter did not specify the exact size of the positions transferred, but the sale represented a major portion of the fund’s portfolio.
The July selloff was driven by concerns that AI-related valuations had outpaced earnings growth. Several major technology companies reported weaker-than-expected results, prompting investors to pull back from the sector.
Aschenbrenner gained prominence after leaving OpenAI in 2021 to focus on AI safety research. He later shifted to investing, arguing that the energy and compute demands of advanced AI models would create outsized opportunities in utilities and industrial firms.
The fund’s letter acknowledged the poor timing of its concentrated strategy, noting that volatility in AI stocks had exceeded its expectations. It pledged to reassess its approach going forward, but did not outline specific changes.
Citadel, which acquired the equities, declined to comment on the transaction. The sale suggests that institutional buyers saw value in the positions even as retail and other investors fled the sector.
The 67% monthly loss places Situational Awareness among the worst-performing hedge funds in July. The firm had earlier reported gains of more than 100% for the first half of the year, underscoring the whipsaw nature of its high-conviction bets.
Market analysts note that the AI trade remains volatile, with rapid shifts in sentiment driven by quarterly earnings and macroeconomic data. The episode highlights the risks of concentrated investing in a sector prone to sharp reversals.
Aschenbrenner’s letter struck a conciliatory tone, taking responsibility for the fund’s performance. It said the team remains committed to its long-term thesis but must adapt to a more unpredictable trading environment.
