Leopold Aschenbrenner has written to investors in Situational Awareness after a week that took the AI-focused fund from the best-performing expression of the buildout trade to a forced deleveraging. The letter puts a number on the damage for the first time: net performance of -67% for July, leaving the fund up 80% for the year on an unaudited basis. It describes a bank-run dynamic in stocks publicly associated with the firm, and a block trade executed overnight on Wednesday that stripped all leverage out of the portfolio. Aschenbrenner takes personal responsibility, says virtually all of his own capital remains in the fund, and insists the fund has not been wound up.
The Latent reported yesterday that Situational Awareness had approached investors and lenders for fresh capital as the semiconductor selloff pushed the Nasdaq 100 into correction, and later that day that Citadel had won the fund's public stock book in a single transaction, outbidding Millennium, with assets down to roughly $10 billion from a net asset value of $45 billion on July 1.
What the letter adds
The performance figures are new, and they reconcile. A dollar invested on January 1 was worth about $5.39 at the end of June. At +80% year to date it is worth about $1.80 now. That is the entire first half surrendered in four weeks, and it is consistent with the -67% monthly figure rather than in tension with it.
The mechanism is also new. Aschenbrenner does not describe a margin call so much as a reflexive one: as core positions moved, he says trading in names publicly linked to the fund turned adverse, liquidity thinned, and keeping the portfolio inside its risk parameters became progressively harder. Vulnerability begetting vulnerability is his phrase for it. That is a different story from the one told by the stock moves alone, and it is the argument for why the fund chose a single overnight block trade over a slower unwind.
The most pointed passage is the denial. The Financial Times reported that Situational Awareness would continue as a private investment firm. The letter says flatly that the fund was not shut down, liquidated or transformed into a private-only fund, and that it remains a hybrid public-private vehicle, just one running its public book with no borrowed money while it works out what went wrong.
What it does not say
Citadel is not mentioned. Neither is the price, which is the number that determines how much of the 439% was actually realised on the way out versus marked down and held. The letter gives no current assets figure, no size for the remaining private book, and no detail on the Anthropic stake that the FT put at about $5 billion. That is roughly half of what is left, and the one position that does not reprice when the Nasdaq does.
Nor does it address the August 1 window. Aschenbrenner's July 24 letter, written before the worst of the drawdown, called the selloff the most attractive entry point since early 2025 and invited investors to add capital on Saturday. This letter says the opportunity set is very optimistic and that fundamentals are accelerating into lower prices, but it does not say whether that window is still open. Investors will get 1:1 calls next week, and a group call.
Primary source: Aschenbrenner’s letter to investors
Dear Partners,
We let you down this month. We came closer to permanent capital impairment than is acceptable to us. While we ultimately found a solution that protected the fund and you as investors, our intention in running the fund is to never find ourselves in such a position in the first place.
Volatility is the price of long-term investment returns. Over the past two years, we have delivered outstanding results, despite occasional sharp pullbacks. But our fund must always be structured such that we can take a loss and fight another day.
I will make it my mission to ensure that we learn the necessary lessons from this experience.
Here is where things stand:
The portfolio experienced a significant drawdown over the course of July, which was exacerbated by extreme moves in core positions over the past week. Many AI names drew down by half or more, while our positive L/S spread reversed violently. While we could say much about how unusual the month was, we hold ourselves to a higher standard, irrespective of market conditions.
As these moves proceeded, we started to see increasingly adverse trading in names publicly associated with us. These dynamics are essentially similar to a bank run: vulnerability begetting more vulnerability. We worked to keep the portfolio within our risk parameters, but gradually this became more difficult as positions rapidly moved against us and market liquidity dried up.
On Wednesday night/Thursday morning, we took decisive action to protect LP capital. We traded a portion of our public portfolio in a block transaction to remove all leverage from the fund, and prevent further losses. All shorts were closed and reliance on portfolio financing removed. We currently manage a fully-paid-for public book (long stock and long fully-paid-for options, with no margin/liquidation risk). This restored stability and allowed us to preserve our private positions.
I take full responsibility for these events.
To be clear, this should rightly have been a very painful month in terms of the performance of our fund: when AI stocks draw down dramatically while AI technical/business fundamentals are improving, you should expect our fund to be down a lot. We embrace volatility. But it should never jeopardize the fund.
The fund was not shut down, liquidated, or transformed into a private-only fund. We are continuing to operate as a hybrid public-private fund as before. However, we will manage our public book on a fully-paid-for basis while we draw the lessons from these developments. Most importantly: we took the steps that were necessary to fight another day.
In the coming weeks, I will focus on putting in motion the necessary changes-across our portfolio management, risk team, and vigilance applied across the board-to ensure a higher level of resilience going forward. AI may continue to intensify market volatility for years to come. These were very expensive scars, but I am dedicated to ensuring they will be invaluable lessons for our organization and for myself as we move forward. My core promise to you is that we will not waste the opportunity to learn from these events.
On the portfolio itself: we are very optimistic about the current investment opportunity set. The underlying fundamentals are accelerating at the very same time that prices have declined significantly.
Thank you for your patience and your partnership. I am fully invested alongside you-virtually all of my capital is in the fund-and I intend to work relentlessly to demonstrate that the events of this month have made me a wiser and stronger investor. I am available next week for 1:1 phone calls with each of you to discuss all of the above.
As an interim update, our current, unaudited estimate of net MTD performance is -67%, and of net YTD performance is +80%. Final figures will follow through our normal reporting process.
We will follow up regarding a group call next week to share further details.
All the best, Leopold