• Citadel has reduced its exposure to the Situational Awareness portfolio by over 80% in aggregate risk terms, according to a letter cited by CNBC.
  • The move follows heavy AI-related losses at the hedge fund, which prompted forced asset sales and margin calls.
  • Citadel's purchase of the bulk of Situational Awareness's public equity portfolio has left the fund with a smaller, leveraged book and significant private assets, including a stake in Anthropic.

Rapid Unwind

Citadel has dramatically cut its risk exposure to the AI-focused hedge fund Situational Awareness, shedding more than 80% of the aggregate risk from the portfolio, according to a letter seen by CNBC. The reduction comes after Situational Awareness, founded by Leopold Aschenbrenner, faced significant margin calls and a period of forced asset sales amid heavy losses in AI-related equities.

The fund, which had grown to over $20 billion in assets under management, was hit hard by the recent downturn in AI stocks. Citadel's purchase of the bulk of Situational Awareness's public equity portfolio has essentially unwound the leveraged bet, leaving the fund with a smaller, more manageable book. The private assets, notably a large stake in Anthropic, have been retained.

"The situation underscores the fragility of leveraged AI-focused strategies in a market downturn," said one industry observer. "Citadel's swift action to reduce risk is a prudent move, but it reflects the broader stress in the sector."

Market Context

The unwind is part of a wider wave of forced selling across AI-related equities, reminiscent of past episodes of tech-driven market stress. The sector has seen a sharp correction in recent weeks, with many leveraged funds facing similar pressures. Citadel's decision to offload the risk highlights the challenges even sophisticated investors face in navigating this volatile environment.

Reached for comment, representatives for Citadel and Situational Awareness did not immediately respond. The full details of the transaction, including the terms of the purchase and the exact reduction in risk, remain unclear. However, the move is a clear sign that the fallout from AI stock volatility is far from over.

This article has been updated to reflect the latest information available at the time of writing.