Griffin says Citadel unwound 80% of risk from AI fund fire sale

Ken Griffin told Citadel clients on Friday that his firm has unwound more than 80% of the aggregate risk from the portfolio it acquired from Leopold Aschenbrenner's Situational Awareness hedge fund, conducting more than 100 block trades representing over $4 billion in market value, according to a letter obtained by CNBC.cnbc

The disclosure marks the first detailed accounting from Citadel of how it has managed the massive position it took on during the final days of July, when Situational Awareness was forced to liquidate its public equity holdings amid a liquidity crisis.

The July Fire Sale

Citadel entered discussions with Situational Awareness on July 29 to acquire the fund's holdings, Griffin wrote in the letter. One day later, the deal was struck. Situational Awareness sold roughly $16 billion in leveraged equity positions — including stakes in SanDisk Western Digital Corporation ↘ 2.05%, Micron ↘ 0.77%, SK Hynix, and CoreWeave ↘ 2.13% — to Citadel at discounts of more than 10%, according to multiple reports.forbes+2

The forced sale came after margin calls from prime brokers Bank of America ↘ 0.27%, Goldman Sachs The Goldman Sachs Group, Inc. ↗ 3.73%, and JPMorgan Chase ↗ 0.01% as the fund's AI-heavy portfolio cratered. Situational Awareness had used leverage of up to 400%, with SanDisk and Micron alone comprising more than 56% of its disclosed U.S. equity holdings at the end of June. SanDisk fell 47% in July and Micron dropped 29%.marketwatch+1

The fund's assets collapsed from a peak of roughly $45 billion to approximately $10 billion.qz+1

How Wall Street Closed the Deal

Griffin credited the speed of the transaction to cooperation across Wall Street. "A transaction of this magnitude could not have been completed without the extraordinary cooperation of the trading and prime brokerage teams at the banks serving both firms," he wrote.cnbc

The deal proved immediately profitable. Citadel's flagship Wellington fund returned 5.94% in July, its best monthly performance since 2022. Before the Situational Awareness acquisition closed in the final week of the month, Wellington had been up only about 0.45%.finance.biggo+1

The Whisper Network

The Wall Street Journal News Corp ↗ 2.28% reported that traders across the market had sensed trouble days before the deal closed. David Mann, CEO of the Mannsion Group, received a call on July 29 from someone working on behalf of Aschenbrenner's fund asking if he wanted to buy a piece of the fund's Anthropic stake. "Aschenbrenner was being forced to sell," Mann told the Journal. "He needed the money and was sounding people out."wsj

The episode — the largest single trading loss on record at $35 billion, according to the Financial Times Pearson plc ↗ 1.31% — has become a case study in how leverage can transform a winning thesis into a forced exit. Aschenbrenner has since made a $400 million investment in an undisclosed private company, signaling his intention to rebuild.forbes+1