A leading AI-focused hedge fund, Situational Awareness, led by a young former OpenAI researcher, reportedly sold the majority of its public stock holdings to Citadel after a painful AI stock downturn, while retaining private stakes.

The founder, Leopold Aschenbrenner, rose to prominence advocating massive investment in AI hardware and infrastructure, then left OpenAI amid internal disagreements and built the fund in 2024, facing amplified losses as AI infrastructure stocks slid.

Despite the drawdown, the fund had told investors it was up sharply through June and framed the market correction as a buying opportunity, signaling ongoing optimism about AI infrastructure.

The unwind opens doors for risk-management platforms and analytics services geared to institutional clients, with monetization expected from subscriptions and emphasis on real-time data accuracy through data-provider partnerships.

Industry observers note the unwind while the fund still contends with a mix of public and private holdings, hinting at a strategy to rebuild liquidity rather than outright collapse.

Private investments remain for the fund, including a sizable stake in Anthropic, which has signaled possible IPO activity and is being marketed to raise liquidity while private holdings persist.

The fund continues to hold private equity and data-center assets amid the unwind, maintaining a path forward through private stakes even as public positions are pared back.

As of the latest disclosures, the fund’s public holdings totaled billions with large bets on AI hardware and infrastructure firms, and it had disclosed crypto-adjacent positions among its assets.

Market context from analysts points to financing uncertainty, capex pressures, and weak free cash flow in big tech as key drivers of AI stock volatility, aligning with the fund’s concentrated exposure and losses.

The fund’s reported assets and margins showed a meteoric rise to roughly $45 billion under management before a sharp July downturn, with a significant unwind of leveraged bets.

Prime brokers including Bank of America, Goldman Sachs, and JPMorgan Chase are assisting with margin requirements and orderly de-risking, signaling a coordinated wind-down across long and short positions.

In July, the fund described the tech rout as a buying opportunity and pointed to Anthropic’s IPO as a potential catalyst, underscoring cautious optimism about AI infrastructure despite liquidity pressures.