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AI hedge fund forced to cut stock exposure after collateral demands
Situational Awareness, a 2024 AI-focused fund, saw its portfolio value drop 67.0% in July after offloading tech shares funded with bank loans to Citadel.
Chinese investors are being warned about leverage and chasing market fads after volatility in US tech shares triggered a rapid portfolio sell-off by a Wall Street hedge fund, according to the South China Morning Post.
The outlet said Shanghai-based public-markets analyst Harry Shen urged investors to avoid leverage, while market veteran Michael Zhang cautioned against trading with borrowed money and chasing hot topics when others may be exiting.
The sell-off followed the collapse of Situational Awareness, a fund founded in 2024 that bet heavily on AI. SCMP Economy reports the fund offloaded billions of dollars’ worth of technology shares to Citadel on Thursday, but the move came after it could not meet collateral demands from lenders.
SCMP Economy also reported that in July alone the fund’s portfolio value plummeted 67.0%, citing a letter to investors mentioned by the Wall Street Journal. It pointed to sharp swings in AI supply chain holdings, including SK Hynix shares down more than 10.0% since its July 10 Nasdaq listing, and SanDisk and Nebius each down more than 30.0% over the past month.
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