Situational Awareness, the hedge fund making headlines, explained

By Elisabeth Buchwald, CNN

(CNN) — For years, Situational Awareness was closely tracked by Wall Street, members of the AI community and its founder’s fiercest followers. Outside those circles, however, the multibillion-dollar hedge fund remained largely unknown.

But that was before it began unraveling this week.

Situational Awareness was founded in 2024 by German-born Leopold Aschenbrenner when he was in his early 20s. Aschenbrenner, a former OpenAI employee, founded the hedge fund on the premise that “AI will be the dominant driver of global market returns over the next decade,” according to the firm’s site.

In June 2024, he laid out his rationale in a 165-page essay, which argued that governments, businesses and investors underestimated how quickly AI would transform the economy.

He started Situational Awareness with early backing from prominent Silicon Valley investors, including the founders of payment processor Stripe. Aschenbrenner managed to turn hundreds of millions of dollars into tens of billions of dollars over the course of roughly two years.

During those two years, AI-related stocks saw plenty of swings, including when Chinese AI company DeepSeek caused investors to question whether American companies like Nvidia could compete. But Situational Awareness seemed to power through the uncertainty and continued growing.

That streak ended on Thursday, though, when the fund was forced to sell the bulk of its public holdings to a bigger rival after many of its investments went south.

But that’s only part of the story. The fund employed a risky strategy of borrowing money to purchase stocks. When the investments appreciate, the payoff can be massive. But when the investments sour, the losses can be catastrophic.

The downturn in AI stocks over the course of this month, like chip makers and cloud computing providers, hit the hedge fund extra hard. It was forced to sell off many investments at a steep discount to rival hedge fund Citadel in what Aschenbrenner reportedly compared to a “bank run” in a letter to investors.

Aschenbrenner also noted that the fund’s remaining positions are not being financed by borrowing, the Wall Street Journal reported.

Situational Awareness did not respond to CNN’s request for comment.

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