Wall Street’s AI trade has claimed one of its most celebrated names. One of Wall Street’s hottest AI hedge funds, Situational Awareness, has run into trouble and has just been bailed out.

Citadel Founder and CEO Ken Griffin bought almost half of the portfolio of Leopold Aschenbrenner’s Situational Awareness, an AI-concentrated hedge fund. The fund’s public stock holdings have been sold entirely. This deal was first reported by the Wall Street Journal.

The story is striking because of who Aschenbrenner is. Leopold Aschenbrenner, a former OpenAI employee in his mid-20s, founded Situational Awareness, an AI-driven hedge fund, in 2024.

He is regarded by some as an AI oracle, and the firm grew to manage over $20 billion in assets, becoming one of the fastest-growing companies in its space. At one point, the firm managed over $45 billion in portfolio value. That scale of growth, in barely two years, made him one of the most closely watched new voices in AI investing, which is exactly why his losses have drawn so much attention.

Not All Is Lost

Not all is lost. After the deal with Citadel, Situational Awareness will retain a portfolio valued at approximately $10 billion, including private investments such as a stake in Anthropic, which has not been sold. That Anthropic stake is now effectively the fund’s anchor.

What Happened

By the end of June 2026, the fund achieved an impressive 439% year-to-date return, and 1,551% since inception. Then came the sudden plunge. The fund slipped 67% in July after incurring heavy losses on AI stocks, as reported by the Wall Street Journal.

Highly leveraged AI bets rapidly led to the downfall of the celebrated fund. Chip stocks and AI-led companies have recently experienced a significant decline in their values. Some of the fund’s major holdings as of March 31 were Sandisk, Bloom Energy, Nebius Group, CoreWeave, and Core Scientific. The fund also had exposure to SK Hynix and many other AI and memory stocks.

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How the Leverage Broke the Fund

One of the major reasons of the Leopold Aschenbrenner sudden fall appears to be leverage. The fund’s roughly 4x leverage, and margin calls specifically from top Wall Street banks, led to the folding up of the fund.

Hedge funds often use significant leverage to maximize returns. But this strategy can backfire if market movements are unfavorable, and that is exactly what happened here. Such situations may lead to margin calls from brokers, resulting in forced sales that worsen market downturns and create a cycle of further selling.

The recent selling pressure seen in AI stocks led to exactly that situation for Aschenbrenner. Situational Awareness held significant investments in memory stock companies, using leverage, that have recently suffered due to market downturns. The fund either had to raise fresh capital from investors or offload some of its book, and it eventually chose the latter.

Aschenbrenner attributed the firm’s increased losses to short sellers, as stated in a letter to investors viewed by the WSJ.

The moral of the story is: a fund up more than 400% in six months fell 67% in a single month, which shows just how violently leverage can cut both ways in a concentrated portfolio.

Interestingly, a day before the recent FOMC meeting, Citadel noted that the US Fed may raise rates in the upcoming July meeting, which could negatively impact risk assets like equities. This selling pressure, particularly in AI stocks, contributed to the funds’ disadvantage. US Fed kept rates unchanged on July 29.

In a twist to the tale, Kospi on Friday jumped nearly 18% after three days of big losses, led by big gains in the same set of stocks that were earlier hammered by the market. This rebound shows how fast sentiment in AI and memory-chip stocks can swing in both directions. Retail investors looking for quick returns riding on high leverage can be hit big time.

From FTX to OpenAI to Wall Street

According to the Financial Times, Aschenbrenner, who attended Columbia University, previously worked for the FTX Future Fund before its collapse. He later joined OpenAI’s ‘Superalignment’ team. In 2024, he authored a 165-page essay titled “Situational Awareness”, predicting significant societal changes due to AI. He then established a hedge fund by the same name that rose and fell just as quickly.

Aschenbrenner may be remembered as the poster boy for AI investors who suffered significant losses due to high-stakes leveraging. His investment in Anthropic is seen as his sole chance for a financial recovery.

Disclaimer: This article is based on publicly reported details about Leopold Aschenbrenner’s hedge fund Situational Awareness, sourced from the Wall Street Journal and Financial Times. Figures such as returns, portfolio values, and holdings are as reported by these outlets and may be subject to revision as further disclosures emerge. This article is not investment advice.