Ken Griffin’s Citadel reported its best monthly performance in years in July, driven in part by discounted purchases of public equities from the collapsed AI-focused hedge fund Situational Awareness, according to a person familiar with the firm’s performance.
The firm’s equities fund advanced 14.2% last month, bringing its 2026 returns to 27%, marking its best month ever. Citadel’s flagship multistrategy Wellington fund returned 5.9% in July, its strongest monthly performance since 2022, while its tactical trading fund gained 11.1% for the month and 27% year-to-date. The gains followed the acquisition of most of Situational Awareness’ public stock portfolio after the fund faced margin calls and was forced to sell assets at a steep discount.
Situational Awareness, led by former OpenAI researcher Leopold Aschenbrenner, unraveled rapidly after a sharp reversal in AI-related trades left it with losses on both sides of its book. The fund had accumulated large positions in AI infrastructure companies while betting against software stocks, a strategy that backfired as software shares rallied and AI hardware names declined. Prime brokers including Bank of America, Goldman Sachs, and JPMorgan Chase worked to reduce positions in an orderly fashion as the fund sought to meet margin requirements.
Bank of America CEO Brian Moynihan described the incident as a warning shot for leveraged markets, noting that elevated valuations and borrowed money had fueled the fund’s rise and subsequent collapse. Moynihan told CNBC that Wall Street’s largest prime brokers are reassessing exposure to highly leveraged investment firms, though he added that Bank of America would have been unaffected absent the Citadel deal, which provided capital for Situational Awareness to pay off its lenders.
"These are all warning shots," Moynihan said. "Valuations get out, leverage in the system gets there. You have to be careful."
The collapse has drawn comparisons to longstanding investing principles, with some market observers highlighting the risks of leverage and hubris in rapid wealth accumulation. Warren Buffett’s decades-long avoidance of excessive leverage and focus on long-term value investing were cited as a contrast to Aschenbrenner’s approach, which yielded a 1,000% gain since inception earlier this year before imploding.
Michael Burry, known for his role in the 2008 financial crisis, criticized Aschenbrenner’s strategy in an email, calling it emblematic of a generation of investors chasing momentum with borrowed money. "Aschenbrenner just wins the prize for his generation’s largest ego," Burry said. Other investors, such as Ross Gerber of Gerber Kawasaki Wealth and Investment Management, framed the episode as a lesson in the dangers of prioritizing quick riches over sustainable wealth-building.
Prime brokers involved in the unwinding process emphasized that they were working to minimize disruption to broader markets. Citadel’s acquisition of the discounted assets positioned the firm to benefit from a subsequent rebound in risk assets, underscoring the opportunistic nature of the trades.
The episode has prompted discussions among major financial institutions about tightening underwriting standards for leveraged funds, though Moynihan noted that adjustments would be incremental given the competitive landscape for financing hedge funds.