Citadel's Ken Griffin Steps In to Buy Troubled AI Fund's Portfolio
Ken Griffin, founder and chief executive of Citadel, has once again positioned his firm as a source of stability in turbulent financial markets. This week, Citadel acquired a portion of the trading book of Situational Awareness, a California-based hedge fund that suffered losses of 67% in July after bets on artificial intelligence stocks soured.
Situational Awareness, founded by Leopold Aschenbrenner, a former researcher at OpenAI, was forced to unwind most of its $16 billion public equities portfolio. The sell-off in AI-related shares, which had been among the market's best performers, triggered the fund's decline. According to five people with knowledge of the matter, Griffin, 57, and his senior team began examining the fund's situation after rumours circulated that at least one firm was in trouble.
By Wednesday morning, Citadel executives had reached out to Situational Awareness. Griffin spoke directly with Aschenbrenner. Together with co-Chief Investment Officer Pablo Salame, Chief Operating Officer Gerald Beeson, head of equity quantitative research Perry Vais, and Chief Legal Officer Shawn Fagan, Griffin worked through the night to assess the fund's positions and the liquidity of its holdings. By Thursday, Citadel had purchased a significant portion of the portfolio.
"We let you down," Aschenbrenner wrote to his investors in a letter reviewed by Reuters. Representatives for Citadel and Situational Awareness declined to comment on the transaction.
The move is part of a long-established playbook for Griffin, who began trading from his Harvard University dormitory roughly four decades ago and now oversees $71 billion in assets. He has repeatedly stepped in to buy assets or provide capital to struggling firms during periods of market stress.
In 2001, when energy company Enron filed for what was then the largest bankruptcy in U.S. history, Griffin chartered a plane to send senior executives to interview Enron's traders and analysts. Many of those recruits later played key roles in building Citadel's commodities franchise. In 2007, Citadel took over a portion of Sowood Capital's portfolio after that fund became an early casualty of the global financial crisis. Earlier, it had rescued the energy portfolio of Amaranth Advisors, which collapsed after losing $6.4 billion on natural gas trades. In 2021, Citadel and Point72 Asset Management together injected $2.75 billion into Melvin Capital, a hedge fund that had suffered heavy losses on its bet against GameStop, a video game retailer.
Griffin has described his approach in investor communications. In a 2023 letter, he wrote: "During market stress, the collective judgment of our business leaders, risk managers and portfolio managers enables us to capitalize on market opportunities when others, who depend on simplistic stop-loss approaches, cannot."
The latest rescue comes at a time of heightened volatility in technology stocks, particularly those tied to artificial intelligence. Many investors had poured money into AI companies, driving valuations to elevated levels. When some of those bets turned sour, the impact was felt across the hedge fund industry.
One investor familiar with the deal, who was not authorised to speak publicly, noted that few firms have the capacity to absorb such a large volume of risk. "There are only a few firms that could take down this much risk," the investor said.
Reuters could not determine how much Citadel has made from the purchase. Since the transaction, many AI stocks in the acquired portfolio have risen, suggesting the deal could prove profitable for Citadel. However, the long-term performance of these investments remains uncertain.
The episode highlights the outsized role that large hedge funds like Citadel play in providing liquidity during market dislocations. It also raises questions about the stability of smaller funds that take concentrated, high-risk positions in volatile sectors.
