24-Year-Old AI Fund Manager's $45 Billion Crash

Leopold Aschenbrenner, at just 24 years old, founded a hedge fund named Situational Awareness, which rapidly grew to manage $45 billion in assets at its peak. However, the firm recently announced it had exited all of its public investments, signaling a dramatic downturn for the fund and its young manager.

Aschenbrenner launched his hedge fund in July 2024, following widespread attention garnered from his 165-page essay, 'Situational Awareness.' This publication quickly established his notoriety within AI circles, positioning him as a voice with unique insights into the future of artificial general intelligence.

The Situational Awareness fund attracted substantial early investment, including capital from Stripe co-founders Patrick and John Collison, Nat Friedman, and Jane Street. These high-profile backers agreed to lock up their money for years under a fund structure that allowed for unlimited leverage and had no restrictions on the types of investments it could make, placing immense trust in the young manager.

The fund experienced explosive growth, managing $9 billion by the end of 2025 and escalating to $45 billion by early 2026. A significant factor in this growth was a 408% jump in the fund's stake in Anthropic, an AI company that saw increasingly staggering valuations. Leopold's half-yearly investor letter further showcased this success, reporting a remarkable 439% net gain for investors.

In July 2024, market turbulence began to severely impact Situational Awareness's AI-heavy portfolio. Leopold Aschenbrenner acknowledged in a letter to investors on July 24th that many of the AI-related stocks held by the fund had started declining sharply towards the end of June, with the sell-off accelerating in July, particularly affecting semiconductor stocks.

Despite clear signs of trouble, Aschenbrenner maintained an optimistic outlook, characterizing the market downturn as a 'good buying opportunity.' Amidst rumors of a major shareholder dumping positions, possibly triggered by Intel's stock decline, Aschenbrenner continued to project confidence. He even planned to open the fund to new cash investments as late as August 1st, showing no public concerns regarding the ongoing market rout.

At the beginning of July, the Situational Awareness fund managed $11.5 billion of investor money, with $5.5 billion invested in private companies, primarily Anthropic, and $6 billion allocated to public companies. However, the fund operated with over four times leverage on the long side, meaning it controlled a total of $45 billion in assets, making it highly susceptible to market fluctuations.

In July, the fund's portfolio experienced a significant drop of approximately 30%. Due to the high leverage of 2x (on public positions), this translated into a devastating 67% loss for investors, as stated in a letter sent by Aschenbrenner on the 30th. This sharp decline caused the fund's equity to fall below maintenance levels, prompting lenders to issue margin calls, which the fund was unable to meet by selling individual positions due to a lack of market buyers.

In a crucial intervention, Ken Griffin, founder of Citadel LLC and Citadel Securities, stepped in as the buyer of last resort. Citadel, a hedge fund managing $71 billion, is known for acquiring assets from distressed funds through block trades. In this instance, Citadel purchased almost all of Situational Awareness's $16 billion public book at a discount of more than 10% to market value, preventing a complete collapse.

Ken Griffin has previously criticized funds for their refusal to rectify over-concentrated portfolios, a criticism that Situational Awareness's collapse now starkly exemplifies. Griffin's philosophy emphasizes robust risk management, contrasting sharply with the fund's aggressive, highly concentrated investment strategy. The collapse underscored his 2024 warnings about 'bad risk takers' who fail to acknowledge and correct inherent flaws in their portfolio construction.

Leopold Aschenbrenner admitted to his investors that the fund "let them down this month," coming "closer to permanent capital impairment than is acceptable." He reported an unaudited decline of 67% for July, yet surprisingly noted that the fund was still up 80% for the year despite the catastrophic monthly loss, highlighting the extreme volatility and precariousness of the situation.

Ironically, the very stocks that Situational Awareness was forced to liquidate at a discount began to rally soon after the Citadel deal. This market rebound was attributed directly to the bailout, as Wall Street's downward pressure on these assets eased once Citadel absorbed the distressed positions. Without this intervention, the fund would have likely seen its holdings collapse to zero.

Speculation has arisen regarding a potential conflict of interest, with some theories suggesting that Ken Griffin might have orchestrated the entire situation. Days before the deal, Citadel Securities released a memo on interest rates that arguably had a negative impact on AI-related stock prices, potentially benefiting Citadel LLC's subsequent acquisition. The fact that both Citadel firms share office space further fuels questions about their independent operation and the timing of these market events.