AI boom meets its leverage problem after 67% fund collapse

Leopold Aschenbrenner’s Situational Awareness AI hedge fund lost around 67% of its value in July. This was the result of margin calls leading the fund to sell its public portfolio. The collapse of such a fund poses a question for equity investors in regard to the second half of 2026. Despite accurately predicting the demand for AI, the fund almost experienced a catastrophe, making this event significant for reasons beyond a single hedge fund manager.

Whether or not the technology sector will remain as volatile going forward is one of the central questions now facing markets heading into the end of the year. The same names that have propelled stock indexes upwards can fall quickly as soon as leverage and liquidity meet a downturn, as was demonstrated in July.

Why a 439% winner lost two-thirds in a month

Situational Awareness was created by a former researcher from OpenAI and bagged returns of 439% in H1 2026 through about 4x leverage on concentrated bets on infrastructure and chips in the AI space, as per RCK Analytics’ paper on its collapse. However, that leverage had its downsides. As its positions fell between 35% and 47% in July, three prime brokers, including Goldman and JPMorgan, called margin, which the fund was unable to honor, leading it to sell its entire public equities book to Citadel.

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