Ken Griffin's Citadel Buys Assets from Hedge Fund Hit by AI Selloff

Citadel, the investment firm founded by billionaire Ken Griffin, has acquired a portion of the assets from California-based hedge fund Situational Awareness after it suffered catastrophic losses on its artificial intelligence stock bets. The deal reprises Griffin's long-standing role as an opportunistic buyer stepping in during periods of significant market stress.

The AI Bet Unravels

The intervention came after the Situational Awareness portfolio lost 67% of its value in July amid a sharp selloff in AI-related equities, forcing the fund to unwind the majority of its $16 billion public equities book. In a letter to clients seen by Reuters, the fund's founder, Leopold Aschenbrenner, wrote, "We let you down."

According to sources familiar with the matter cited by Reuters, Griffin assembled his senior team—including co-CIO Pablo Salame and COO Gerald Beeson—for an all-night session to analyze the distressed fund's trading positions. By Thursday, Citadel had agreed to purchase a segment of the portfolio. Representatives for both Citadel and Situational Awareness declined to comment on the transaction.

A Familiar Playbook for Citadel

For Citadel, which manages $71 billion in assets, this type of transaction is part of a decades-old strategy of capitalizing on market turmoil when other firms are forced to liquidate positions. This approach has been executed multiple times throughout the firm's history.

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• 2021: Citadel, alongside Point72 Asset Management, injected $2.75 billion into Melvin Capital after it was hit by the GameStop short squeeze.
• 2007: The firm acquired a portion of Sowood Capital's portfolio after the fund became a casualty of the subprime mortgage crisis.
• Pre-2007: Citadel rescued the energy portfolio of Amaranth Advisors following the fund's collapse from bad bets on natural gas.
• 2001: Following Enron's bankruptcy, Griffin dispatched executives to hire many of the energy company's traders, forming the foundation of Citadel's commodities business.

Market Impact and Strategy

Citadel's ability to rapidly assess and absorb large, complex portfolios makes it one of a handful of firms capable of executing such rescue deals. "There are only a few firms that could take down this much risk," an investor familiar with the deal told Reuters. This capacity allows Citadel to acquire assets at potentially favorable prices from distressed sellers.

Griffin has previously articulated this strategy, writing to investors in 2023 that "During market stress, the collective judgment of our business leaders, risk managers and portfolio managers enables us to capitalize on market opportunities when others, who depend on simplistic stop-loss approaches, cannot." The exact financial terms of the Situational Awareness deal were not disclosed.