Leopold Aschenbrenner's hedge fund, Situational Awareness, recorded a 67% fall in portfolio value during July after concentrated losses in AI-related stocks, according to a letter the firm sent to investors on Thursday. The letter lays out a string of forced adjustments made as market moves accelerated against the fund's positions.
The note said the fund sold the bulk of its stock portfolio to Citadel this week and unwound most of its public equities holdings. Aschenbrenner, identified in the letter as a former OpenAI researcher, acknowledged the severity of the drawdown and described the month as having brought the firm closer to "permanent capital impairment than is acceptable to us."
In direct language to investors, Aschenbrenner wrote: "We let you down this month." He also framed the market reaction around the firm's holdings as reinforcing negative flows: "These dynamics are essentially similar to a bank run: vulnerability begetting more vulnerability."
Even after the losses in July, the fund's performance since the start of the year remains notably positive, the letter said, with gains reaching 80% for 2026. The firm characterized its view of the portfolio as "very optimistic," arguing that underlying fundamentals are strengthening even as share prices have fallen sharply.
The letter described how rapid moves against core positions and deteriorating market liquidity exacerbated the drawdown late in the month. It noted that hedge funds often employ borrowed capital to increase exposure, and that leveraged positions can unwind rapidly when markets move against them and lenders make margin demands. In response to the recent events, the firm said it has removed all leverage from the portfolio.
Aschenbrenner told investors the fund had tried to adhere to its risk parameters, but that doing so became increasingly difficult as positions moved sharply and liquidity dried up. The letter also highlighted adverse trading in stocks publicly associated with the firm as an additional source of pressure on the portfolio.
Since launching in 2024, Situational Awareness has drawn a devoted investor following for its concentrated bets on the AI sector. The letter's account links the recent losses to a broader selloff in chip and AI-related stocks, where a retracement in valuations and intensified short-selling pressures have trimmed returns from crowded positions.
Context and implications
The firm's experience in July illustrates how concentrated sector bets and leverage can produce rapid and large losses when market sentiment shifts and liquidity evaporates. The fund's steps to remove leverage and pare public holdings represent an attempt to stabilize the portfolio after an extreme drawdown, even as the firm maintains a bullish view on the long-term fundamentals of its positions.
Summary of key factual points
- The fund's portfolio value fell 67% in July.
- The firm sold most of its stock portfolio to Citadel and unwound the majority of its public equities holdings.
- Situational Awareness removed all leverage from its portfolio and reported being up 80% for 2026 despite the July drawdown.