New York —
The meteoric rise and stunning near-collapse this week of a US hedge fund has sent shockwaves across global markets, becoming a kind of cautionary tale for the AI era.
On Thursday, the San Francisco fund Situational Awareness, founded by a former OpenAI researcher with no professional investing experience, was forced to sell the bulk of its public holdings to a bigger rival after its investments soured and it faced a raft of margin calls from lenders.
In a matter of days, the aggressively AI-concentrated fund went from being the envy of Wall Street — Situational was reportedly up more than 400% this year — to needing a bailout by a larger rival, a dramatic turn that’s deepening investors’ anxiety about the sustainability of the AI momentum trade and the risks of leaning on leverage.
But much of what ailed the firm is not unfamiliar to investors around the world, as they’ve sought to amplify their exposure to the parabolic gains in AI-related stocks. Situational borrowed heavily from lenders to buy tech stocks, a strategy that works well when the market is going up, and fails spectacularly when the mood sours.
