A precise response to the AI selling wave? Citadel resolves over 80% of acquisition portfolio risks, flagship fund records its best monthly performance since 2022.

On Friday, Ken Griffin, founder of Citadel, provided clients with a detailed account of how the company managed assets acquired from the Situational Awareness hedge fund. Griffin stated that Citadel has mitigated over 80% of the overall risk of the initially acquired portfolio through more than 100 large trades, with the market value of related transactions exceeding $4 billion. According to a client letter obtained by the media, Griffin indicated that Citadel began negotiations with Situational Awareness on July 29 to discuss the acquisition of part of the fund's holdings. The following day, it was reported that Situational Awareness was forced to sell its entire public market equity positions after suffering substantial investment losses, and Citadel was confirmed as the purchaser of these assets. In the letter, Griffin noted that the swift completion of such a large-scale transaction was made possible by the close collaboration of the banking trading team and prime brokerage team that served both parties. He expressed gratitude for the support provided by the involved institutions during the rapid transfer of the portfolio. After completing the asset acquisition, Citadel quickly made risk adjustments to this vast investment portfolio. Griffin revealed that the company has disposed of assets valued at over $4 billion through more than 100 large trades, successfully alleviating over 80% of the overall risk exposure of the original portfolio. The flagship fund rose 5.94% in July, marking its best single-month performance since 2022. Griffin also confirmed that Citadel's flagship multi-strategy fund, Wellington Fund, achieved a return of 5.94% in July, making it the top-performing month for the fund since 2022. Situational Awareness previously made concentrated bets on AI-related trades. The fund was founded by 25-year-old Leopold Aschenbrenner, whose core investment thesis was based on the belief that AI would fundamentally reshape the global economy and society. In terms of specific strategies, Situational Awareness heavily invested in AI-related stocks while shorting certain software companies, betting that the business models of traditional software firms would be impacted by AI technologies. However, this highly concentrated long-short strategy faced severe setbacks in June and July. Despite relatively stable performance of major stock indices during that period, some AI-related stocks heavily owned by Situational Awareness experienced sharp declines. Notably, stocks like SanDisk (SNDK.US) and Bloom Energy (BE.US) saw decreases of over 50%. At the same time, the software stocks that the fund was shorting began to rebound. For example, Adobe (ADBE.US) saw its share price recover, leading to losses not only on the AI long positions but also on the software short positions for Situational Awareness. The simultaneous impact on both long and short positions ultimately led the fund to face margin calls and be forced to liquidate assets. Situational Awareness subsequently cleared out its public market equity positions, while Citadel emerged as a key purchaser of the related assets. Dramatically, after Situational Awareness was compelled to sell its assets and Citadel stepped in, the previously pressured AI trades experienced a notable rebound. From a market perspective, the timing of Situational Awareness's large-scale liquidation of public market assets nearly marked the bottom of the ongoing adjustment phase of AI-related stocks that began in June. This also implies that Citadel took over the relevant investment portfolio at a time when market pressures were most severe, as Situational Awareness was forced to liquidate assets due to margin pressures, and the subsequent rebound in the AI sector improved the market environment for these assets. However, Griffin's disclosure indicates that Citadel did not simply hold all the acquired assets long-term; rather, it promptly engaged in risk management following the acquisition, having alleviated over 80% of the overall risk through more than 100 trades with a total market value exceeding $4 billion. This transaction not only highlights Citadel's execution capabilities in large and complex asset trades and risk management, but also reflects the impact of the severe fluctuations in AI trading on high-concentration investment strategies. Situational Awareness was forced to liquidate after suffering losses on both AI longs and software shorts, while Citadel took over the assets during significant market adjustments, leading its flagship Wellington Fund to later achieve the best single-month performance since 2022.