Citadel Rescues AI-Focused Hedge Fund
Synopsis
Ken Griffin's Citadel stepped in to support Situational Awareness after losses on AI stock bets pushed the fund into distress.
Key Highlights
- After a hedge fund lost 67% of its value in July, Citadel purchased part of Situational Awareness’ portfolio.
- The fund was backed with a US$16 billion public equities portfolio but had to unwind most of it.
- Citadel founder Ken Griffin led the firm’s review of the deal.
Citadel, the hedge fund of billionaire investor Ken Griffin, bailed out Situational Awareness, a California-based AI-focused fund that suffered significant losses following a broad sell-off in artificial intelligence stocks.
Situational Awareness lost 67% in July and was forced to unwind a large portion of its US$16 billion public equities portfolio. Citadel had acquired some of the fund’s positions by Thursday. The founder Leopold Aschenbrenner, the company’s former researcher at OpenAI, had written to investors: “We let you down”.
Citadel Conducted Overnight Review
After hearing that a hedge fund was in trouble, Griffin gathered senior executives to see what happened. Griffin had a one-on-one with Aschenbrenner while Citadel co-Chief Investment Officer Pablo Salame, Chief Operating Officer Gerald Beeson, Head of Equity Quantitative Research Perry Vais and Chief Legal Officer Shawn Fagan worked overnight analysing trading positions and the fund’s liquidity.
The Evolution of Bailouts
The transaction is the continuous illustration of Citadel’s willingness to step in at times of market tension. Griffin sent senior executives to recruit the company’s energy traders and analysts after it filed for bankruptcy in 2001, helping Citadel to grow its commodities business.
The $3 billion hedge fund ran into trouble in the financial crisis of 2007 and Citadel acquired part of Sowood Capital’s portfolio. The shift came after Citadel rescued the energy portfolio of Amaranth Advisors, which lost $6.4 billion from bad bets on natural gas trades.
Citadel, and Point72 Asset Management injected US$2.75 billion into Melvin's former COVID19 fund losses tied to the GameStop short squeeze back in 2021.
Griffin’s Investment Approach
Griffin got his start investing while he was a student at Harvard University and founded Citadel in 1990. The firm now manages around US$71 billion in assets. The personal fortune of Griffin as per Forbes is around $52 billion, he also co-founded Citadel Securities.
Griffin, who spoke in June on the Goldman Sachs Great Investors Podcast, told investors they should concentrate on the worst-case scenario and asked, “Can I tolerate that loss?” while ensuring portfolio exposures remain under control.
Source: Reuters
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