US SEC subpoenas Wall Street lenders over Situational Awareness meltdown, source says
XLF•Fund hit hard by July AI selloff
Situational Awareness, launched in 2024, is run by former OpenAI researcher Leopold Aschenbrenner, whose viral essay on the future of the technology, lofty bets on AI-focused names and outsized returns from the fund propelled him into the spotlight.
Those bets, however, unraveled after a sweeping selloff in AI names jolted markets in July. The portfolio value of the fund had fallen 67% in July alone, it told investors last month.
"We came closer to permanent capital impairment than is acceptable to us," Aschenbrenner wrote in the letter to investors, adding that while the firm ultimately found a solution, it never intended to be in that position.
Hedge funds routinely borrow capital from lenders to magnify their bets, but those positions can reverse quickly when markets move in the opposite direction and prompt margin calls from prime brokers.
