Citadel ‘makes a killing’
Ken Griffin’s hedge fund made billions last week after it bought the bulk of Situational Awareness’s stock book
Citadel cashes in on Situational Awareness
July was a painful month for many hedge funds, as the AI stocks long beloved by the industry suffered a prolonged sell-off in the first few weeks of the month.
Many multi-manager hedge funds, which magnify their returns with leverage and trade across various asset classes, struggled to avoid losing money. But there was an exception: Citadel.
After Ken Griffin’s firm bought the bulk of the troubled AI-focused hedge fund Situational Awareness’s public equities book, Citadel made billions of dollars last week alone, according to one person familiar with the matter.
The firm’s flagship fund notched 6 per cent returns, while its equities fund made 14.2 per cent, according to a person familiar with the figures. That brings its equities fund to 27 per cent returns for the year, with still five more months to go.
After a huge rally in AI-related equities earlier in the year, hedge funds were stung by a sharp pullback in July. White-hot stocks such as South Korean chipmaker SK Hynix tumbled almost 50 per cent from a peak the month earlier.
The most prominent casualty, of course, was Leopold Aschenbrenner’s firm, Situational Awareness, which notched gains of more than 400 per cent in the first half of the year with its highly leveraged bets on AI companies.
But the sell-off badly damaged the fund. In less than 24 hours last week, it had to sell the majority of its public equity positions to Griffin’s firm in a fire sale.
Citadel was also struggling to generate big returns during the first weeks of July as global equity markets sold off. As of July 24, its flagship fund was roughly flat month to date and stocks continued to drop at the outset of the following week.
“These are names that trade really aggressively,” said one hedge fund manager who had invested in similar positions to those of Situational Awareness. “They were highly volatile, but they were liquid. So Citadel made a killing.”
Aschenbrenner, who’s 24 years old, was being hit the hardest. He had taken on excessive leverage to amplify returns during the beginning of the year but then faced dire losses as the market began to turn against him.
On Wall Street, a call from Griffin during financial turmoil is a familiar story.
In 2006, Citadel bought the entire trading book of Amaranth Advisors alongside JPMorgan after the fund blew up from a misfired bet on natural gas. It pulled off a similar coup by snapping up the credit portfolio of Sowood Capital Management when it collapsed at the outset of the 2007-8 credit crunch.
“It’s classic Ken,” said one former employee who worked closely with the Citadel founder. “He has played that card many times . . . There are very few [investors] in the world who can do what he did.”