Right on AI, Killed by Leverage: Hedge Fund Plummets 67% in July Amid Margin Call
FinanceYF5 · x · 2026-07-31
A hedge fund named "Situational Awareness" correctly predicted the AI wave and gained a massive 439% return in the first half of the year. However, it crashed by 67% in July and was forced to sell off most of its portfolio to Citadel.
What Happened:
- Named after Leopold Aschenbrenner's famous essay on AI's next decade, the fund heavily invested in AI infrastructure (chips, storage, data centers, power) while shorting software companies like Adobe.
- A market reversal in July hit both sides: AI hardware stocks plunged while software stocks rallied.
- High leverage meant the fund couldn't survive the margin call to see the long-term thesis play out.
This highlights a brutal market reality: being right about the macro direction doesn't matter if leverage takes you out before the payoff.
Related event: Ex-OpenAI Staffer's AI Hedge Fund Blows Up, Citadel Takes Over $16B(41 posts)→
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