Citadel founder Ken Griffin said the firm cut more than 80% of the original aggregate risk from the Situational Awareness portfolio it took over in about three weeks, offering a fresh look at one of Wall Street’s most closely watched rescue trades tied to the AI investing boom.
According to a letter from Griffin to investors obtained by CNBC, Citadel executed nearly 100 block trades worth more than $4 billion in total to handle the positions. The letter said the effort also included the largest single-day block trades so far this year in 10 different securities.
From a 439% first-half gain to a 67% drop in July
Situational Awareness was founded by former OpenAI researcher Leopold Aschenbrenner. Its core investment approach was heavily concentrated in AI infrastructure and related supply-chain names, a strategy that delivered striking returns while the AI trade kept climbing.
The fund posted a return of about 439% in the first half of the year. That concentration, paired with leverage, also left the portfolio exposed to a large single-theme risk.
As of the end of June, SanDisk and Micron Technology alone accounted for about 56% of the portfolio. Situational Awareness also held AI infrastructure-related stocks including Bloom Energy, Taiwan Semiconductor Manufacturing Co. and Nebius.
When the AI trade suddenly reversed in July, leverage worked in the opposite direction. SanDisk fell about 43% at one point that month, Micron dropped 24%, and Bloom Energy and Nebius also saw sharp pullbacks. The Situational Awareness portfolio fell about 67% in July, forcing the fund to deal with most of its public-market equity positions.
Citadel stepped in late July
Ken Griffin moved in as Situational Awareness needed to cut leverage and raise liquidity. In late July, Citadel took over most of the fund’s public equity portfolio.
The report also noted that the roughly $16 billion figure cited earlier referred to the size of Situational Awareness’ overall public equity portfolio at the time. It did not mean Citadel paid $16 billion to buy all of the assets.
In other words, Situational Awareness was pushed to reduce exposure quickly after a sharp market selloff, and Citadel took on part of the portfolio during that period. Griffin said in the investor letter that Citadel was not simply taking a long-term bullish position on AI stocks after buying them.
More than $4 billion in block trades over three weeks
Griffin said in the latest investor letter that Citadel removed more than 80% of the original aggregate risk in only about three weeks after taking over the portfolio. To do that, the firm carried out nearly 100 block trades with a combined value above $4 billion. Those trades included the biggest single-day block trades of the year to date in 10 securities.
As described in the report, Citadel stepped in when another fund was under liquidity pressure, absorbed a large batch of assets, and then used its balance sheet, trading network and market liquidity to break down the risk quickly.