Silicon Valley investors appear undeterred by the recent turmoil at Situational Awareness, with some seeking to put money into the hedge fund run by AI investor Leopold Aschenbrenner just days after the firm was forced to unwind heavily leveraged positions, according to a report by Bloomberg.
The report cites unnamed people familiar with the matter as revealing that the surge in interest has come from investors in the technology and venture capital community. Situational Awareness, however, is currently telling prospective investors that it is not taking on new capital.
The contrasting reactions to the fund’s near-collapse illustrate the different priorities of Silicon Valley and the hedge fund industry. While Wall Street has focused on the dangers posed by concentrated positions, leverage and limited risk-management experience, technology investors appear more willing to look beyond the episode and continue backing Aschenbrenner’s long-term AI thesis.
Pat Grady, a partner at Sequoia Capital, said this week that he expects Aschenbrenner to remain an important figure in Silicon Valley for years to come.
The support comes despite questions that had surrounded Situational Awareness since its launch. Unlike many established hedge funds, the firm attracted substantial backing from wealthy individuals and family offices in the San Francisco Bay Area rather than predominantly from institutional investors such as pension funds and sovereign wealth funds.
The fund was also highly concentrated in AI-related equities, exposing it to a volatile and increasingly crowded investment theme.
The episode has reinforced longstanding concerns among prime brokers about concentrated hedge fund portfolios and the use of leverage.
Several major banks, including Goldman Sachs, JPMorgan and Bank of America, provided financing to Situational Awareness. Other institutions were more cautious. Barclays’ prime-brokerage business decided against taking the fund on as a client shortly before its difficulties emerged, citing concerns about its heavy concentration in a single sector.
Morgan Stanley also initially declined to provide prime-brokerage services when the fund launched, with its decision reportedly influenced by Aschenbrenner’s limited experience running a hedge fund.
The bank later reconsidered and had been preparing to onboard Situational Awareness as a client in the coming weeks, according to people familiar with the matter.
The recent problems have nonetheless forced Aschenbrenner to rethink the fund’s approach to risk. In a letter to investors, he said Situational Awareness had eliminated its leverage, removing the use of borrowed money to amplify its positions, at least temporarily.
Aschenbrenner acknowledged that the episode had been costly but said the experience would provide lessons for both himself and the firm.
The need for more disciplined risk management is particularly relevant given the fund’s focus on AI stocks, where rapid gains have attracted substantial amounts of capital and created crowded positions.
