The failed bet and the bailout: The drama behind tonight’s gains on Wall Street

The hedge fund Situational Awareness was one of the most prominent hedge funds in the AI ​​wave. But it was never resilient. After suffering significant losses, it sold most of its stock portfolio to Ken Griffin’s investment firm, Citadel. This was reported in the Wall Street Journal tonight.

Upold Aschenbrenner, a 25-year-old who became famous for his aggressive bets on AI stocks, founded the fund in 2024 and reportedly achieved a net return of more than 1,000% in less than two years. The fund grew to about $45 billion at its peak, but in July it suffered sharp losses due to declines in stocks such as SK Hynix and short positions on software companies.

Due to collateral requirements and pressure from prime brokers, he was forced to sell almost the entire portfolio of traded stocks, most of which was sold to Ken Griffin’s Citadel. No official, audited figure has yet been published showing how much of the abnormal return was wiped out in losses.

According to Harel Investments, some estimate that the fund’s situation is one of The reasons for the sharp increases in many stocks on Wall Street tonight (Thursday), because the fear of its collapse in recent days led to a wave of forced sales that weighed on many stocks – have passed.

Aschenbrenner, seen by some investors as the “Oracle of AI” – was followed closely by many. The crisis came after investors began to reduce exposure to stocks related to artificial intelligence, amid concerns about the huge scale of investments in AI infrastructure, the rise in financing costs and the possibility that returns on investments would be delayed. The pressure forced the fund to use leverage to increase the scope of its bets and to meet collateral requirements from lenders.

Among the fund’s public holdings were companies from the AI ​​value chain, including memory chip makers such as SK Hynix and SanDisk, fuel cell manufacturer Bloom Energy and cloud-based services provider Navios Group. The shares of these companies suffered sharp declines in the month The latter, as part of a broader weakness in technology and AI stocks.

“Foresight: The Next Decade”

Shares in the hedge fund’s portfolio are surging today after it was reported that the fund had sold a significant portion of its holdings to Citadel. Investors interpreted the move as a relief from selling pressure stemming from the fund’s liquidity crunch.

According to the Wall Street Journal, Citadel only acquired the portion of Situational’s portfolio that was financed with bank loans, while the fund retained the remaining holdings financed with its clients’ capital. The fund also still holds private investments, including an investment in artificial intelligence giant Anthropic.

Situational’s story is particularly notable for its extraordinary growth rate. Aschenbrenner has quickly become one of the most recognizable figures in AI investing. He rose to fame after publishing an article in 2024, “Foresight: The Next Decade,” in which analyzed the future of artificial intelligence. Among the early investors in the fund were Stripe founders Patrick and John Collison, as well as Daniel Gross and Nat Friedman, who now lead Meta’s AI operations.

For Citadel, which manages about $71 billion, buying assets from an investor under pressure is a familiar strategy. Ken Griffin’s company has a history of taking advantage of opportunities that arise when sellers are forced to part with their assets quickly.