TL;DR: Situational Awareness, an AI-concentrated hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, saw its portfolio value drop 67% during July, according to an investor letter seen by Reuters. The fund sold most of its public equity holdings to Citadel and has stripped all leverage from what remains. It is still up 80% for the year.
Those two numbers together are the story. A fund can lose two thirds of its portfolio value in a month and remain sharply ahead year-to-date only if the preceding gains were extraordinary — and if the position was geared. Aschenbrenner told investors the firm had come nearer to losing capital outright than it found acceptable, and that ending up there had never been the intention.
How leverage turns a correction into a run
The mechanics are familiar to anyone who watched 2008. Funds borrow to amplify exposure and returns. When positions move against them and liquidity thins, prime brokers issue margin calls, forcing sales into a falling market. Aschenbrenner described trying to hold the portfolio inside its risk parameters as positions moved rapidly against the fund and market liquidity dried up.
He also noted a second-order effect: stocks publicly associated with the firm traded badly on that association alone. He compared the dynamic to a bank run, where vulnerability breeds further vulnerability.
Looking forward
The fund says it remains optimistic, arguing the businesses it holds keep improving even as their share prices fall. That may prove right. But for UK readers watching AI valuations, the transmission mechanism is the part worth noting rather than the verdict on any one manager. Aschenbrenner built a following among investors for concentrated AI bets since launching in 2024, and a short-seller pile-on has added pressure across the sector. The losses here came not from being wrong about AI but from being leveraged when sentiment turned — which is a risk that applies regardless of whether the underlying thesis holds. Aschenbrenner’s own summary to investors was blunter: they had been let down this month.