Leopold Aschenbrenner told investors that his AI-focused hedge fund Situational Awareness will continue operating after suffering steep losses in July, while pledging to eliminate bank leverage from its investment strategy.
According to the Financial Times, the fund declined 67% in July following a sharp selloff in AI-related stocks. Despite the setback, the fund remains up approximately 80% year-to-date, reflecting the outsized gains generated earlier in 2026 before the recent correction.
In a letter to limited partners, Aschenbrenner acknowledged the severity of the losses, describing them as “very expensive scars” that would shape the fund’s future approach to risk management.
“These were very expensive scars… But our fund must always be structured so that we can survive a loss and continue the fight. My main promise to you is that we will not fail to learn from these events.”
The fund will continue investing in publicly traded companies tied to artificial intelligence but will no longer use bank borrowing to increase the size of its positions. The decision marks a significant shift in strategy after leverage amplified losses during the sector’s recent downturn.
The move comes as investors across the technology sector reassess valuations following one of the sharpest corrections in AI infrastructure stocks since the boom began. Companies including NVIDIA, semiconductor manufacturers, and AI-related hardware suppliers have experienced heightened volatility amid concerns over AI spending, financing structures, and long-term demand.
Separately, reports indicate that Situational Awareness did not sell its stake in Anthropic during Citadel’s recent transaction involving a portfolio of private company holdings. Maintaining the investment suggests Aschenbrenner continues to hold a long-term conviction in one of the leading AI model developers despite reducing financial leverage elsewhere in the portfolio.
The fund’s decision to abandon leverage while retaining exposure to AI equities highlights a broader shift taking place among investors. Rather than reducing exposure to artificial intelligence altogether, many market participants are instead focusing on improving risk management after a period of exceptional volatility.
Aschenbrenner, who became widely known for his essay Situational Awareness on the future of artificial intelligence, launched the hedge fund to capitalize on what he viewed as a multi-year AI investment cycle. The latest changes suggest that while his long-term investment thesis remains intact, the fund is adopting a more conservative approach to portfolio construction following its most difficult month to date.Leopold Aschenbrenner said his AI-focused hedge fund will stop using bank leverage after losing 67% in July while remaining up 80% for the year.
