According to a Wall Street Journal report cited by BlockBeats on Aug. 5, AI hedge fund Situational Awareness took major losses in July after an aggressive investment strategy unraveled. The fund had previously attracted support from several high-profile investors in Silicon Valley and on Wall Street, though some had already warned about its use of leverage and its risk controls.
The report said Situational Awareness was founded by 24-year-old Leopold Aschenbrenner. Despite lacking professional investment management experience, he quickly built the fund to about $4.5 billion in assets. Backers included D1 Capital founder Dan Sundheim, Greenoaks co-founder Neil Mehta, XN founder Gaurav Kapadia, former Tiger Global public equities head Feroz Dewan, and Stripe co-founders Patrick Collison and John Collison.
Borrowed exposure left the fund vulnerable
According to people familiar with the matter cited in the report, the fund used substantial borrowing to increase its exposure to AI-related stocks. After some holdings dropped sharply in July, lenders demanded additional margin, forcing the fund to raise cash. It ultimately sold most of its public stock portfolio to Citadel.
Fundraising documents said Situational Awareness had no limits on investment scope, position concentration, or leverage usage. Some investors had warned Aschenbrenner that high leverage could create serious risks. They also expressed dissatisfaction with the fund's disclosure practices and the frequency of its communications.
Aksia flagged risk management concerns in March 2025
Research and consulting firm Aksia, in an evaluation from March 2025, recognized Aschenbrenner's investment ability and influence in the sector. At the same time, it warned investors to watch for risk-management problems tied to “overconfidence,” especially when leverage is elevated.
Aschenbrenner launched Situational Awareness in 2024. The fund expanded quickly on the back of his bets across the AI supply chain and had previously profited from positions in AI-linked stocks such as SK hynix and SanDisk, earning him the nickname “the Nostradamus of AI.”
The fund was still up about 80% this year
A recent investor letter said the fund remained up about 80% year to date. It also held private equity stakes in AI companies including Fluidstack, MatX, and Anthropic. With the risks of its leveraged strategy now exposed, the episode has prompted a fresh look at risk control in the broader AI investment boom.