Jane Street reports $15 billion loss tied to AI fund exposure

Jane Street suffered a $15 billion loss in July from its exposure to the AI-focused hedge fund Situational Awareness, according to two people familiar with the matter cited by Reuters. The trading firm was among the prominent backers of the fund, which was founded by former OpenAI researcher Leopold Aschenbrenner and had attracted investors including Stripe co-founders Patrick and John Collison and Meta executives Daniel Gross and Nat Friedman, according to Business Times. The fund, which had gained more than 1,000% since inception, according to The Wall Street Journal, used as much as 400% leverage, former traders told CNBC.

That leverage amplified losses when semiconductor stocks such as SK Hynix and CoreWeave fell sharply. "A lot of people saw this blow-up as a matter of not if, but when," said Jerry Diao, who runs a Wall Street coaching firm. "Maybe his views on AI are correct in the long run, but in the public markets, you have to be prepared for the short-term." Citadel's acquisition of the majority of Situational Awareness's public stock portfolio, first reported by The Wall Street Journal, effectively ended the crisis for the fund.

The deal was facilitated by prime brokers including Goldman Sachs, JPMorgan Chase, Bank of America and Citigroup, sources told Reuters. Citadel, which manages about $71 billion, beat out rivals such as Millennium Management for the distressed assets, according to Business Times. After the sale, Situational Awareness retained about $10 billion in assets, including a $5 billion stake in Anthropic that it has not sold, sources said.

The fund, which earlier managed about $20 billion and has about 20 employees, had about two-thirds of its holdings in long and short positions in public equities before the sale, with the rest in private companies, dominated by the Anthropic investment, CNBC reported. The near-collapse coincided with Aschenbrenner's wedding, set for the weekend following the sale, sources told CNBC. He is engaged to Avital Balwit, chief of staff for Anthropic CEO Dario Amodei.

The fund's collapse is part of a broader rout in AI stocks that has caused the biggest monthly drawdown on record for global hedge funds, according to Goldman Sachs. Asia-focused fundamental long-short funds were down 18.6% on average in July through July 28, the bank said.