Leopold Aschenbrenner’s hedge fund, Situational Awareness, suffered a dramatic 67% drop in portfolio value during July after steep losses in AI-related stocks. The fund, which focuses on the artificial intelligence sector, moved to sell most of its stock portfolio this week to Citadel, the firm led by billionaire Ken Griffin, and unwind the majority of its public equities exposure.
In a letter to investors cited in reports, Aschenbrenner acknowledged the severity of the drawdown. "We came closer to permanent capital impairment than is acceptable to us," he wrote, adding that the firm identified a solution but had never planned to be in that situation. He also told investors plainly: "We let you down this month."
Those July losses, however severe, have not erased gains earlier in the year. The fund remains up 80% in 2026 despite the contraction in July, according to investor communications. Management also signaled continued faith in the investment thesis: the firm says it remains "very optimistic" about its portfolio and that the "underlying fundamentals continue to strengthen even as share prices have fallen sharply."
Aschenbrenner launched Situational Awareness in 2024 and has drawn attention from investors for concentrated bets on companies tied to AI development. The recent liquidation of most public holdings effectively reduced the fund's exposure to the traded equities that had driven the July losses.
The broader market context for the losses includes a global selloff in chip stocks, which has put renewed scrutiny on the AI sector. Valuations in parts of the market reached levels some investors view as unsustainable, and short sellers have stepped up wagers that prices will fall further.
Hedge funds commonly use borrowed capital to amplify market exposure and potential returns. Those leveraged positions can reverse course rapidly when markets move against them, triggering margin calls from prime brokers and rapid deleveraging. The recent events at Situational Awareness underline how quickly concentrated, leveraged exposures in a volatile segment can stress a fund's capital position.
Summary
Situational Awareness, an AI-focused hedge fund run by Leopold Aschenbrenner, lost 67% of its portfolio value in July amid steep declines in AI stocks. The fund sold most of its public equity holdings to Citadel and trimmed its market exposure. Despite the drawdown, the fund is reported to be up 80% in 2026 and management says it remains optimistic about fundamentals.