Situational Awareness rebuilds broker ties after record hedge fund loss

Leopold Aschenbrenner’s hedge fund Situational Awareness is rebuilding its trading infrastructure with new brokerage relationships as it attempts to recover from what ranks as the largest loss in hedge fund industry history. The fund, which suffered tens of billions of dollars in losses during this summer’s artificial intelligence sell-off, has begun working with the specialist brokerage Clear Street, according to people familiar with the matter, as Aschenbrenner reconstructs a portfolio of aggressive bets on technology companies.

The move marks the latest step in a dramatic rebound effort by Aschenbrenner, a mid-twenties investor who became the star of the AI boom before the market turned against him. Situational Awareness averted a near collapse in July by offloading most of its public-market positions to Ken Griffin’s hedge fund Citadel. At the time, Aschenbrenner told investors he would “fight another day” and “learn the necessary lessons” from the sell-off, which caused a 67 per cent plunge in the fund’s assets during that single month. Despite the damage, the fund was still up 80 per cent for the year, he wrote in a letter to investors at the end of July.

The new relationship with Clear Street is significant because hedge funds rely on brokers not only to execute trades but also to provide financing. Clear Street, while well known in the hedge fund world as a tech-focused brokerage, is considerably smaller than the Wall Street giants with which Situational Awareness has previously worked, including Goldman Sachs, JPMorgan and Citigroup. The choice suggests a more measured approach as the fund seeks to restore its footing.

Aschenbrenner is now rebuilding large trading positions in semiconductor manufacturers including AMD, Intel, SK Hynix and Sandisk, as well as AI start-ups such as CoreWeave, according to people familiar with the matter. These trades are being structured through specialised options contracts that allow traders to customise the terms of their exposure. The fund has paid small premiums to make these bets, which provide magnified upside potential through the leverage embedded in the contracts.

The structure of the new positions reflects a deliberate shift in risk management. Aschenbrenner told investors in July that Situational Awareness would “manage our public book on a fully-paid-for basis while we draw the lessons from these developments.” Fully-paid options reduce risk because the fund can only lose the premium it has already paid to open a trade, and nothing more. This stands in contrast to the leveraged strategies that contributed to the fund’s earlier losses. Some prime brokers who have been in discussions with the fund say Aschenbrenner has indicated he will use far less leverage than before as he reboots.

The episode offers a case study in the hazards of concentrated, leveraged positioning in a sector prone to sharp reversals. The AI trade that made Aschenbrenner’s reputation also nearly destroyed it when sentiment shifted, and the speed of the drawdown underscored how quickly market dynamics can overwhelm even the most confident thesis. The fund’s survival, secured by the sale to Citadel, preserved a platform that might otherwise have been forced to liquidate entirely.

The questions now concern execution. Building relationships with smaller brokers may provide flexibility and bespoke service, but it also means working with firms that have less balance sheet capacity than the largest prime brokers. Whether that constraint proves limiting depends on the scale of the positions Aschenbrenner intends to build. The fund’s stated commitment to fully-paid structures and reduced leverage suggests a recognition that survival requires different habits, but the underlying strategy remains aggressive bets on technology names.

For investors watching the AI trade, Situational Awareness serves as a reminder that the sector’s upside is matched by its volatility. A fund that was up 80 per cent for the year even after a 67 per cent monthly collapse shows how extreme the swings can be. The rebound effort will test whether Aschenbrenner can apply the lessons he has said he learned, and whether a smaller, more cautious infrastructure can support the kind of returns that once made him the face of the AI investing boom.