Artem Voloskovets
The fund is more valuable by over 400 % in 2026 - it is the holder of assets worth approximately $45 billion. To achieve this the fund managers use borrowed money that is four times the amount of the available capital.
The market value for semiconductor shares decreased and this caused the Situational Awareness fund to lose approximately 67 % of its total worth in a period of multiple weeks. It is reported that the holdings dropped from a value of $45 billion to a value of approximately $10 billion - but this decrease in capital led to margin calls that the fund managers are unable to pay.
The outcome is that they sold most of the public equity portfolio which is worth approximately $16 billion to Citadel because they were required to do so.
The Securities & Exchange Commission is investigating the specific dates when the financial institutions executed trades. It is measuring the total funds that the lenders provided to the hedge fund. The regulators are evaluating the specific terms of the loan agreements. And the agency is reviewing the electronic messages that the bankers exchanged with the fund employees. There are currently no formal allegations of illegal activity against any financial institution.
4x Leverage Turned a Correction Into a Crisis
The statistics demonstrate how quickly the plan became likely to fail.
| Portfolio move | Approx. impact on equity at 4x leverage |
| -5% | -20% |
| -10% | -40% |
| -15% | -60% |
| -20% | -80% |
| -25% | -100% |
The calculation is simple because I have not but subtracted the costs for financing, the costs for hedges or the changes in the requirements for collateral.
The fund managed assets with a high ratio of debt to equity - because of those borrowing levels, it did not require a total loss in the value of artificial intelligence shares to experience financial distress. The fund owned assets that moved in the same price direction. In the event that the prices fell by 10 % to 20 %, the fund would lose most of its capital. There are agreements that allow lenders to require more cash or assets from the fund immediately when values drop - those lenders would likely demand such collateral during a market decline.
That creates a mechanical cycle:
AI stocks fall → collateral declines → margin calls rise → positions are sold → additional pressure hits AI stocks.
Citadel Absorbed the Forced Sale
The leaders of Situational Awareness did not sell approximately $16 billion of shares in publicly traded companies while prices were declining. They moved the majority of the financial assets to the investment firm Citadel.
Citadel subsequently cut more than 80% of the portfolio’s aggregate risk and reportedly executed nearly 100 block trades totaling more than $4 billion.
The transaction reduced the risk of billions of dollars of AI and semiconductor positions being dumped into public markets simultaneously.
The Archegos Question Returns
The Securities & Exchange Commission examines how the investment fund and the institutions that provide credit to it interact with each other.
The key question is whether Goldman Sachs, JPMorgan, Citigroup and Bank of America each understood the fund’s total leverage across all counterparties, rather than only their own exposure.
The situation is similar to the mechanics that caused the failure of Archegos in 2021, which resulted in a loss of 36 billion dollars. In that instance a few investment firms provided credit for large holdings of specific stocks. There were demands for additional collateral that the fund could not meet. And the subsequent liquidation of those assets caused the banks to lose billions of dollars.
Situational Awareness appears different in one important respect: the portfolio was transferred before a disorderly liquidation spread through the market.
The Numbers Behind the Collapse
- >$400% — Situational Awareness’s reported 2026 gain before the reversal.
- ~$45 billion — peak fund exposure/value cited around the strategy.
- Up to 4x — reported leverage.
- -67% — decline within weeks during the AI-stock selloff.
- ~$10 billion — reported value after the collapse.
- ~$16 billion — public-equity portfolio transferred to Citadel.
- >80% — amount of aggregate portfolio risk Citadel subsequently removed.
- ~100 — block trades reportedly used in the unwind.
- >$4 billion — value of those block trades.
- 4 major banks — Goldman Sachs, JPMorgan, Citigroup and Bank of America subpoenaed by the SEC.
The financial authorities oversee a situation that is more significant than the event where the fund lost 67 percent of its value.
Situational Awareness demonstrated that a concentrated AI portfolio supported by 4x leverage can move from +400% returns to forced liquidation within weeks.
The next question for regulators and investors is how many similar leveraged AI trades remain open across Wall Street.
Artem Voloskovets
