After bottom-fishing Situational Awareness, Citadel flagship fund surges 6% in a single month

Ken Griffin's Citadel made a precise move amid the crisis at AI hedge fund Situational Awareness, turning a wave of market turmoil into outsized gains for itself.

Citadel's flagship fund Wellington surged 5.9% in July, driven primarily by the company's lightning-fast acquisition of Situational Awareness's disclosed equity holdings at a roughly 10% discount.

According to Bloomberg, citing people familiar with the matter, this transaction pushed Citadel's year-to-date returns to 12%. Notably, before the deal was launched in the last week of July, Wellington’s monthly gain was only about 0.45%, meaning that the profit from the discounted acquisition was realized almost immediately.

The acquisition also had a broader spillover effect. The forced sale pressure on AI stocks by Situational Awareness had been aggravating the decline in tech stocks, but Citadel’s intervention helped stem further market downturns. Several of Situational Awareness's top holdings rebounded sharply the day after the deal closed, with SanDisk posting nearly a 30% gain since last Wednesday.

Discounted Acquisition, Overnight Deal

Citadel approached Situational Awareness late at night on July 29, negotiated through the night, and completed the signing in less than 24 hours, with the acquisition price about 10% below market value.

Reportedly, in this bidding race, Citadel outcompeted trading firm Jane Street and fellow multi-strategy hedge fund giant Millennium Management to secure this target asset.

Timing was crucial for the purchase. At the time, tech stocks were already under selling pressure, and the tech-heavy Nasdaq 100 index briefly fell into a correction zone.

Citadel's own funds were also lackluster in the early weeks of July, with Wellington posting almost no return for the month as of July 24. As the stock market continued to decline over the following three trading days, the cost advantage of the discounted acquisition became even more pronounced.

Situational Awareness: From 400% Yields to Forced Liquidation

Situational Awareness, founded by former OpenAI researcher Leopold Aschenbrenner, once centered its strategy on betting on leading AI revolution companies, delivering over 400% returns in the first half of this year thanks to highly leveraged positions, and peaking in early July with $45 billion in assets under management.

However, the rapid plunge in AI-related stocks quickly exposed the risks of the fund’s high leverage. Lenders grew increasingly worried about unrealized losses, forcing Aschenbrenner to liquidate large positions to respond to margin calls.

Before the sale to Citadel, Silicon Valley venture capital firms Greenoaks and Sequoia Capital were also approached to see if they had interest in taking over some of the fund’s private equity positions.

Regulatory filings show Situational Awareness’s prime brokers include Goldman Sachs, JPMorgan Chase, and Bank of America.

Reportedly, investors in the fund include D1 Capital Partners founder Dan Sundheim, Greenoaks founder Neil Mehta, funds tied to XN founder Gaurav Kapadia, and former Tiger Global Management head of public equities Feroz Dewan.

Tech Stock Turbulence Hammers Peers

The troubles of Situational Awareness reflect the broad pressures facing the entire tech-themed hedge fund sector in July. Hot holdings like South Korean chipmaker SK Hynix tumbled nearly 50% from their June peaks, causing severe losses for many funds betting on the AI supply chain.

Whale Rock Capital Management’s flagship hedge fund fell 21.7% in July; Point72 Asset Management’s AI hardware and semiconductor-focused Turion fund dropped 11.4% that month.

By comparison, Citadel itself had struggled earlier in the year—instability in the Middle East at the start of the year hit some core trading strategies, causing temporary losses. This bottom-fishing move for Wellington helped the fund rebound for the month and also repaired its overall performance for the year.

"Classic Ken": Citadel's Crisis Hunter DNA

Those familiar with Citadel's history are not surprised by this move.

On the very day Enron filed for bankruptcy in 2001, Griffin immediately dispatched more than ten top executives via private jet to Houston to investigate the failure, and soon after poached several of the company’s top analysts.

In 2006, when Amaranth Advisors blew up due to failed natural gas bets, Citadel joined JPMorgan to buy out its entire trading book.

In 2007, after Sowood Capital Management collapsed, Citadel once again stepped in to acquire its credit investment portfolio.

"That's classic Ken," said a former employee who worked closely with Griffin, "He’s played this card many times... There are very few people in the world who can do what he does."