AI Hedge Fund “Situational Awareness” Crashes After Semiconductor Selloff

Leopold Aschenbrenner’s hedge fund, Situational Awareness, announced to investors that it had let them down after a margin call threatened to wipe out the fund. The call was triggered by a sharp decline in the VanEck Semiconductor ETF (SMH), which fell roughly 25% from its year-to-date peak during a broader semiconductor selloff. To meet the call, the fund sold its public equity positions to Citadel, a long-standing Wall Street hedge fund that subsequently profited from the trade.

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After being fired from OpenAI in April 2024, Aschenbrenner published an essay titled “Situational Awareness,” which later became the name of his hedge fund. The publicity helped him raise $225 million, and by June 2025 the fund’s assets had reportedly swelled to $45 billion, driven largely by inflows and leverage that reached up to 400%, according to CNBC. The fund’s strategy centered on riding the AI and semiconductor trends rather than on traditional risk-adjusted alpha generation.

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The fund’s exposure to SMH amplified the impact of the 25% ETF drop, leaving it unable to cover its leveraged positions. The forced liquidation to Citadel was necessary to satisfy margin requirements, and the fund now faces additional tax liabilities from the rapid selling. Despite the collapse, the fund’s private stake in Anthropic kept its year-to-date return around 80%.

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The fund’s distress contributed to a broader selloff that pushed a favored technology closed-end fund into discount levels not seen in over a decade. Investors who avoided leverage and simply held SMH avoided margin calls and have seen their holdings recover as the semiconductor market rebounded.

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The episode underscores the dangers of excessive leverage and trend-chasing in hedge-fund strategies, especially when market sentiment shifts abruptly.

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