U.S. hedge fund Citadel, led by Ken Griffin, acquired most of the listed shares portfolio of Situational Awareness (SA), an artificial intelligence (AI)-focused hedge fund that fell into a liquidity crisis.
A major hedge fund that led the AI investment boom has crumbled under the aftershocks of high-leverage bets, rekindling debate on risk management on Wall Street.
According to the Wall Street Journal (WSJ) and the Financial Times (FT), Citadel on the 30th (local time) agreed, after talks that continued until just before the New York market opened, to acquire at a discount SA's portfolio of listed shares worth about $16 billion.
The transaction is said to have been concluded as SA moved to dispose of its asset holdings to respond to margin calls (additional collateral demands) from financial institutions.
SA is an AI-focused hedge fund founded by former OpenAI researcher Leopold Aschenbrenner. In about two years, it grew assets under management (AUM) to more than $20 billion and was regarded as one of the fastest-growing hedge funds on Wall Street. At one point, its assets under management reportedly reached as much as $45 billion.
Aschenbrenner drew attention with a 165-page report released last year titled "Situational Awareness," arguing that in the AI era the biggest bottleneck is not semiconductors but power and data center infrastructure. Based on this view, he focused investments on AI infrastructure and supply chain corporations such as SK hynix(000660), SanDisk, Bloom Energy, and Nevious, delivering high returns.
However, the aggressive investment strategy turned into a weakness during a market correction. SA had a high share of high-leverage bets using bank borrowing and derivatives, and as AI Semiconductor and infrastructure-related stocks plunged in July, it incurred large mark-to-market losses. Successive margin calls from financial institutions then made it inevitable to sell core asset holdings.
However, SA excluded from the sale its unlisted investment assets, including about $5 billion in equity in AI startup Anthropic. It plans to continue running the fund.
In the market, there is analysis that this forced sale was one of the key factors that intensified the plunge in global AI Semiconductor stocks in July. The cascading sell-offs by leveraged investors increased market volatility, they said.
On the other hand, some offer a different read of Citadel's move. After Citadel issued an investment report reflecting the possibility of U.S. interest rate hikes and raised the prospect of a market correction, there is suspicion that it laid the groundwork to buy assets in a liquidity crunch at low prices. However, no clear evidence has been confirmed to support this.
There is also analysis that this transaction did not resolve anxiety across the AI investment ecosystem as a whole. Other hedge funds holding AI-related stocks with high levels of borrowed money could face similar liquidity pressures when market volatility widens.
Still, with concerns over SA's large-scale forced liquidation eased for now, investor sentiment recovered quickly. After news of Citadel's portfolio purchase, buying flowed into AI Semiconductor and infrastructure-related stocks on the New York market, leading to a rebound.