Situational Awareness Fund Liquidates After 67% Equity Collapse on Leveraged AI Bet
Updated
Updated · aswathdamodaran.substack.com · Aug 11
Situational Awareness Fund Liquidates After 67% Equity Collapse on Leveraged AI Bet
3 articles · Updated · aswathdamodaran.substack.com · Aug 11
Summary
More than two-thirds of the fund’s public equity portfolio was wiped out in four weeks, forcing a liquidation in which Citadel bought almost all of those holdings.
A July market reversal hit a strategy built on concentrated long AI winners and short AI-disrupted companies, with heavy leverage turning a sharp drawdown into a fund-ending crunch.
The fund had surged nearly 450% through late June and was up about 367% from August 2025 to June 2026, helping it raise billions from prominent backers including Jane Street.
Its private Anthropic stake largely held value while public positions fell about 67%, underscoring how leverage and timing risk—not just the AI thesis—drove the collapse.
The blowup adds to pressure on AI-linked investing, highlighting how momentum-fueled gains can reverse quickly when concentrated macro bets are financed with too much debt.
As complex debt fuels a trillion-dollar AI boom, which hidden financial domino will trigger the market's ultimate panic phase?
With foreign open-source models slashing costs, will America's heavily leveraged AI infrastructure become the most expensive obsolete asset in history?