JPMorgan Chase has decided to end its lending relationship with Situational Awareness, the hedge fund founded by former OpenAI researcher Leopold Aschenbrenner, after significant losses from its artificial intelligence-related investments brought the firm close to collapse, according to a source familiar with the matter.
The development, reported on September 11, comes after Situational Awareness suffered a sharp decline in the value of its portfolio during a global selloff in chip stocks. The AI-focused fund had built large positions in companies linked to the artificial intelligence industry, generating strong returns before the market downturn exposed the risks associated with its leveraged investments.
JPMorgan was among the hedge fund’s key lenders. Following the losses, the bank informed Situational Awareness that it would terminate its lending relationship, the source said.
The fund has also taken steps to reduce its exposure to public equities. It liquidated most of its publicly traded stock holdings and transferred them to Citadel after the global decline in chip stocks caused substantial losses on its leveraged positions.
Aschenbrenner launched Situational Awareness in 2024 and quickly attracted attention for his investment strategy focused on companies involved in the rapidly expanding AI sector. The founder, who is in his mid-twenties, became known for making substantial bets on the AI ecosystem and producing notable returns.
Despite JPMorgan’s decision to withdraw as a lender, Situational Awareness continues to work with several major Wall Street firms. Goldman Sachs, Citigroup and Bank of America remain active brokers for the hedge fund. The firm has also recently begun working with Clear Street, a New York-based brokerage company.
JPMorgan, Goldman Sachs, Citigroup and Bank of America declined to comment on the situation. Situational Awareness did not immediately respond to requests for comment. The Financial Times was the first to report JPMorgan’s decision.
Sharp decline in portfolio value
The difficulties emerged in July, when a broad selloff in global semiconductor stocks triggered a margin call at Situational Awareness. The development left the fund facing pressure to either secure additional capital from investors or sell its entire portfolio.
According to information the fund provided to investors last month, the portfolio’s value fell 67% in July alone. The steep decline demonstrated the risks involved in concentrated positions, particularly when those positions are financed with borrowed money.
Hedge funds frequently use borrowed capital to increase potential returns. However, leverage can also magnify losses when markets move sharply against concentrated positions. In Situational Awareness’ case, the decline in chip stocks placed additional pressure on a portfolio heavily exposed to the AI investment theme.
At the time, Aschenbrenner told investors that the fund had come “closer to permanent capital impairment than is acceptable to us.” He nevertheless said Situational Awareness remained confident in the underlying fundamentals of its investments.
The fund’s losses have also attracted regulatory attention. Last month, the U.S. Securities and Exchange Commission sent subpoenas to Wall Street banks that worked with Situational Awareness, according to an earlier Reuters report. The regulator was seeking information about the hedge fund’s trading activity and its use of leverage.
The SEC’s inquiries add another layer of scrutiny to the fund’s recent difficulties, as banks and regulators examine the circumstances surrounding its trades and financing arrangements.
For JPMorgan, the decision to withdraw lending support follows a period in which the hedge fund’s concentrated AI positions experienced severe losses. While other financial institutions continue to provide brokerage services to Situational Awareness, the loss of one of its major lending relationships marks a significant change in its financing arrangements.
The episode highlights how quickly leveraged investments can amplify losses when market conditions turn unfavorable, particularly in sectors such as artificial intelligence and semiconductors that have attracted heavy investor interest.
