Regulators Warn $3.7 Trillion Stock Leverage Leaves Market Exposed After AI Fund Implodes
Updated
Updated · The New York Times · Sep 30
Regulators Warn $3.7 Trillion Stock Leverage Leaves Market Exposed After AI Fund Implodes
2 articles · Updated · The New York Times · Sep 30
Summary
$3.7 trillion in hedge-fund borrowing from banks by midyear has regulators warning that stock-market leverage is at a record and remains a key vulnerability after Situational Awareness nearly collapsed.
Situational Awareness—an eight-person hedge fund founded in 2024—used tens of billions of dollars in bank financing to build a concentrated bet on AI stocks, which unraveled over the summer as holdings fell sharply.
Goldman Sachs, Bank of America and other major lenders extended that credit despite thin risk oversight at the fund, according to regulatory filings and people briefed on the matter.
The fund avoided failure by selling much of its portfolio to repay lenders, but regulators say the episode exposed how heavily banks are still financing bullish equity bets.
Treasury data show hedge-fund borrowing has more than tripled from the start of the pandemic, underscoring how quickly leverage has grown even as markets remain vulnerable to sharp reversals.