Jane Street Takes $15 Billion Hit From AI Selloff
Synopsis
Jane Street suffered a $15 billion July loss linked to the AI selloff, despite generating more than $40 billion in trading revenue so far this year.
Key Highlights
- Jane Street suffered a $15 billion hit in July from its exposure to Situational Awareness and other technology stocks.
- The firm has generated more than $40 billion in trading revenue so far this year.
- July was Jane Street’s first month of negative trading revenue since 2016.
- The firm has pulled back from areas where it suffered losses and become more selective about taking risks.
Jane Street suffered a $15 billion hit in July from its exposure to AI-focused hedge fund Situational Awareness and other technology stocks caught up in the market selloff, according to two people familiar with the matter and an internal note reviewed by Reuters.
Despite the losses in July, Jane Street has generated more than $40 billion in trading revenue so far this year. That already exceeds the $39.6 billion it generated during the whole of last year.
Losses Linked to Situational Awareness
Situational Awareness, which is run by former OpenAI researcher Leopold Aschenbrenner, sold much of its stock portfolio in July in a fire sale to billionaire Ken Griffin’s Citadel after margin calls were triggered by the AI market selloff.
Jane Street is one of the investors in Situational Awareness. Executives at the trading firm described July as a “bad month” and said the hedge fund’s drawdown contributed to the company’s weak performance.
Jane Street said its investment in Situational Awareness had grown substantially after the fund delivered strong returns during the first half of the year. Following the drawdown, the firm’s stake was roughly flat for the year, although it remained profitable over the full investment period.
AI Stocks Drive Further Losses
Jane Street also lost money on long positions in Asian non-AI stocks that had performed strongly earlier in the year. The firm said AI-related stocks came under heavy pressure in July, with several major memory and semiconductor companies falling by roughly 50%.
Jane Street said its short-term hedges offered limited protection because the losses across AI-related stocks were spread throughout the month rather than occurring in a single sharp move.
Jane Street Cuts Risk
July marked Jane Street’s first negative month of trading revenue since 2016. Revenue was also around 25% below its peak at the end of June.
The firm employs about 3,500 people and provides liquidity across ETFs, equities, bonds, options, commodities and currencies. It has direct access to more than 200 trading venues around the world.
Following the July losses, Jane Street said it had become more selective about the risks it was willing to take. The firm has closed a significant portion of its positions in areas where it suffered losses and reduced exposure across other strategies.
Jane Street said its current positions remain appropriate for its risk tolerance. Strong market volumes and improvements in some of its short-term strategies have continued to support trading performance.
Source: Reuters
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