AI Hedge Fund Situational Awareness Plunges 67% in July, Sells Portfolio to Citadel

Situational Awareness, the artificial intelligence-focused hedge fund led by former OpenAI researcher Leopold Aschenbrenner, saw its portfolio value plummet by 67% in July following steep losses on its AI stock bets. According to an investor letter seen by Reuters, the dramatic downturn forced the fund to unwind the majority of its public equity positions.

Steep Losses Trigger Portfolio Overhaul

The fund's significant July drawdown was exacerbated by highly leveraged positions moving rapidly against it. In the letter to investors, Aschenbrenner stated, "We came closer to permanent capital impairment than is acceptable to us," and acknowledged, "We let you down this month."

In response to the losses, Situational Awareness sold the bulk of its stock portfolio to billionaire Ken Griffin’s Citadel and has removed all leverage, according to the letter. Despite the severe monthly decline, the fund's staggering earlier gains mean it remains up 80% year-to-date for 2026.

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Market Dynamics and Risk Management

Aschenbrenner explained that the fund's performance suffered as a global selloff in chip and AI-related stocks intensified, reviving fears that the sector's boom has led to unsustainable valuations. This market environment created a liquidity squeeze that amplified the fund's losses.

"We worked to keep the portfolio within our risk parameters, but gradually this became more difficult as positions rapidly moved against us and market liquidity dried up," Aschenbrenner wrote. He also noted that the firm saw adverse trading in stocks publicly associated with it, comparing the situation to a bank run where "vulnerability begetting more vulnerability." Despite the turmoil, the letter stated the fund remains "very optimistic" about the underlying fundamentals of its portfolio.