Background
Situational Awareness LP, the hedge fund founded by former OpenAI superalignment researcher Leopold Aschenbrenner (born 2001), imploded in July after a historic AI sector selloff and short squeeze. On July 30, the fund sold most of its public equity portfolio to Ken Griffin's Citadel. The fund—up 439% in the first half of the year, with assets once swelling to roughly $45 billion—was nearly wiped out in a single month.
The Founder and the Strategy
Aschenbrenner, a German-born prodigy, entered Columbia at 15, graduated first in his class at 19, joined OpenAI's superalignment team, and was dismissed in 2023 over a safety memo. He then published a 165-page essay predicting AGI by 2027 and an infrastructure buildout boom, winning backing from top investors. He founded the fund in September 2024 with about $225 million in seed capital from the Stripe founders, Nat Friedman, Daniel Gross, and Jane Street.
The strategy was simple and aggressive: heavily leveraged long exposure to AI infrastructure suppliers, with shorts against software:
- Longs (AI picks-and-shovels): SK Hynix, Micron, Sandisk, Nebius, CoreWeave, Bloom Energy
- Shorts: software names such as Adobe
- Leverage: ~4x
- The more consensus the theme, the greater the crowding risk. When everyone bets the same way, a liquidity inflection becomes a stampede.
- Leverage amplifies mistakes, not just gains. 4x turned a 439% annualized run into a 67% single-month loss.
- Long-short is not a natural hedge. When the short leg (software) rallied on valuation recovery, the "hedge" became a second wound.
The July Collapse
1. Global chip stocks pulled back sharply in July: Sandisk fell 56%, Nebius 48%, crushing the long book. 2. Software stocks rallied on valuation recovery—Adobe rose against the trend—so the shorts also lost money. 3. Combined with ~4x leverage, the fund was hit on both sides. 4. Bank of America, Goldman Sachs, and JPMorgan issued margin calls. 5. On July 30, the portfolio was sold to Citadel in a single deal exceeding $10 billion.
The direct trigger came from Korea: retail investors heavily leveraged into AI names, and falling prices triggered mass margin calls and a stampede of forced selling that dragged down global AI assets. In the early hours of July 30, the Fed's "hawkish pause" (holding rates at 3.50–3.75%, with three governors favoring a hike) was read as a signal of a renewed tightening cycle, accelerating the chip selloff.
Ironic Timing
Six days before the blowup (July 24), Aschenbrenner's letter to investors called the volatility "the best buying window since early 2025" and invited additional capital on August 1. His July 30 letter to LPs admitted a roughly 67% single-month loss—"we let you down this month"—comparing the episode to a bank run.
The crueler irony: the fund liquidated at a "super discount" on July 30, and the very next day AI hardware stocks rebounded strongly—Sandisk +25.99%, CoreWeave +21.51%, Bloom Energy +26.49%. The fund sold at the bottom.
What Survived
The fund kept its private positions, the largest being roughly $5 billion of Anthropic equity, which was not sold. A lean team of about 20 continues operating as a private investment company, trading public equities in small size. Elad Gil publicly said he first sought to invest in the fund.
Lessons: A Warning Bell for Crowded AI Trades
The author of the "definitive case" for the AI bull market was taken out by his own leverage. His long-chips/short-software trade was the year's most crowded theme, pushed to the extreme with borrowed money, turning one bad month into a crisis. Lessons for both quant and discretionary strategies:
Sources
1. Bloomberg Businessweek, 7/31/2026 2. 21st Century Business Herald, 7/31/2026 3. Dealroom, 8/2026 (Citadel sale details) 4. Yahoo Finance HK, 7/31/2026 5. ima.qq.com knowledge base (Bloomberg compilation)